Congratulations to the Federal Board of Revenue (FBR) for not failing to meet its third revised target for FY20’s total tax collection. In fact, it beat its (third) target of Rs3908 billion and collected Rs3974 billion instead. Let’s take a look at the source of this higher-than-targeted collection.
Segment wise tax collection data shows that both Federal Excise Duty (FED) and direct tax collection was less than revised budgeted estimates reported at the time of budget FY21 announcement. However, customs and sales tax collection more than offset the hit on FED and direct taxes.
As a result of this, indirect tax collection as percentage of total tax collection stood at 63 percent in FY20, which is the highest since at least FY07, and runs contrary to PTI’s pre-election promise that it would reduce the burden of indirect taxes. And if one adds Petroleum Levy, which is budgeted to increased 73 percent in FY21, then it appears that FY21 may be worse than FY20 in so far as the burden of indirect taxes are concerned.
Without discounting the Covid-19 related challenges faced by the FBR in the last quarter, one should, however, consider the fact that FY20 was the second consecutive year when growth in FBR’s tax collection was actually lower when netted off against nominal GDP growth, where the trend has been visibly weakening since FY17.
Looking ahead, the FBR has budgeted to grow its tax collection by 25 percent in FY21, which (net off nominal GDP growth target) is a daunting 16.4 percent growth, a never-before in recent history to say the least. These are, as discussed earlier, rather lofty growth targets, the achievability of which is called into question considering that no new major taxes have been assigned in FY21. If anything, there have been cuts in customs, which is a step in the right direction.
All bets, therefore, are on documentation drive, and expanding the tax net. The FBR, therefore, would do well to report the number of taxpayers under each head (income, sales, customs, FED) on monthly basis, both as a matter of guidance to the market about full year tax collection prospects, and as a matter of its performance evaluation. Finance Ministry, take note!
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