Tax collection target surpassed
SHAMIM AHMED RIZVI,
Bureau Chief, Islamabad
July 09 - 15, 2007
The Chairman Federal Board of Revenue (FBR) Abdullah Yusuf claimed that the tax collection target of Rs. 835 billion assigned to FBR for the financial year 2006-07 has been surpassed as the FBR has collected Rs.838.5 billion. It is based on provisional figures as per information gathered up to June 30th midnight and after finalization, the figure may further rise, he said adding that it shows a growth rate of 17.5 percent on revenues of Rs.713.4 collected during the previous (2005-06) year.
The FBR had collected Rs.719 billion during the first 11 months (July-May) and amassed Rs.120 billion during June to exceed the target by Rs.3.52 billion.
The break up reveals that the direct taxes collection was Rs.327.60 billion in fiscal 2006-07 against RS. 224.98 billion in the same period in FY06, depicting a growth of 45.6 percent. The sale tax collection was RS. 309 billion during FY07 against Rs.295 billion in FY 06, showing a growth of 4.7 percent. The FBR would collect over Rs.1 billion more as sales tax in few days, which would help in meeting the sales tax target of Rs.311 billion in fiscal 2006-07. So far, the sales tax target of Rs.311 billion in fiscal 2006-07. So far, the sales tax collection was Rs.309 billion against the target of Rs.311 billion, showing a decrease of Rs.2 billion.
The GST collection at the import stage was Rs.177 billion in fiscal 2006-07 against Rs.171.45 billion in the same period in FY 06, showing an increase of 2.8 percent. The sales tax collection on domestic consumption was Rs.132 billion against Rs.123 billion, reflecting an increase of 7.5 percent.
The board has collected Rs.70 billion as federal excise duty (FED) during fiscal 2006-07 against Rs.55 billion in the same period in FY06, reflecting a growth of 26.7 percent. The collection of customs duty was Rs.132 billion during this period against Rs.138 billion, showing a decline of 4.5 percent.
The FBR chief said the board has paid an amount of RS. 80 billion as refunds and rebates to the exporters during the period under review. He said during fiscal 2006-07, the income tax refund was Rs.30 billion, sales tax refund Rs.37 billion, and customs duty rebate stood at Rs.13 billion. The rebate payment is about Rs.6 billion lower due to lesser imports and revision of duty drawback rates, he added.
Similarly, the refund payment of direct taxes has declined by Rs.4 billion, but sales tax refunds increased by Rs.5 billion in fiscal 2006-07. In June, the board has paid around Rs.1.7 billion refund to the exporters.
Explaining the tax wise performance, Abdullah Yusuf said the direct taxes have maintained its marvelous growth throughout the year. The year-end overall growth has been over 45.6 percent. The collection so far has been Rs.327.6 billion, which is even higher against the upward revised target of RS. 318 billion. He said the share of direct taxes has been sharply increased to 39 percent in fiscal 2006-07 against 30 percent in FY06. This is for the first time that the income and the corporate has become the leading tax, which is due to two reasons. First, since direct tax structure is progressive where the people with higher taxable income are being taxed at higher rates. Secondly, this change reflects the success of tax policy and administration reforms, which are being vigorously pursued to improve taxation system in Pakistan, he added.
Abdullah Yusuf said all components on of direct taxes have shown remarkable growth. Particularly, share of voluntary compliance has shown extraordinary improvement during fourth quarter (April-June) of fiscal 2006-07. The voluntary compliance included payment made along with the returns and advance tax payment made by the corporate sector.
Similarly, the share of withholding tax is also gradually declining from over 55 percent in FY06 to 45 percent in FY07. However, it has maintained a healthy growth of over 20 percent. The oil and gas, banking and telecom sectors have maintained a vibrant growth, which resulted in increase in overall direct taxes collection, he added.
About the sales tax performance, Abdullah Yusuf highlighted factors responsible for GST performance in fiscal 2006-07, saying the sales tax base has seriously been eroded due to decline in growth of imports. He said the imports grew by over 30 percent in FY06. Even the growth in dutiable imports was close to 20 percent at that time. Keeping this in view, it was projected that imports and dutiable imports may grow by 15 percent in fiscal 2006-07. On the other hand, around 9 percent growth in total imports and a decline in dutiable imports by 4 percent was recorded in fiscal 2006-07. Therefore, the board has witnessed a modest growth in sales tax imports and decline in customs duty collection, he added.
