The Federal Board of Revenue (FBR) has reportedly missed the tax collection target for the first four months of the current fiscal year by 82 billion rupees - budgeted at 942 billion rupees with actual collections at 860 billion rupees. The reason for this is partly attributable to the usual practice by successive governments, including the incumbent, of overstating revenue collections in the budget which enables it to project a budget deficit lower than is realised at the end of the year; and partly because of the failure of the government to implement new tax proposals due to organized sector opposition. In the current fiscal year's budget the targeted tax collections of 100 billion rupees from the real estate sector subsequent to new property valuation rates has not materialized due to a cessation of real estate transactions for the past four months. In addition, the FBR has been unable to sort out the computer glitches that continue to disallow filers from registering online which, in turn, has prompted the FBR to extend the deadline yet again.
At the same time, as was projected by Business Recorder, the government has not raised the price of petroleum products in spite of the recommendation of the regulator to do so - a recommendation based on the rise in their international price, reflecting the subordination of economic decision-making to political considerations. This would automatically imply that the government would be compelled to absorb the differential through a reduction in taxes on these products. Or the government's revenue collection capacity as envisaged in the budget would be further compromised.
With revenue lower than projected and assuming that expenditure is unchanged the pressure on the government to borrow from whatever available source would, therefore, rise. In this context it is relevant to note that, as per data released by the Economic Affairs Division, the government borrowed 900 million dollars from the commercial sector abroad, out of a total of 1.8 billion dollars inflows, during the first quarter of this year, which are typically short term loans at higher rates of return.
Finance Minister Ishaq Dar at a press conference also committed the release of 25 billion dollars online within the week. This announcement must be supported as delays in releasing refunds are considered a major reason for the liquidity crisis facing the productive sector in Pakistan in general and the export sector in particular; however, it is disturbing to note that delays in releasing refunds have been used to show higher revenue than is in fact the case. While an auditor would no doubt not include refunds as revenue yet our successive governments, including the Dar-led Finance Ministry, have delayed refunds for the express purpose of showing higher revenue than is in fact the case.
With the successful completion of the International Monetary Fund (IMF) programme by end-September 2016 Pakistan has entered a phase where there would be no time bound rigid monitoring by an international agency of the challenging reform agenda, a critical element in extending budgetary support by multilaterals and bilaterals. Thus it is fair to say that programme lending would decline in the current year, and this has been envisaged in the budget as well - from 324.6 billion rupees realised last year, though the budgeted amount was 187.3 billion rupees, to 133.7 billion rupees in the current year. With a decline in budgetary support, a decline in the budgeted revenue and expenditures remaining unchanged the government has clearly opted for commercial loans from abroad which is another disturbing trend in our policy planning.
To conclude, one would hope that the government slashes expenditure by implementing efficiencies in ministries/departments that are not evident as yet in spite of tall claims to the contrary, slash the losses of public sector entities (estimated at over 700 billion rupees of just three PSEs) and reform the tax structure by shifting away from reliance on indirect taxes to direct taxes and to desist from wrongly defining some taxes as direct (for example the withholding taxes on consumer items/services are not direct taxes as they are in the sales tax mode). The solutions are there; however, the government clearly lacks a commitment to go towards real as opposed to cosmetic reforms.
Comments
Comments are closed.