Until a few months ago, neither the chairman FBR nor the finance minister publicly entertained the idea of a mini budget. ‘There is no need for it’ and ‘no chance of it’ – these were the kind of response officials gave about a quarter ago. But the writing was on the wall since day one, when the government announced its tax targets for FY20.

Thanks to growth in non-tax revenues, the idea of a mini-budget has been pushed down the road. But for how long? Because growth in tax revenues has begun slowing in what is becoming an I-told-you-so moment for independent economists.  (See also BR Research’s Mini budget? Dec 30, 2019)

FBR’s collections for the first half 2020 stand at Rs2083 billion, which is about 16 percent over last year. Some observers point out that this 16 percent growth partially stems from blocked refunds. That refunds are still blocked is true. But so is the fact that blocked refunds have been a constant over the last few years. Ergo, the refunds issue shouldn’t be construed as a distortion unique to FY20’s performance indicators, since that distortion has been constant for some time now.

Be that as it may, the pace of growth in monthly tax collection is slowing. From a year-on-year growth of 12.6 percent in July, growth in FBR’s tax collection gradually increased to 16.7 percent until November, only to have slowed to 16.1 percent by December.

Remember that this a year in which full-year budgeted tax collection is about 45 percent higher than last year’s actual collection – a never-before in recent history. Even the revised target of Rs5238 billion that the government requested to the IMF is 37 percent higher than last year’s actual collection – also a never-before in recent history. These are daunting targets considering that prior to FY20 budget, the highest budgeted growth in recent history was 27 percent in FY14.

With the mid-term report out, what does the full year number look like? There are two assumptions: and both are rather disturbing.

Assuming that actual collection lands at 93 percent of the revised target (93 percent being last ten years’ average), full-year collection for FY20 would total around Rs4871 billion, or about 27 percent year-on-year growth – again a never-before in recent history where the highest growth in collection was 21 percent in FY12. On standalone basis, that would be quite a feat, especially given poor economic conditions. But it would still leave a gap of about Rs700 billion that will need to be financed through non-tax revenues, if all other items of expenditure are to remain as was originally planned.

Second, FBR’s tax collection in the first half as percentage of full year tax collection has averaged 48 percent between FY09 and FY19. Going by this extrapolation, the collection of Rs2083 billion in 1HFY20 translates to full-year collection of around Rs4339 billion. That would be Rs1200 billion short of the original budgeted target of Rs5555 billion.

And this is why Finance Minister Hafeez Shaikh finally decided to visit FBR’s office to have a little chat with the top bosses of the tax machinery, as how a poor mid-term report card warrants a parent-teacher meeting. But it’s also rather cute to see that Hafeez has reportedly asked the chief taxman Shabbar Zaidi to lay off inefficient or non-performing FBR employees, and to do more. As if Hafeez doesn’t know how difficult the job is!

Keep in mind this is already proving to be the year of reforms for FBR. The organization has been making headlines for good and for bad reasons. A host of never-before steps and measures are being taken. A much easier return filing system that takes no more than a few hours for individual salaried class filers; integration of tier-1 retailers’ POS with FBR’s software; a principle agreement for registration with traders who have previously been known for throwing spanner in the works; the commencement of FASTER system for refunds; the end of zero-rating and what not.

Granted that none of these steps and measures are without hiccups and shortcomings. But such is the nature of reforms. Reform cannot be expected to be a neat equation. Just as the current tax system affected different income groups and business sectors differently; the reform process, the ensuing pain, and the new system will also affect different income groups and business sectors differently. Learn to live with it!

That there should be close working coordination between the tax and the finance and economic teams, as Hafeez reportedly suggested, is indeed a good idea. But that both – Q-block and FBR - are still wanting of professionals is not a good reality. Recurring structural issues warrant more than just parent-teacher meetings; it requires a wholesome approach, constant tinkering, a feedback loop, ton of patience and a lot of prayers. (Read also BR Research’s The clock is ticking for FBR Dec 4, 2019; How not to write FBR’s revenue yearbook?, Dec 2, 2019; and Does Shabbar has a magic spell? June 12, 2019)