FY20 tax collection: Rs 5.5 trillion target could be revised downward

Chairman Federal Board of Revenue (FBR) Shabbar Zaidi has informed the Senate Standing Committee on Finance that revision in tax collection target of Rs 5.5 trillion for the current fiscal year is under consideration and the figure would be shared with the committee.

While briefing the Senate Standing Committee on Finance chaired by Farooq H Naek, Zaidi stated that there is shortfall of Rs 200 billion in tax collection during the five months of the current fiscal year and attributed it to over $4 billion import compression and stated that tax collected on imports constitutes to 50 percent of tax collection. Total tax collection during the first five months of the current fiscal year (up to November 30) was recorded at Rs 1,618 billion against the indicative target of Rs 5.5 trillion for the entire fiscal year.

The meeting was also informed that as per an agreement with the retailers and wholesalers, threshold of turnover has been increased to Rs 100 million from Rs 10 million and the rate of minimum tax has been reduced from 1.5 percent to 0.5 percent. He said that wholesalers and retailers contribute 18 percent to the gross domestic product (GDP) and contribute only three percent in taxes.

There are very few retailers who are registered and paying taxes, the meeting was informed. He said that as per an agreement, market committees with representatives from retailers and traders would be notified in the next one or two days to help the tax authorities and RBR take action against those providing fake or wrong CNICs after January 30, 2020. "We have plainly conveyed to them that CNIC condition would not be withdrawn," he added.

The chairman agreed to most of the reservations expressed by the committee members and asked them to make recommendations. The committee also wanted the advisor on finance to apologize from the nation for his statement that tomatoes are being sold at Rs 17 per kg or issue contradiction against the statement because this was the biggest joke with the people.

The committee was also given a briefing on the e-filing of returns and Zaidi stated that tax authorities are not in a position to give any exemptions owing to fiscal constraints and also because these create distortions in the system. The chairman FBR said that one policy for retailers and traders and other for small businesses would be unveiled soon which would include all incentives and other facilities being provided to them as small and medium enterprises are top priority of the Prime Minister. The secretary finance wanted the finance committee to have an exclusive briefing on the scheme aimed at facilitating small businesses.

The opposition members of the committee said that FBR, State Bank of Pakistan (SBP) and other economic policymakers have virtually been "facilitators" to the opposition as decisions taken by them are sliding ruling party's performance. Senator Talha Mehmood said, "We are beneficiary of chairman FBR's and others' decisions."

Deputy Governor State Bank of Pakistan (SBP) Jamil Ahmad informed the committee that Pakistan has received 190 million pounds from United Kingdom National Crime Agency (NCA) in the National Bank of Pakistan but was unaware of the account wherein the money was deposited.

His statement that he was unaware of the account infuriated the members and Senator Mushahid Ullah said, "Standing committee is extension of the Parliament and he (deputy governor) is not giving answer to the members' questions with regard to details of 190 million pounds."

Senator Mushahid also inquired from the deputy governor about $450 million inflows into the SBP when the former Prime Minister was going abroad. He said that inflow led to speculations of some kind of deal and wanted to know whether SBP has been purchasing dollars from the market or not.

"We purchase dollars from the market if there is an opportunity, but the senator's statement that SBP has been purchasing 200 million dollars from the market every week is inaccurate," Ahmad said. Mushahid Ullah retorted, "You are responsible to give answer to every question of the Parliament." Senator Talha Mehmood stated if the SBP has been purchasing dollars from the market, this means that it wants to keep the dollar rate at higher level.

The chairman of the committee, subsequent to protest by the senators against SBP for not responding to the questions of the members, decided to defer SBP agenda and asked the senators to give their questions so that answers of their questions could be taken from the governor SBP.

The committee decided that governor SBP should himself come to the next meeting of the committee on December 18, 2019 to respond to the questions of the members and give a general briefing on the economy to the committee. Senator Talha Mehmood wanted to know about the information that central bank is sharing with the International Monetary Fund (IMF) under the $6 billion extended fund facility (EFF).

Earlier, the deputy governor SBP informed the committee on the performance of local private banks up to September 2019, saying that the asset size of the Local private banks (LPBs), almost 20 in numbers, has expanded by 18.7 percent by end-September 2019 with higher growth of 2.5 percent over the corresponding period of the last year. The LPBs' advances have grown by 7.6 percent by end-September-19 compared to 21.8 percent a year earlier.

Among the category of advances, private sector advances have seen a year-on-year growth of 8.9 percent by end-September-19 compared to 18.2 percent a year earlier, the meeting was told in a brief. In terms of sectors, sugar made net retirements while energy, cement, and textile witnessed deceleration in growth. This slow growth in advances is an industry-wide phenomenon very much aligned with macro-financial environment.

Contrary to the advances, investments of LPBs have risen by 39.9 percent by end-September-19 as compared to 21.9 percent decline in the previous year, mainly due to rise in investments in government securities.

The deposits of LPBs witnessed expansion of 10.7 percent by end September 2019 - higher than the industry growth of 9.9 percent. The stock of LPB NPLs stood at PKR 451.4 billion as of end-September19. With growth in NPLs over the year, gross NPLs ratio has increased to 6.8 percent by end-September19 from 6.1 percent at end-September 2018. However, due to high provisions coverage of 85 percent (provisions to NPLs), net NPLs to net loans ratio stands at 1.1 percent indicating low level of credit risk, according to the SBP.

The profit after tax of LPBs for first nine months of the current fiscal year has increased to Rs 98.8 billion, showing a 15 percent growth over the corresponding period of last year.

As a result, return on assets (before tax) has marginally risen to 0.86 percent (September-19) from 0.83 percent (September-18). Rise in LPBs profitability is due to increased net interest income (NIl). The solvency of LPBs has further strengthened as capital adequacy ratio (CAR) inched up to 16.4 percent by end-September-19 from 15.5 percent in September-18. The current level is well above the minimum local requirements of 11.9 percent and that of global requirement of 10.5 percent.