The FBR chief said the sales tax on domestic consumption has been affected by extra payment of refunds to power and textile sectors in fiscal 2006-07. The FED collection maintained a healthy growth of over 26.7 percent, showing that the domestic demand remains strong. The share of FED in overall collection remained 8.3 percent.
He said the government has fixed an ambitious revenue collection target of RS. 1.025 trillion for fiscal 2007-08. The target of customs duty for fiscal 2007-08 would be revised keeping in view the withdrawal of one percent special surcharge on the imports of goods, he added. The FBR chief sounded confident when asked by the newsmen if he would be able to maintain the present momentum and surpass the current year target of over Rs.1000 billion and said yes "I hope to repeat the performance".
As a matter of fact it should not be difficult as the measures suggested in the budget 2007-08 provide for additional taxations of about Rs. 90 billion. In addition the FBR has been given additional power to deal with cases of tax evasion and tax manipulation by the taxpayers. However, while eulogizing all these developments, it needs to be pointed out that tax o GDP ratio in Pakistan is still considerably lower than in other countries and total resources mobilized by the government will still fall short of total expenditures to be incurred on development, social sectors, and other heads, forcing the authorities to rely on bank borrowings and other sources of financing for budgetary support. Such a trend obviously crowds out the private sector from the credit market and pushes up the interest rates in the economy, and that exercises a negative impact on the level of industrial activity and employment in the country. It is, therefore, fervently hope that the relevant authorities are aware of the need to raise the tax to GDP ratio to a level, which would be adequate to meet the financing requirements of the government. Measures to achieve this objective like expanding the tax net etc, which have already been taken, have yet to produce the desired results. Failure to balance the budget could obviously have serious implications for the economy in the long run.
The government has again not touched the income from agriculture. Understandably they cannot afford to annoy the feudal hobby during the election year. It is despite the fact that the C BR had suggested a taken tax on agriculture income. Similarly the suggestions regarding other potential areas such as real estate and capital gains from stock exchanges have not been accepted. Instead a 1 percent levy an import and 2 Ω percent withholding tax (WT) on locally manufactured automobile has been levied.
The FBR has certainly brought some major reforms to facilitate tax payment and deal with taxpayers. It has its universal self-assessment scheme in place of the full assessment, which is a radical reform. Beginning from the sales tax department it has spread to other areas particularly the income tax. Corporate tax payers find it easy to pay their dues to the large taxpayers unit in Karachi and Lahore and the medium taxpayers units in Lahore, Peshawar, Karachi, Rawalpindi, Quetta and Faisalabad.
Abdullah Yusuf who belongs to the private sector has done a great deal to improve relations between the taxpayers and the taxation department and reduce the need for contacts between them, which breeds corruption. And if the reforms proposed by him and prompted by the World Bank go through smoothly the relations between the FBR and the taxpayers would be far better.
Payment of all taxes by the people depends on a number of factors beyond good relations. To begin with, the taxes should not be too many including the federal, provincial and local government taxes which until recently were about one hundred.
The tax levied or increased should be generally acceptable to the people. The taxpayers should feel that it is not they alone but everyone, who has to pay the tax, is paying tax and is forced to pay or punished for not paying. If the large landowners will not pay income tax but the ordinary man pays 15 percent on items of daily use that would not be acceptable.
The taxpayers must also be convinced that what they are paying to the taxation officers does reach the coffers of the government in full. Mr. Shahid Hussain, former vice president of the World Bank, who for a while advised the government on taxation reforms, had said that 40-50 percent of the money paid by the tax payers did not reach the government coffers but went in to the pockets of officials.
The people want to ensure that they are getting in return for the taxes they pay good governance, law and order, good education, public health and environmental protection. So what matters is not only how the tax is collected but how it is spent. If it is misspent and there is excessive corruption in the government the people will be reluctant to pay full taxes.
How well the accounts of the government are audited also matters to the tax payers. If the official funds are misspent, wasted or embezzled the tax payers will be reluctant to pay the varied taxes. And if the public Accounts Committee of the National Assembly which deals with such scandals fails to fulfill its responsibilities, it will only add to the skepticism that exists amongst the public at the present.