MONDAY APRIL 01: Massive decline in revenue collection: FBR seeks to shift blame onto other factors

ISLAMABAD: Federal Board of Revenue (FBR) has reportedly shifted responsibility of massive decline in revenue collection onto other factors including enhanced impact of Free Trade Agreements (FTAs), global recession, energy crisis and others.
FBR, in its presentation to the caretaker Prime Minister, Mir Hazar Khan Khoso, last week gave tailored reasons for the reduction in duty and tax collections during the first nine months of current fiscal year which led to a downward revision of revenue target.
Sources said that FBR informed the Prime Minister of major sectors showing a negative growth in tax collections on demand, salary, telephone bills and dividends.
Collection on demand decreased by 41.3 percent to Rs 40.112 billion during the first nine months of current fiscal year as compared to Rs 68.350 billion in the corresponding period last year.
According to the FBR, selection of cases for audit were sent for consideration to FBR by Lahore High Court. FBR framed revised audit criteria with cases selected for audit through computer balloting. Direct tax on salary has declined by 10.1 percent to Rs 28.506 billion in 2012-13 from Rs 31.707 billion because basic exemption limit was enhanced from Rs 350,000 to Rs 400,000 and rate for each slab was reduced.
Collection on telephone bills declined by 26.7 percent to Rs 14.334 billion from Rs 19.581 billion. The reason cited for reduction in tax collection was that FBR received advances of Rs 7 billion during last year which are now being adjusted. However, tax collection on dividends remained stagnant at Rs 10 .075 billion citing less declaration of dividends by the companies due to reduced economic activities. Major sector showing negative growth in sales tax are telecom services, fertiliser, sugar, services and tea. Sales tax collection on telecom services was Rs27.043 billion in 2011-12 to Rs 13.036 billion showing a decline of 51.8 percent. The reason as quoted by FBR is that telecom services in Sindh and Punjab have been shifted to these provinces. Sales tax on fertiliser has been calculated at 5.1 percent from Rs 12.334 billion to Rs 11.702 billion. This negative growth has been attributed to reduction in fertiliser due to lesser availability of gas and electricity. Sales tax collection on sugar has also declined by 18.7 percent from Rs 6.353 billion in 2011-12 to Rs 5.163 billion because taxable sales as compared to last year declined by 13 percent. Sales tax on services has shown negative growth of 65.6 percent to Rs 2.537 billion in 2012-13 from Rs 7.365 billion in 2011-12. Sales tax on tea has also declined by 36.2 per cent to Rs 2.328 billion in 2012-13 from Rs 3.652 billion in 2011-12.
Major sectors showing negative growth in Federal Excise Duty (FED) are cement, services and POL products. FED collection on cement has declined by 16.6 percent to Rs 6.408 billion in 2012-13 from Rs 7.685 billion. The reason cited is reduction in FED rate on cement from Rs 500 to Rs 400 per ton. FED on POL products showed negative growth of 96.4 percent to Rs 136 million in 2012-13 from Rs 3.716 billion because this levy was abolished from lubricating oil( in different packing) and base lube material. FED was abolished on perfumery and cosmetics. Spillover of Special Excise Duty (SED) in July 2012 was Rs 2.2 billion.
The sources said customs duty on five major items also decreased details of which is as follows. FBR collected customs duty on plastic was Rs 5.885 billion in 2011-12 which declined to Rs 5.610 billion in 2012-13 showing a reduction of 4.7 percent. This reason is cited for the three percent reduction in dutiable imports.
Collection of customs duty on iron and steel has shown negative growth of 10.4 percent to Rs 4.667 billion in 2012-13 from Rs 5.2 billion in the same period last year. Customs duty collection on paper and paperboard has also declined by 29.3 percent to Rs 3.082 billion from Rs 4.358 billion. The reason was 18 percent decline in imports. Collection in customs duty on textile materials has also decreased by 30.1 percent to Rs 2.205 billion from Rs 3.152 billion because of decline in imports by 26 percent. FBR has also registered 8.8 percent reduction in customs duty on staple fibres from Rs 2.267 billion in 2011-12 to Rs 2.063 billion in 2012-13 because of 13 percent reduction in imports. According to the FBR, enhanced impact of Free Trade Agreements (FTA) is one of the reasons for reduction in customs duty.
FBR is facing Rs 768 billion shortfall which is expected to be achieved through the following revenue measures: (i) Direct Tax- Rs 93.4 billion (Rs 50 billion through administrative measures and Rs 43.4 billion through policy measures). Sales Tax - Rs 36.5 billion through administration (CREST). Customs - Rs 4,5 billion through policy. Revised revenue target is Rs 2.193 billion.
FBR has implemented short term strategy to improve collection as follows: (i) widening of tax base of direct taxes( 1st phase top 300,000);(ii) abolition of domestic zero rating on export oriented sectors;(iii) abolition of zero rating on other domestic sectors;(iv) Standardisation of Withholding Tax (WHT) rates on imports at 5 percent;(v) creation of dedicated withholding zones;(vi) change in mode of Sales Tax collection on ship breaking;(vii) expansion of withholding regime in sales tax;(viii) new enforcement measures in textile and sugar, full scale implementation of sales tax risk management system;(ix) enforcement in ADRC/ litigation and change in tariff regime for cigarettes.