EDITORIAL: Federal Board of Revenue (FBR) officials have proudly revealed that the provisional revenue collection target of 4691 billion rupees for 2020-21 was surpassed by 41 billion rupees. This compares favourably with the 2019-20 FBR collection of 3996.7 billion rupees reflecting a rise of 18 percent. While appreciating this rise, which is a reflection of improved performance, two observations are in order.
First, the budgeted target for 2020-21 was 4963 billion rupees and it was revised downward to 4691 billion rupees, a usual FBR practice which implies a 238 billion rupee shortfall. This is irrespective of the fact that the budgeted target for 2020-21 was widely regarded as unrealistic reportedly proposed by the International Monetary Fund (IMF) and accepted by the then economic team leaders as part of the standard exercise associated with the 6 billion dollar Extended Fund Facility (EFF) programme approved by the Fund Board in July 2019; to date many of the tax sector reforms associated with the EFF remain pending as the widening of the tax net remains a challenge.
Federal Finance Minister Shaukat Tarin's budget proposals envisage a much more proactive action plan to ensure that the wealthy who continue to operate outside the tax net, and who are easily identifiable through data available with Nadra, are brought into the tax net. It is relevant to note that the intent to bring them into the net was first expressed during the tenure of the Asif Zardari-led PPP government as well as during the two subsequent governments, including the incumbent one, who budgeted over a quarter of a billion rupees from enforcement measures each year, yet, revenue from this source always fell short of the budget. For 2021-22, the government has budgeted 242 billion rupees from enforcement measures and if it begins to put evaders in jail, and needless to add the commitment to do so is evident in the highest echelons of government, including the Prime Minister, there may be a sea change in FBR collections. Business Recorder fully supports the government's efforts to break the existing generational nexus between aarthis (middlemen) and the poor farmers, who also control supply to the market which, in turn, is mainly responsible for food inflation. In addition, aarthis operate only in cash which implies they contribute significantly to the parallel black economy which of course is not taxed.
Second, total revenue collections, even in the event that no additional revenue measures are taken, are a function of the (Gross Domestic Product) GDP growth rate as well as inflation. In this context, it is relevant to note that as per FBR calculations the GDP growth rate for 2021-22 of 5.02 percent is projected to generate an additional 236 billion rupees and an inflation of 8.2 percent is estimated to generate another 384 billion rupees. The revenue collection for 2020-21 was based on the budgeted growth rate of 2.1 percent and inflation of 11-13 percent; however, data released by the government gives a GDP growth rate of 3.9 percent (almost double the 2.1 percent budgeted for the year) and inflation at 11-12 percent. So FBR needs to give a clarification as to why the collections last year were so low compared to the budgeted target.
The FBR is still working on the revenue implications of withdrawal of some taxes; however, one would hope that finance minister Tarin looks at reducing reliance on sales tax, which is a regressive tax whose incidence on the poor is greater than on the rich, given that the budget 2021-22 intends to generate an additional 196 billion rupees from sales tax as opposed to only 58 billion rupees more from income tax.
Copyright Business Recorder, 2021
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