EDITORIAL: The newly-appointed chairman of the Federal Board of Revenue (FBR), Ashfaq Ahmed, during a press conference revealed provisional collection of 850 billion rupees during the first two months of the current fiscal year against the assigned target for July-August 2021 at 690 billion rupees and 603 billion rupees collected during the corresponding period of the year before. This represents a 15 percent of the total budgeted tax collection of 5.829 trillion rupees, 23 percent higher than the budgeted amount for the first two months and 41 percent higher than the tax revenue collected in July-August 2020. These are heady statistics indeed, however, it is critical to look at the source of the raise in revenue to ensure that this trend continues in the rest of the year.
Ashfaq noted during his press conference that probably over 50 percent of the taxes were collected from imports, including food items, machinery/equipment and raw materials – imports that the government claims may partly be sourced to an economic upswing due to the ongoing (i) fiscal policies. With a projected inflation of 8.2 percent and Gross Domestic Product growth of 5.02 percent FBR is projected to generate 621 billion rupees out of the budgeted one trillion rupee increase in tax collections; enforcement measures to generate an additional 242 billion rupees, particularly a third-party audit and sharing of information with Nadra have not been firmed up yet with the list of chartered accountant firms for such audit still pending approval and the ordinance allowing for sharing of information yet to be issued; and (ii) accommodative monetary policy particularly the post-May 2021 slide in the rupee from 153 rupees to the dollar to the current 167 rupees to the dollar – a decline of around 9 percent. There is a growing perception that in anticipation of the sixth review talks, though both the International Monetary Fund and the Pakistan authorities claim that talks have continued, the Monetary and Fiscal Policies Coordination Board decided to allow the rupee to slide, in spite of a strengthening of the foreign exchange reserves (though over 50 percent are debt-based), but to keep the discount rate at 7 percent which it is felt may have prompted the Pakistan Bureau of Statistics to show a Consumer Price Index of 8.4 percent in July and again in 2021 (to which the discount rate was pegged from May 2019 to March 2020) and core inflation of 6.9 percent (to which the discount rate was pegged before 6 May 2019). Thus it is little wonder that imports accounted for more than 50 percent of the rise in tax collections in July-August 2021. It is important to note that Ashfaq noted that “we are in an enforcement mode. The trust level of the taxpayers in the FBR has increased. This is evident from the number of complaints filed with the Federal Tax Ombudsman which have drastically reduced. Around 90 percent complaints were related to refunds.” Refunds have always been the major source of complaints against FBR and it is gratifying that this previously persisting issue is no longer a source of concern.
The new FBR chairman also noted that “we have successfully restructured the tax administration without the appointment of funky consultants” – consultants who were hired at very expensive rates but their recommendations rarely implemented. Access to Justice Programme by the Asian Development Bank and World Bank- funded Pakistan Tax Administration Reform Project did not succeed for this very reason. And finally, he mentioned the two tax amnesty schemes which barred the FBR from using the information to get those who did not declare their assets but rightly added that “we have to implement the order of parliament.”
Achievement of the budgeted tax collections are an integral component of the sixth review talks with the IMF, however, the government would also need to focus on non-tax revenue particularly the budgeted petroleum levy of 610 billion rupees that for the past two months has been brought down to almost zero that would put pressure on the administration to raise taxes in other areas.
Copyright Business Recorder, 2021
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