It is not impossible if corruption is controlled

From Shamim Ahmed Rizvi, Islamabad
Apr 10 - 16, 2000

Preparation of the budget for the fiscal year 2000-2001 is in advance stages and, as has been the practice during the last few years, highly ambitious targets of revenue generation are being proposed. According to reports, Central Board of Revenue (CBR) are estimating a giant leap of over Rs. 100 billion in the tax revenue during the next financial year.

This quantum jump is being justified due to on going efforts by the CBR for expansion in tax net and discovery of concealed tax potential. The revenue target for the fiscal year 2000-2001 is being proposed around Rs. 450 billion as against Rs. 356 billion for the current fiscal year.

During the first 9 months (July-March) of the current fiscal year, the CBR has been able to collect about Rs. 237 billion. It has to collect Rs. 119 billion during the remaining 3 months (April-June 2000). To collect about Rs. 40 billion per month against an monthly average of Rs. 26.3 billion during the past nine months and Rs. 28 billion during March 2000, appears to be an uphill task. Independent economists are apprehending a shortfall of about Rs. 30 billion between the target and actual collection during the current (1999-2000) financial year. We had a similar experience during the previous (1998-99) year. Initially the estimates were put at Rs. 355 billion but later revised downward to Rs. 330 billion in view of the actual collection of the first six months. It however, finally ended up with Rs. 308 billion showing a shortfall Rs. 47 billion if compared to original estimates and Rs. 22 billion in relation to revised target. While fixing revenue target at Rs. 356 billion for the current fiscal year the then chairman CBR had boasted that he had not tried to please the government by suggesting unattainable ambitious target and the figure of Rs. 356 billion (against Rs. 355 billion during the earlier year) were most realistic and easily achievable target.

In Pakistan, fiscal imbalances and the consequent debt burden have all along been the major cause of macro-economic instability, impending the medium and long-term growth prospects. Recognizing the crucial importance of reversing the trend, every government has sought to achieve a big breakthrough by mobilising a higher level of tax revenues by undertaking various measures.

A look at the actual data, however, reveals a completely different picture. Policy statements generally turned out to be hollow and political rhetoric. During the three years ending 1998-99, the rise in federal tax revenues has been so low that the ratio of actual tax collections to GDP has declined continuously from 15.5 per cent in 1995-96 to only 10.2 per cent in 1998-99. This clearly shows the inability of the governments to capture a reasonable level of taxes from rising incomes. It may also be mentioned that tax-GDP ratio in comparable economies is significantly higher than in Pakistan which means that it is not the level of income but other problems that are responsible for this dismal state of affairs in the country.

Another distinguishing feature of the fiscal scene has been the fixation of ambitious targets of tax collections at the beginning of the year and then revising them downwards periodically during the course of the year in line with the actual monthly receipts. Perhaps the same mistake is being repeated now while preparing budget for the year 2000-2001. Various hints dropped by the Finance Minister and other government functionaries reveal an almost complete overhaul of the present system on pragmatic and efficient lines. According to a latest report, the government is aiming at a revenue collection target of Rs. 450 billion or about 14 per cent of GDP. This, if realised, would be an unprecedented improvement of about Rs. 120 billion in tax collections in a single year. Given the enormity of problems, this is a very noble objective. In fact, that is what is very badly needed if the country has to meet its ordinary expenditures including on defence, moderately modernise its infrastructure, and embark upon some of the poverty alleviating and employment generating plans without unleashing inflationary forces. This is also essential to have a meaningful dialogue with Fund.

This appears highly ambitious but it is not impossible to collect Rs. 450 billion as tax revenues if the corruption is controlled considerably, if not totally eliminated, in the tax collecting organization, tax evasion is checked and concealed wealth is brought into tax net. The present government seems earnest in controlling these impediments in growth of national economy. The Finance Minister, Mr. Shaukat Aziz appears determined to raise the tax GDP ratio to about 13.5 to 14 per cent in the coming fiscal year through his tax reforms. He is working overtime and is, hopefully, endowed the proper vision and iron will to steer the country out of the existing hopeless fiscal situation. While we wish him best of luck and success in his plans and programme we may advise him to put his fully weight on the CBR to meet the target fixed for the current year. There are still 3 months left and the feared shortfall of Rs. 25 to 30 billion can be met if an all out efforts are made. Only then public will believe in Shaukat Aziz's claims for the next year.