FBR may collect Rs 1,850 billion revenue in 2011-12

The Federal Board of Revenue (FBR) is likely to collect revenue between Rs 1,800 billion and Rs 1,850 billion during 2011-12 as new taxation measures will be taken in the coming budget for next fiscal year. It is learnt that a member of the Revenue Advisory Council, Muhammad Shabbar Zaidi, has made this ''realistic'' revenue projection for 2011-12, keeping in view current pace of revenue collection and the expected growth in revenue in the next fiscal year.
The estimate is based on overall economic conditions of the country during the current fiscal year. It is estimated that the government may fix revenue collection target of FBR between Rs 1,800 billion to Rs 1,850 billion for 2011-12, Zaidi said. According to the presentation of leading Karachi-based Chartered Accountant to the FBR, the tax machinery might be able to collect Rs 1,800 billion to Rs 1,850 billion for 2011-12.
The figure is only possible in case the FBR is in a position to reach Rs 1600 billion this year, which would be taken as baseline of new tax projections for 2011-12. The working has been based taking into account factors including inflation, imports/ exports, performance of the large scale manufacturing (LSM) and other key economic indicators. The issues, like subsidies, public sector enterprises (PSE), circular debt and government borrowing, may continue in the next fiscal year, he added.
The data reflects a broader picture of the outgoing current fiscal year where originally the budgetary target was set at Rs 1667 billion for 2010-11. Later, the target was revised downward to Rs 1604 billion. Due to prevailing economic situation, the current year''s target has been further cut to Rs 1588 billion, but the FBR might be able to collect Rs 1535 billion by the end of June 30, 2011.
However, tax managers are still confident to collect nearly Rs 1600 billion during this period. The working of the member RAC further showed that FBR has to collect around Rs 2,500 billion for raising tax-to-GDP ratio to 15 percent. Additional revenue of Rs 800 billion would be needed to raise tax-to-GDP ratio to a reasonable level.
Sharing different proposals, Shabbar suggested that collection from trade in agricultural produce could generate Rs 100 billion; from retailers Rs 50 billion; from Afghan transit trade Rs 150 billion; sales tax on value-addition of local sales tax export-oriented sectors Rs 50 billion; possible wealth tax on non-business wealth Rs 50 billion; correction in under-invoicing and smuggling Rs 25 billion; and any kind of tax on outward foreign remittances may generate around Rs 25 billion.
The cumulative impact of the said taxation measures could be around Rs 450 billion, depending on the government''s action on these proposals. The estimates have been based on assumption that the FBR may incorporate some of the proposals floated by the RAC member. The proposals relating to provincial collection show that agriculture tax implementation may generate Rs 60 billion; taxes on provincial services in all provinces Rs 100 billion; real estate capital gains tax Rs 50 billion; and real estate rental income may generate revenue to the tune of Rs 25 billion.
The urban immovable property tax may generate Rs 25 billion from upper class. The cumulative impact of the proposals relating to the provincial collection comes to Rs 285 billion in one fiscal year. At the district level, Member RAC has worked out Rs 35 billion from taxation at the district level. The tax on hoarding and advertisements might generate Rs 25 billion and taxation on expensive schools for poor education can generate Rs 10 billion, Zaidi added.
According to a report of the FBR, the FBR revenue target for the fiscal year 2010-11 was fixed at Rs 1,667 billion at the time of announcement of Budget. The target was linked with the economy on the assumptions that growth in revenue collection would correspond with growth in the economy. It was anticipated that real GDP would grow by 4.5 percent during the year. Large-scale manufacturing sector would improve by 4-5 percent. Thus, the tax bases, both at import and domestic taxes, was assumed to increase accordingly. Unfortunately, the economy 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. 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 was revised downward to Rs 1,604 billion.
The report said that the FBR is striving to generate sufficient resources to increase the tax-to-GDP ratio to a respectable level. FBR aims to increase tax-to-GDP ratio from current 9.1 percent to 13-15 percent during the next five years. A number of additional tax policy and administrative reforms initiatives being undertaken in this regard include phasing out duty/tax exemptions and concessions to help broadening the tax base and making the system equitable for taxpayers; conversion of GST into full VAT mode and bringing such sectors as "services" and "retail trade" under the tax net. These measures are expected to broaden the tax base significantly.
The integration of the management of domestic taxes together with strengthening of enforcement and audit functions has been helpful in increasing compliance of domestic taxes. Restructuring of FBR administration on functional lines will further help in improving the efficiency of the tax machinery as well as taxpayers'' facilitation. The prevention of revenue leakages through automation and re-engineering of existing business processes (BPR) is expected to bring new tax culture in the country, FBR report added.