FRIDAY APRIL 01: FBR quarterly review: tax target scaled down

April 04, 2011

RECORDER REPORT

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The Federal Board of Revenue has revised revenue collection target downward from Rs 1,667 billion for 2010-11 to Rs 1,604 billion, as macroeconomic indicators that were assumed to perform better in the beginning of the year turned negative.

According to the FBR quarterly review issued here on Thursday, the FBR revenue target for the fiscal 2010-11 was fixed at Rs 1,667 billion at the time of announcement of federal budget. The target was linked with the economy on the assumptions that growth in revenue collection will correspond with growth in the economy.

It was anticipated that real GDP will grow by 4.5 percent during the year. Large scale manufacturing sector will improve by 4-5 percent. Thus, the tax bases both at import and domestic taxes were assumed to increase accordingly. Unfortunately, the economy of Pakistan had been jolted by a devastating flood in the country during the first quarter of the current fiscal year which virtually affected all sectors of the economy. The economic damage has been estimated about 10 percent of GDP.

The resource mobilisation is linked with the performance of macroeconomic indicators. Revenue increases when the economy grows. The devastating flood and energy crises badly affected the economic infrastructure. In fact the macro economic indicators that were assumed to perform better in the beginning of the year actually turned negative. Thus, the revenue target of Rs 1,667 billion fixed for current fiscal was revised downward to Rs 1,604 billion.

The fiscal 2010-11 has been a challenging year for Pakistan and the domestic environment is still affected by the intensification of war on terror and volatile security situation while external environment is affected by uncertainties surrounding external inflows and oil prices. The energy crisis is crippling industrial production on one hand and flood devastation has badly affected the economic growth of the country on the other hand. Since the revenue realisation depends on the state of the economy, therefore, tax revenues have been affected accordingly. Despite all these impeding factors, the FBR has been able to achieve 13.7 percent growth during first half of 2010-11.

The FBR believes that despite all challenges, close liaison with the stakeholders the organisation will establish a progressive, credible and trustworthy image and will improve revenues through providing quality facilitation services and a tax-compliant culture.

The FBR, need to improve its skills in all fields of knowledge and services, ie, taxation and facilitation to meet the assigned revenue target. FBR is also focused on broadening its tax base resolving pending refund claims as well as removal of distortions in the tax system. It is an uphill task, but with the help of dedicated team FBR is committed to accomplishing it.

The report said that large-scale manufacturing growth was negative during first half of the year due to unfavourable weather which disrupted supply chain of refineries and major industries throughout the country. The construction related activities were slowed down due to cut on the development expenditure. However, it is expected that growth will turn positive again in the months ahead as positive trend in the major sectors like fertiliser, cement, sugar, beverages and steel is expected in the second half of the current fiscal year.

On a positive note remittances have registered a positive growth of 17 percent during the period under review. Export has also been positive by 21 percent. These two major improvements have helped in narrowing the gap in current account deficit. Resultantly, the gross foreign exchange reserve as on 21st, January 2011 stood at $17.2 billion from all time low ie $6.4 billion in 2008.

However, domestic environment is still affected by the intensification of war on terror and volatile security situation while external environment is affected by uncertainties surrounding external inflows and oil prices. All the four taxes have performed well during the period under review.

The collection under direct taxes has been Rs 240.9 billion, which is higher by 13.9 percent as compared to the corresponding period of last year. Factors like negative growth in the collection on demand due to audit issues and negative growth in the major components like contracts and electric bills are mainly responsible for missing the assigned target of Rs 242.7 billion.

The FBR is striving hard and making best efforts to achieve the annual revenue target of Rs 1,604 billion. However, there will be more pressure in the second half of current fiscal year to collect the remaining balance of Rs 950.1 billion which is over 59 percent of total revenue target, the FBR report added.