EDITORIAL: After exceeding projections for several months, it’s the same old story at the Federal Board of Revenue (FBR) once again as a sharp drop in imports pushed its collection target down by 17 percent (Rs 88 billion) in October.
It’s important to note that while the October figure posted a 15 percent growth year-on-year, it still fell short of the increment committed to the International Monetary Fund (IMF) to achieve the annual growth target.
And given how the Fund has been extremely sensitive about the government adhering to benchmarks identified for the Extended Fund Facility (EFF), this matter could raise a red flag when negotiations for the next tranche advance.
Clearly, FBR still does not have the capacity to expand the tax net and keeps missing its own targets, even when they are kept deliberately low to engineer an artificial surplus at the end of the year. That is why it continues to rely on import duties and whenever the fiscal deficit becomes too uncomfortable and imports must be cut, revenue collection suffers as well.
Since it is estimated that earnings of less than Rs 20 billion were recorded in customs collection in October, it’s no surprise that FBR had egg on its face, as usual, when the month’s provisional revenue data was revealed.
Things did take a turn for the better during the few years that PTI (Pakistan Tehreek-e-Insaf) was in power, which shows that even minor yet smart tweaking can improve the Borad’s collection performance, provided the political will is there.
Finance Minister Ishaq Dar mentioned further extension of the final date to file income tax returns for 2022 as he fumed about October’s shortfall, another stark difference of policy with PTI, which put an end to the practice of extending the last date to improve compliance with tax laws.
All this goes to show that despite another cycle of bailout loans and painful structural adjustment, we’re still no closer to self-reliance that can only come from increased revenue.
Exports have never matched imports and barely budged a few percentage points despite a historic devaluation of the rupee, and even stellar remittance inflow could not keep the current account above water for long, so it is clear that the kind of self-sufficiency we desperately need will not come till tax collection improves. And that brings us back to the matter of FBR reforms that everybody has been waiting for since forever.
This year has been particularly painful. First the uncertainty from change of government in Islamabad, which led to a freefall in financial markets, compromised earnings and hence tax payments as well.
Then the floods wiped off almost half of GDP growth expected for the ongoing fiscal year, severely restricting the capacity of individuals as well as businesses to function, earn and also pay taxes. And one reason the government can justify the extension of the date for filing returns is the inability of a lot of people to do so as their homes and workplaces remain under 5-6 feet of stagnant water.
Yet floods, from drastic climate change, are now a fact of life and something that must be factored in while making policy. There are likely to be fierce floods next year as well, and using this as an excuse will only cement the perception of incompetence at the top; where the push for reforms and greater revenue is supposed to come from.
It seems that the government still does not realise how desperately short of time it is. Only last quarter we came dangerously close to default and given the failure to raise tax revenue even close to levels of similar economies, and the billions upon billions of dollars in debt repayment due every year just when more loans are also drying up, something very serious will have to be done about FBR reforms to avoid a much wider collapse of the real economy.
Copyright Business Recorder, 2022
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