ISLAMABAD: The Institute of Chartered Accountants of Pakistan (ICAP) has estimated that the Federal Board of Revenue (FBR) may not be able to achieve the assigned revenue collection target for 2020-21.
According to the ICAP's document (model federal budget 2021-22) submitted to the Ministry of Finance, going forward, attaining a tax collection target in the range of Rs5,900 billion to Rs6,000 billion will be challenging given the third wave of the deadly respiratory disease that has affected many sectors of the economy.
In the present economic condition which is also affected by Covid-19 pandemic, it is more than likely that the FBR may not be able to reach tax revenue target of Rs6,000 billion in the next fiscal year, it said.
The FBR has been able to achieve double-digit growth in the first nine months of the current fiscal year and surpassed the target by more than Rs100 billion.
The provisional net collection grew by 10.9 percent to Rs3,395 billion during July-March period of this fiscal here as against Rs3,060 billion last year.
Total domestic tax collection grew by 10.7 percent, of which direct tax collection grew by 9.1 percent, sales tax 13.2 percent, and FED increased by 2.8 percent.
In March 2021 alone, the provisional net collection increased by 49.4 percent to Rs481 billion as against Rs322 billion in March 2020.
For the month of March, the provisional net collection exceeded the target by Rs114 billion.
As per sensitivity analysis of the FBR’s revenue and consequent impact on fiscal deficit, the ICAP has presented two assumptions.
One, in case the FBR’s tax collection in 2021-22 remains at Rs5,750 billion instead of the targeted Rs6,000 billion, the projected federal budget deficit would be around Rs3,665 billion.
This would be Rs100 billion more or 7.73 percent of GDP in a single year, when compared to 7.52 percent of GDP originally projected in the model budget.
Secondly, if the FBR only manages to collect Rs5,500 billion in 2021-22, against the target of Rs6,000 billion, the budget deficit would swell by Rs200 billion from currently projected Rs3,565 billion to Rs3,765 billion.
In relation to GDP, the budget deficit would be 7.94 percent compared to 7.52 percent as projected for 2021-22, the ICAP added. The target seems unlikely to achieve in view of projected GDP at four percent and inflation at eight percent.
The realistic target; therefore, may not be more than Rs5,265 billion. The collection of remaining Rs735 billion is still possible but only if strong and radical regulatory actions are taken. Scope and quantum of taxation needs to be widened to those segments from where no or insignificant taxes are generated in order to bring in the required revenue.
For example, the share of agriculture and wholesale trade in total direct taxes is around 1.5 percent, although these sectors make up 42 percent in aggregate of the real GDP.
Similarly, the exports constitute 10 percent of the GDP but only contribute one percent in direct taxes.
There is an urgent need to tap the potential of these sources for their optimum contribution towards national exchequer which will not only remove inequities in tax regime; but will also provide the much-needed additional revenue to the government.
Moreover, the government should move to outsource the maintenance and operation of digitised data from the FBR (as prevalent in Turkish model) since its revenue automation portal, the PRAL, has touched its maximum capacity.
The idea is to shift the focus to broadening the tax base in order to keep the system as an asset in the long run rather than a liability, the ICAP added.
Copyright Business Recorder, 2021
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