FBR: Eleventh hour collections rising

In the run up to the end of FY12, the Federal Board of Revenue (FBR) plastered advertisements in local newspapers propagating its lucrative amnesty scheme for tax payers. The offer put forth by tax authorities was quite alluring, as it allowed all tax payers and withholding agents that had not submitted their dues, to cough up just 25 percent of the total principal amount of outstanding tax, while the remaining 75 percent may be paid in equal monthly installments by December 2012. Besides, all parties availing the offer can also count out any default surcharge, penalty or other criminal proceedings against them in lieu of tax payment. A circular put out by the State Bank of Pakistan also instructed all bank branches to remain open till midnight on Saturday night to facilitate those who have waited till the eleventh hour to pay their dues. Provisional tax collection statistics revealed to BR by FBR officials on June 28 estimated that Rs.1,820 billion had been collected, leaving the tax men with the unenviable task of mustering together Rs.132 billion in the last two days of the fiscal year.The Federal Finance Ministry has not revised the tax collection target downward but economic analysts concur that it is highly unlikely that last minute filers will push FBRs collection to its targeted level. Some quarters have begun lauding FBR for collecting Rs.1,900 billion even before official confirmations of this tally emerged. But a review of tax collection over the past five years shows a disturbing trend of rising reliance on last minute submissions from withholding agents and other filers. In FY07, tax collections in the first quarter stood at 21.73 percent while collections in the last quarter tallied just fewer than 30 percent of total tax collection. By FY11, the contribution of collections in the first quarter had dropped under 19 percent while collections in the last quarter rose to 35 percent. The situation has worsened further in the outgoing fiscal year where only about 19 percent of tax collection took place in the July-September 2011 period. Assuming that FBR manages to meet the tax collection target for FY12, collections in the last quarter will constitute about 35 percent of total collections. However, if tax authorities collect Rs.1,920 billion, as is expected by officials, then collections in the April-June 2012 period will still make up about 33 percent of total collections. The delay in collections comes with an inherent cost for the government as funds released for various government expenditures are made available through loans that bridge the revenue-expenditure gap until taxes are received. In a nutshell, while policymakers have failed to implement any significant changes to the countrys tax regime to broaden the tax net, tax authorities have also largely delegated their responsibilities to withholding agents which has added an undesirable lag to tax collections. Given these shortcomings, the collection of over Rs.1,900 billion is not a huge achievement to be celebrated considering that it has been made possible largely by milking the same old cows.