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EDITORIAL: Chairman Federal Board of Revenue, Asim Ahmed, while talking exclusively to Business Recorder, subsequent to his attendance at the Standing Committee on Finance meeting held on 16 February 2023, revealed that the revenue target for the current year has been further increased by 170 billion rupees in pursuance of discussions and agreement with the International Monetary Fund (IMF) team during the ninth review negotiations (1 February to 9 February 2023).

This he added implies that the total FBR target for the current fiscal was first raised from the budgeted 7004 billion rupees to 7470 billion rupees to the present 7640 billion rupees – a 9 percent increase from what was budgeted and a 2.25 percent increase from the revised target. In this context, two observations are in order.

First, the budget target for 2022-23 was based on a growth rate projection of 5 percent, albeit over-optimistic especially after the devastation wrought by the 2022 floods; or in other words, a growth rate that was assessed to generate around 350 to 400 billion rupees.

Today, all government agencies are agreed that the growth rate would be around 0.8 percent, a rate that is 0.3 percent higher than what is being projected by the IMF, and hence the government’s capacity to meet the tax target linked to growth is severely compromised.

Second, customs and federal excise duties were budgeted to generate 1.35 trillion rupees in the current year; however, administrative measures put in place due to foreign exchange reserves hovering at less than 2 months of imports (not taking into account the repayment of principal as and when due and debt servicing payments on external debt including on debt equity) has implied a major shortfall in collections under these two heads.

These two factors led to the decision by the government to increase reliance on the low-hanging fruit, consisting mainly of sales tax whose incidence on the poor is greater than on the rich. It is therefore little wonder that the additional 170 billion rupee target envisaged a one percent raise in the standard sales tax rate – from 17 to 18 percent, and a higher excise duty on cigarettes.

Direct tax collections by the federal government through widening the tax net (resisted tooth and nail by the non-filing traders – a major PML-N support base) was not implemented as the first finance minister appointed by the eleven coalition parties, Miftah Ismail, withdrew the budgeted tax on traders at his leadership’s instructions. However, asset value tax on foreign assets, deemed tax on real estate and super tax have been challenged in courts.

Today with 2023-24 budget preparations at an advanced stage the tax target being bandied in FBR circles and the Ministry of Finance is 9.2 trillion rupees – a target that is higher than the revised estimates of the current year by a whopping 20.4 percent.

This would necessitate a growth rate projection of over 5 percent, which appears to be even more optimistic than has been the norm during the past decade as the country struggles to not only secure a staff level agreement on the ninth review, still pending, but also to propel the growth rate which would be a challenge given (i) the discount rate of 21 percent (expected to be further upped at the next Monetary Policy Committee meeting scheduled for 12 June though the last two scheduled meetings were preponed); (ii) higher current expenditure as the tenure of the current parliament ends on 13 August and election year budgets are notoriously wasteful and do not take account of the lack of fiscal space that would lead to higher borrowing by the government domestically, thereby further crowding out private sector credit and causing negative impact on growth; and (iii) relying on existing taxpayers that may well sound the death knell of industry as large-scale manufacturing registered a negative 5.6 percent growth rate July-February 2023 – factors that would increase unemployment and inflation, the two indicators that lead to a sitting government losing elections.

It is hoped that the afore-stated facts would be borne in mind while finalising the tax impositions and other fiscal measures for budget 2024 and adherence to measures agreed with the IMF ensured so as to avoid any major upheaval on the external account that the country can ill afford at this critical juncture.

Copyright Business Recorder, 2023


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Tulukan Mairandi May 25, 2023 11:35am
Tax collection is pathetic. Everyone honestly prays and fasts but will not pay their dues
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