FBR IS LIKELY TO MISS REVENUE TARGET FOR FY13 BY A BIG MARGIN

SHAMIM RIZVI
(feedback@pgeconomist.com)

Nov 12 - 18, 2012

With a shortfall of about Rs 64billion in net revenue collection and the target for the first four months (July-October )of the current fiscal year has made it amply clear that the Federal Board of Revenue is unlikely to achieve the annual tax collection target of Rs. 2381 billion for the financial year 2012-13.. During the first four months the tax department has collected Rs 549 billion against the target of Rs613 billion. Senior officials of the FBR now openly admit that the target of Rs 2381 billion for the ongoing financial year may be missed by a big margin.

One of them confided with this scribe and revealed that anticipating the coming situation we informed the government last month with a request for a downward revision of the tax collection target for the current year .by at least Rs 100 billion if the proposed amnesty scheme was not implemented during the current financial year.. The government has not yet taken a final decision about the amnesty scheme which was expected to yield additional revenues of about Rs 100 billion. "But now it seems that the target of Rs 2381 may not be fully achieved even with the additional revenue expected from the implementation of amnesty scheme," he revealed on condition of not being quoted. It appears more difficult with the passage of time to achieve the target of Rs 2381billion due to slow economic activity, high subsidy allocations in an election year. The net tax collection during the year may remain somewhere between Rs. 2000 to 2100 billion due to various challenges. Tax officers were of the view that the coming general election may adversely effect revenue collection efforts." Last year (2011-12) we missed the target by only Rs43 billion from the target of Rs 1952billion. This year target was increased by over Rs 400 billion which was in fact a big jump, they claimed.

This is what the FBR senior officials say to defend their positions. But the independent economists and financial experts are of the unanimous view that the tax potential of the country was much higher than what was being collected by the FBR. According to them, the real tax potential of Pakistan, by a conservative estimate, was over Rs4000billion. The Finance Minister, Abdul Hafeez Shaikh has publically confessed and complained a number of times that rich and influential people in Pakistan were not prepared to pay any tax. In this context he made a special reference to the fabulously rich landed aristocracy who have managed to keep themselves out of tax net so far through their influence and control over the Parliament.

The other major factor hampering the full realization of tax potential of the country is the rampant corruption in the government departments responsible for tax collection. According to the experts, Pakistan incurs a loss of an estimated two trillion rupees annually because of corruption. The menace is believed to be more rampant in revenue collecting departments of customs, excise and income tax. It implies that the revenue collection can at least be doubled if the government controlled this menace. As a result of govt. apathy and utter failure in controlling the menace corruption, the tax to the GDP ratio in Pakistan was lowest in the world at 10 per cent against an average of 25 per cent in the world and 17 percent in the region. While this ratio is rising around the world, it has declined to less than 10percent from 13 percent five years back, before the incumbent PPP led government came into power.

Independent economists, the IMF and the World Bank experts have repeatedly have repeatedly warned the present government that under the prevailing economic conditions in Pakistan, it was criminal to keep the farm income out of tax net, but the powerful feudal lobby has always tactfully and successfully defied all attempts so far to bring this highly potential segment of our economy into the normal tax net .At the normal rate of taxation, experts are of the view, this sector has the potential to yield Rs70 to 75 billion annually to our revenue collection.

Imposition of tax on income from agriculture has been an issue since the inception of Pakistan, but the grouping amongst the feudal lords and the civil and military governments have successfully managed to keep it out of tax net.. Every voice demanding imposition of tax on farm income were harshly treated by the rulers. The latest example of the former Finance Minister, Shaukat Tareen, in the present PPP led government who vowed to bring farm income into tax net in view of financial difficulties faced by the county. However he was so badly treated by the feudal lords dominating the Parliament that he had to quit the job.. Last year, despite acute financial difficulties , the present government opted to surrender the IMF aid package because it also wanted, among other measures, tax on agriculture income under its reform program attached with the aid package.

In April last year, the Finance Ministry had submitted a summary on these lines suggesting to bring agriculture sector into tax net starting from the fiscal year 2012-13 in view of the acute financial difficulties. It was ,however, out rightly rejected. On publication of reports to this effect in a some newspapers the present Finance Minister announced at a hurriedly called press conference that no new tax will be imposed in the coming budget and thus saved his job.