The normal Federal Board of Revenue strategy, to understate the revenue targets for the first six months on the assumption that as the economy picks up tax collections tempo would rise, backfired in the current fiscal year, informed sources told Business Recorder.
Unlike in past the FBR kept revenue targets for the first six months (July-December) quite conservative, which led to the FBR claiming a remarkable performance in meeting revenue collection targets in the first six months with over 101.2 percent achievement.
During January-to-date of current fiscal, the FBR has been compelled to revise the tax collection targets thrice. Other external factors also impacted negatively on tax collections including lower sales tax collections on domestic consumption due to devastating floods, and negative growth in large scale manufacturing sector. Lower production in case of cement, sugar and beverages and cigarettes are also responsible for shortfall in sales tax collection.
According to experts, the FBR used the technique of 'end-loading' which means that the targets for second half (January-June) were higher as compared to the first half of current fiscal year. The 'end-loading' technique does not mean that there should be a huge difference in the targets for the first half and second half of a fiscal year. Moreover, it has been further observed that whenever the targets were missed, the FBR simply lowered the assigned targets.
Last fiscal year, the FBR target was to collect nearly Rs 300 billion in the months of May-June 2009-10. In the current year the tax machinery is targeted to collect Rs 441 billion to meet the downward revised target of Rs 1588 billion with the required unlikely growth of 40-42 percent in the remaining period of current fiscal.
The FBR data revealed that the tax machinery collected Rs 661.6 billion during July-December 2010-11 against the revised target of Rs 653.9 billion, reflecting 101.2 percent achievement of the target. Breakup revealed that the FBR collected Rs 240.9 billion as direct taxes during first half of 2010-11 against the revised target of Rs 242.7 billion, reflecting achievement of 99.3 percent target. Around Rs 282.6 billion was collected as sales tax during this period against the revised target of Rs 272.8 billion, reflecting 103.6 percent achievement of target. The FBR collected Rs 58.1 billion as federal excise duty (FED) during July-December (2010-11) against Rs 60.7 billion, showing achievement of 95.7 percent target. The FBR collected Rs 80 billion as customs duty during July-December 2010-11 against the revised target of Rs 77.7 billion, reflecting achievement of 103 percent target. The data of first six months of current fiscal clearly reveals that the FBR has not only achieved, but surpassed the revenue collection targets during first six months of 2010-11.
When contacted, an official of the FBR admitted that the revenue collection target for first half of 2010-2011 were fixed very low and now the tax machinery has to face an uphill task to meet the thrice downward revised target of Rs 1588 billion, he added.
At the time of announcement of budget (2010-11), the FBR had fixed the quarterly targets to meet the overall annual collection target of Rs 1667 billion. The FBR fixed Rs 335.9 billion as revenue collection target for first quarter (July-September) of 2010-11. Out of Rs 335.9 billion, the monthly target for July 2010 was fixed at Rs 90.1 billion; Rs 102.4 billion for August and Rs 143.4 billion was set for September 2010.
The target for second quarter (October-December) 2010-2011 was fixed at Rs 381.5 billion. Break-up revealed that target of Rs 104.3 billion was fixed for October 2010; Rs 118.1 billion for November and Rs 159.1 billion target was for December 2010. The target for third quarter (January-March) of the current financial year was fixed at Rs 446.1 billion. The target for January 2011 was Rs 129.7 billion; February Rs 137.7 billion and target for March 2011 was Rs 178.7 billion.
The FBR had fixed Rs 503.5 billion as revenue collection target for the fourth quarter (April-June) of 2010-2011 at the time of announcement of budget (2010-11). Break-up revealed that target of Rs 137 billion was fixed for April 2011; Rs 142.8 billion for May and Rs 223.7 billion was set as revenue collection target for June 2011. When the FBR revised the target downward from Rs 1667 billion to Rs 1604 billion the Board revised the quarterly targets on the assumption that that it would achieve Rs 1604 billion by the end of June 2011.
Details about the quarter wise-target (Rs 1604 billion) revealed that the FBR had set target of Rs 294 billion for first quarter (July-September) 2010-11 and required growth was 11.4 percent. In the second quarter (October-December), the quarterly target was Rs 360 billion with the required growth of 13.2 percent. The growth rate required in the third quarter (January-March) 2010-11 was set at 25.4 percent with the target of Rs 410 billion. In the fourth quarter (April-June) 2010-11, the required growth rate was set at 29.2 percent with the quarterly target of Rs 540 billion. These targets were based on the calculations that the FBR will be able to achieve the revised target of Rs 1604 billion.
Given the current pace of revenue collection the FBR realised that it would fail to achieve the downward revised target of Rs 1604 billion and proceeded to further slash the target to Rs 1588 billion. So far, the Board has collected around Rs 1147 billion during July-April (2010-11) against downward revised annual target of Rs 1588 billion, reflecting a shortfall of Rs 441 billion.
According to a report of the FBR, the revenue target for 2010-11 was fixed at Rs 1,667 billion at the time of announcement of federal budget. The revenue target was linked to the performance of macroeconomic indicators that failed to materialise. It was forecast that real GDP will grow by 4.5 percent during the year, and large scale manufacturing sector will improve by 4-5 percent. Thus, the tax basis of both imports and domestic taxes were assumed would increase accordingly. The flood damage alone was estimated at around 10 percent of GDP. In addition the energy crisis continues to badly affect economic output. It is for these reasons that the revenue target of Rs 1,667 billion fixed for current fiscal year was revised downward to Rs 1,604 billion, the FBR added.
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