FBR: Cutting it close

The appointment of Mumtaz Haider Rizvi as acting chairman Federal Board of Revenue (FBR) alludes to the governments satisfaction with the status quo at FBR; and for good reason. Ever since the government announced its revenue collection target of Rs1952 billion for FY12; independent analysts have appeared unimpressed by the governments ability to notch up its tax to GDP ratio at 4.7 percent of GDP.
Yet so far, FBR appears largely on track to end up at least close to this annual target. During the first quarter (July-Sept) of the current fiscal year, cumulative tax collection stood at Rs380.8 billion, according to provisional figures provided by FBR. This tally represents just over 20 percent of the annual collection target.
Tax authorities continued to pick up steam in the second quarter (Oct-Dec) when the collections tally reached around Rs460 billion, representing just over 23 percent of the annual target. Put simply, the performance of tax authorities appears to have improved over the previous year, though marginally as FBR had already ratcheted up around 43 percent of its targeted revenue collections, before the end of 2011.
Add to this tally, proceeds from December that were only received in time to be included in Januarys tally, and official claims that Januarys collection may top Rs130 billion seem well founded.
The incoming acting chairman, Mumtaz Haider Rizvi is no stranger to the efforts undertaken by tax authorities to bridge the yawning tax gap and rake up revenues for the cash strapped government, given his long affiliation with FBR. Hopefully this link will ensure a seamless transition for FBR, following the retirement of former chairman Salman Siddique and a brief stint in the same office by Mahmood Alam.
Lest the praise doled out at FBR should breed complacency, it must be stressed that much more needs to be done to ensure that this years tax collection target is not missed and revised downwards; as has been done many times in the past.
Particularly, FBRs efforts to expedite the recovery of collections in litigation appear to have settled like froth. Former chairman Salman Siddiqui had asserted that FBR could garner about Rs50 billion from such cases, however to date barely Rs5 billion have been collected on this front.
Similarly, after starting out with a bang, tax authorities crackdown against tax evaders seems to be whimpering. Member Income Tax, Shahid Hussain Asad was quoted last month, by a section of the press as having said that, "FBR will bring under tax net, 0.7 million tax evaders by June 30". But it appears progress here is limited, given the FBRs own silence over the matter, in recent weeks.
Besides FBRs collection woes, the tax structure in the country is in itself a plethora of problems. Currently the energy sector generates close to 60 percent of all taxes collected; showing the governments over reliance on this sector to prop up revenues. Then there are the age old sacred cows such as agriculture and real estate that have so far remained largely outside the tax net.
Embattled by a memo and a letter, the government appears too occupied to be able to muster any significant tax reform soon. While relations with the United States remain awry, the flow of coalition support funds is also expected to remain at best, at a trickle.
The government is heavily dependent on proceeds from the auction of 3G licenses. Besides that, all eyes will be on FBR to fill the fast depleting coffers of the government.