EDITORIAL: Prime Minister Imran Khan has expressed satisfaction at the increase in the number of tax filers from 2.2 million to 2.4 million against the comparable period last year with a commensurate rise in revenue collection from 28.5 billion rupees to 45 billion rupees – a rise of 58 percent. This rise is noteworthy for three broad reasons: (i) the ongoing pandemic is dampening economic activity with the government forecasting a Gross Domestic Product (GDP) growth of around 1.5 to 2.5 percent in 2020-21, with multilaterals projecting a growth of between 0.5 to 1 percent, against the 1.5 percent growth rate projected last year July-December pre-Covid estimate; (ii) the budgeted revenue target of 4.9 trillion rupees for the current year, widely believed to be unrealistic based on the low GDP growth estimates, appears on track to be achieved helped in significant measure by fiscal and monetary stimulus packages, read expansionary as opposed to contractionary policies being implemented during July-December 2019, that were extended to the productive export-oriented and construction sectors post-Covid-19; and (iii) in spite of a significant contraction of private sector credit as noted in the State Bank of Pakistan’s first quarterly 2020-2021 report during the first three months of the fiscal year - from positive 2.9 percent last fiscal year to negative 1.8 percent April-June 2020 to negative 1.1 percent in July-September 2020 the rise in tax collections may indicate that private sector credit may have registered a boost between October to December despite the second wave of the pandemic which began around November. The performance of the Federal Board of Revenue (FBR) in particular needs to be appreciated as it raised collections in spite of what one would have considered mitigating circumstances, external as well as internal, and the Prime Minister reportedly praised his Special Assistant on Revenue and a former federal finance secretary Dr Waqar Masood Khan, appointed on 6 October 2020.
One of the long-standing recommendations of multilaterals and domestic economists has been to urge successive governments to raise income tax collections by widening the tax base. Previous administrations raised tax collections by continuing to rely heavily on sales tax on petroleum and products as well as levy of withholding tax in the sales tax mode - either by raising the levy and/or bringing more goods under the sales tax regime. However, tax withholding remains the main source income tax revenue as over 70 percent is collected in this mode.
The break-up of the additional 16.5 billion rupee revenue collected was as follows: (i) 450 million rupees was realized from 65000 new tax-payers due to the national awareness campaign, effective enforcement, and electronic integration of data by the FBR, (ii) the FBR issued notices to about 70,000 persons with 17,000 revising their income tax returns upward though the exact amount has not yet been released; and (iii) nil filers estimated at over a million were made aware through FBR media campaign that this year the Board would proactively proceed against them as a result they too paid taxes which accounts for the remaining additional amount generated under income tax.
There is no doubt that these latest FBR statistics must be appreciated and would also strengthen the government’s position with respect to the ongoing negotiations with the Fund on the second quarterly review and if the number of filers and income tax payment by nil-filers continues to rise the government would be in a better position to contain the budget deficit.
Copyright Business Recorder, 2021
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