Rise in tax collection!

Federal Finance Minister Ishaq Dar while reviewing the performance of the Federal Board of Revenue (FBR) during the first nine months of the current fiscal year noted the "display of exceptional performance in the third quarter" that generated a collection of over 2.1 trillion rupees - an estimated increase of 19.7 percent during the corresponding period of last year. The data released by the ministry indicates that during the first quarter of the current year collections rose by 11.6 percent, in the second quarter by 23.8 percent and in the third quarter by 22.1 percent. In this context, it is relevant to note that a mini-budget was announced on 30th November 2015 which envisaged a 40 billion rupee increase in tax collections, including a one percent raise in customs duties across the board (raising it to 3 percent) and regulatory duty on 350 items.
The question is whether this revenue rise should be a source of appreciation or concern. The rise in tax collections during the current Sharif administration can mainly be sourced to a significant rise in direct tax collections that rose from the budgeted 932 billion rupees in 2012-13, (the last year in the tenure of the PPP-led coalition government as well as the three months of the caretakers), to 1.34 trillion rupees in the budget for the current fiscal year. However, the bulk of this rise is sourced to a heavier reliance on withholding taxes on consumer items/services. Direct taxes are defined as taxes on income and include salary, dividends and rent, etc, but by taxing consumer items and services and parking them under direct taxes the government is at best misrepresenting its source of collections.
Business Recorder recently reported that for fiscal year 2016-17 the FBR has disturbingly proposed 75 percent reliance on withholding taxes as a component of total direct tax collections. Collections under withholding taxes are preferred because instead of the FBR the withholding agent has the responsibility to collect due taxes and while the FBR insists that its role is to monitor if all are paying the tax due, yet it cannot be used as a reflection of its performance. In addition, withholding agents frequently complain that their costs rise because of this additional responsibility which no doubt would also be passed onto the consumers.
The Finance Ministry took the decision to shift items that were parked under non-tax revenue to other taxes in fiscal year 2014-15 with the objective of showing higher revenue collections in comparison to previous years; it includes Gas Infrastructure Development Cess and Natural Gas Development Surcharge budgeted at 175 billion rupees in 2015-16. This can be termed a deliberate attempt to mislead the general public of this country with respect to the government's performance. In other words, tax collections are being over-estimated to the extent of these adjustments.
The rise in tax revenue in the current fiscal year in Pakistan is considerably more than the Gross Domestic Product (GDP) growth rate. The Indian budget for fiscal year 2016-17 envisages a growth rate of 7.5 percent and a growth rate in tax collections of 11 percent and with a tax-to-GDP ratio of 15.5 percent, considerably higher than ours at a little over 10 percent, this is considered a realistic target. Take the case of Pakistan, where the growth rate projected in the budget for the current year is 5.5 percent, though few economists consider this realistic with the International Monetary Fund having downgraded it to 4.5 percent and as always Asian Development Bank following its lead, while the growth in taxes is nearing 20 percent. Disturbingly, the government's ability to achieve this unrealistic revenue collection growth figure is through mini-budgets, raising withholding taxes, presumptive taxation and, withholding refunds.