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The fiscal bottomline in the first half is within the IMF’s target. The primary fiscal surplus for Jul-Dec19 is estimated around Rs100-130 billion, easily meeting the Fund’s revised target of Rs87 billion. All the other binary targets of the Fund are likely to be met as well. This time it’s not with flying colors, though. The third and fourth quarters would be challenging for the Q-Block. The non-tax juice is already extracted, and FBR indicative target may remain elusive without a mini budget in February or March.

The FBR revenue collection stood at Rs2,083 billion in 1HFY20 – a growth of 16 percent. (For details read “FBR’s mid-term report card”). That figure is shy of the revised target of Rs2,198 billion (original target: Rs2,367bn). The gap is more than filled by the non-tax revenues, for which the full-year budgeted estimates are at Rs895 billion. About 80 percent of that target (Rs717bn) has already been fetched in the first half. Similarly, 60 percent of other taxes (Rs161bn out of Rs267bn) have also been collected in the first half.

The non-tax revenues remained high in 1HFY20 due to two factors – partial telecom license renewal fees and SBP profits. In case of telco’s, the government has already collected more than double the amount of its full-year estimate under the relevant head. The collection stood at Rs112 billion in 1HFY20 as compared to full-year target of Rs55 billion. This is mostly because in 1QFY20, the government fetched Rs70 billion from Jazz and Telenor. Then in 2QF20, about Rs36 billion were received from Zong. There isn’t anything to come from Ufone as its license was renewed earlier in 2014.

This amount from three companies is 50 percent of the total license renewal fee that was determined by the PTA. The chances of getting the remaining half is 50-50. The matter is under litigation in the Islamabad High court. Dr. Hafeez Sheikh is trying his best to win, while telco’s don’t seem to be in a mood to compromise just yet. (For details read “Telecoms: renewal saga isn’t over”). Thus, for the full-year, the proceeds/profits from the PTA can surge to around Rs220 billion. Otherwise, in case of no settlement, the proceeds may remain around the half-year level of Rs112 billion.

The star among non-tax revenues is the head of “SBP’s profits”. Sources reveal that SBP has already transferred higher than full-year budgeted amount to the government. The toll was Rs185 billion in the first quarter, and second quarter is even better with Rs247 billion being transferred. So, the half-yearly haul stood at Rs432 billion against the full-year target of Rs406 billion. The higher amount is due to exchange gains as there was loss of Rs126 billion in 4QFY19. With exchange rate likely to depreciate a bit in the second half, the profits from SBP might thin.

The story on other taxes is revolving around petroleum levy (PL). It’s a tax on petroleum products in addition to GST. The benefit of PL is that it is not part of the divisible pool, as none of it has to be shared with the provinces. The government has fetched Rs141 billion under PL in 1HFY20 against full-year target of Rs216 billion. If the oil prices do not go too high, the government can increase PL. Else, GST collection may have to increase proportionately to the upward movement in internal prices.

Thus, the reliance of meeting fiscal primary deficit target of Rs264 billion for FY20 hinges on FBR revenues. The silver-lining in non-tax revenues is the pending amount that is owed by the three telecom players. The second line of defense for Hafeez Sheikh is to tighten the flows of PSDP and BISP. If things do not come under control on matters cited above, the mini budget may be inevitable.