Fiscal Year 2012 revenue collection: several factor adversely impacting on target

The Federal Board of Revenue has termed one percent decrease in sales tax from 17 to 16 percent and no additional taxation in budget (2011-12) as impediments towards meeting the budgetary revenue target of the current fiscal year. Sources told Business Recorder here on Wednesday that a one percent decrease in the rate of sales tax, withdrawal of special excise duty (SED) and end of flood surcharge were adverse factors on revenue collection during 2011-12.
Only one percent decrease in sales tax has revenue impact of around Rs 30 billion. In budget 2011-12, the sales tax relief to different sectors has caused revenue loss of Rs 52.4 billion to the national kitty. The FBR had provided relief of customs duty of around Rs 2.14 billion by tariff rationalisation. There is no revenue gain from customs duty or regulatory duties during current fiscal year.
On the income tax side, the FBR had provided relief to the tune of Rs 3.8 billion during 2011-2012. There were no additional taxation measures taken in the federal budget (2011-12). The proposed additional taxation measures of Rs 70 to 80 billion proposed by the FBR were not approved in the budget 2011-12. The net impact of budgetary measures was Rs 27 billion in the form of tax relief to the business community as well as general public.
FBR Chairman Mumtaz Haider Rizvi informed the last meeting of the National Assembly Standing Committee on Finance that the FBR would be able to meet the target of Rs 1952 billion in view of current growth of 27 percent during first seven months of current fiscal.
Recently, the data released on the International Monetary Fund (IMF) website with respect to Article IV Consultations presented to the Executive Board revealed that the IMF staff estimated that the FBR revenue collection for the current fiscal year would be around Rs 1923 billion while the Pakistani authorities maintain they will achieve the target of Rs 1952 billion.
The IMF projections are that the tax authorities would remain Rs 10 billion short of the estimated projection of Rs 744 billion on account of direct taxes for the current fiscal year and Rs 17 billion below the projected collection of Rs 166 billion on account of Federal Excise Duty (FED).
The IMF believes that the Pakistan authorities are unlikely to achieve Rs 206 billion target on account of Sales Tax collection and may end up short by Rs 6 billion in the current fiscal year; and projects that the tax authorities would be able to collect Rs 211 billion - Rs 5 billion higher than the projected Rs 206 billion on account of custom duty for the current fiscal year.
Sources said that during initial months of current fiscal, the FBR had conducted an internal exercise to workout some additional tax measures to generate revenue on short-term basis. An alternate revenue generation strategy was devised by the FBR during first half of 2011-12 which was not implemented. This revenue generation strategy was discussed at the Board''s level but measures were not considered by the government. Under this strategy the FBR had proposed that the rate structure of income tax, particularly in more profitable sectors, may be enhanced.
Similarly, the withholding tax regime may also be reviewed for better tax yield; exemption regime in sales tax may also be revisited and viability of withdrawal of exemptions in agriculture, food, health and education sectors may be re-examined. It was proposed to review exemptions on imports as almost 50 are exempt from duty and review of excise duties on selective sectors.
Other proposals which were discussed at the level of the FBR included conversion of the existing ad valorem rates of sales tax on the POL products at the current prices into specific rates per litre and charge specific or fixed rates on supply of oil irrespective of the future prices; or, alternatively, impose 5 percent import duty on import of crude oil and levy 5 percent excise duty on supply of the local crude oil.
Other proposals discussed at the FBR level included review of the existing rate structure on sugar, enhancement of excise duty on cement and providing some new mechanism for settlement of the liability without demanding additional tax and penalties and provide for a special dispensation to encourage "out-of-the-court" settlement for litigations. These measures were discussed within the FBR during first half of 2011-12, but not implemented.