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EDITORIAL: Total provisional tax collections July-March 2022 have been estimated at 4,858 billion rupees against 3,778 billion rupees collected in the comparable period the year before, showing a rise of 239 billion rupees — or a rise of 28.6 percent.

The previous administration would naturally focus on this increase while the present government is likely to focus on the 5 billion rupee shortfall in April 2022 provisional collection against the targeted collection.

Two observations are relevant. Firstly, with respect to the Pakistan Tehreek-e-Insaf (PTI) claim of raising the collections by 28.6 percent, it is pertinent to recall that the budgeted 6.1 trillion rupee tax collection required 28 percent growth in collections from the year before and hence the growth of 28.6 percent achieved during the first nine months indicates that Federal Board of Revenue (FBR) is well on course to achieve the budgeted target of 6.1 trillion rupees.

However, the budgeted target, agreed with the International Monetary Fund (IMF), was revised downward by FBR to what it considered was the more realistic 5,829 billion rupees. The collections for the first nine months are therefore at par to achieve the budgeted as opposed to the FBR tax collections for the year.

Thus to meet the budgeted tax target by the end of the fiscal year on 30 June would require 621 billion rupee collections in May and the same amount in June to reach the budgeted target while FBR would require 484.5 billion rupees in May and in June to achieve its downgraded target of 5,829 billion rupees.

And secondly, this renders the shortfall in April of 5 billion rupees against the targeted collection of serious concern as it may herald a trend for the remaining two months of the fiscal year based on two factors: (i) the bulk of the tax collections (July-February), to the tune of 52.2 percent, were sourced to imports, and hence the recent highly contractionary monetary policy decisions, in an attempt to curtail the rising current account deficit, is projected to reduce collections.

April may thus be the harbinger of a further shortfall in collections as the State Bank of Pakistan raised the discount rate to 9.75 percent on 7 April, expected to be further raised in the next Monetary Policy Committee meeting scheduled for 23 May as a very likely condition for an agreement on the seventh IMF review (with talks expected to begin soon after Eid).

In addition, the rupee is continuously losing value, another monetary policy tool to contain the current account deficit, with obvious negative implications on imports and therefore import revenue collections; and (ii) 883 billion rupees out of the total budgeted collection was to be generated as per FBR from enhanced growth in the economy which, in turn, was budgeted at 5 percent.

Today, at best, the estimates have been downgraded to 4 percent by multilaterals though independent economists estimate a figure between 3 and 3.5 percent at best for the year premised on the prevailing political uncertainty and the looming threat of strike/dharna by the PTI.

From a macroeconomic perspective even in the unlikely event that the budgeted target is achieved, it is disturbing that the non-tax revenue will take a considerable hit particularly on the budgeted 610 billion rupees on petroleum levy, expected to be less than half due to the relief package announced on 28 February which is continuing to this day.

At the same time there appears to be no attempt to reduce current expenditure and instead subsidies have been raised since the new government was sworn in. Hence the budget deficit is likely to remain unsustainable for the entire year.

There is, therefore, a need to reform the tax structure by widening it and make it less dependent on imports, which are inputs for a majority of our manufacturing base. However, luxury items must be taxed prohibitively which has an element of fairness.

And there is a need to slash current expenditure which witnessed an unprecedented rise of more than 70 percent during the Khan administration. To make a difference and go down in history the Shehbaz Sharif-led government must take economic decisions rather than be guided by political considerations as in the past.

Copyright Business Recorder, 2022


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