The 14 percent decline in overall production of cigarettes was one of the main factors for non-achievement of the federal excise duty (FED) target during 2009-2010. Sources told Business Recorder here on Tuesday that the FBR has compiled a comprehensive report on the overall performance of taxes during 2009-10.
According to the report, the cigarette was the top source of revenue generation in the form of FED. The collection from cigarettes has exhibited a growth of 21.2 percent during 2009-2010 mainly due to increased rates of FED announced in the budget 2009-10.
The decline in the production of cigarettes by 14 percent is also attributed to less than expected performance. This has been one of the major factors for non-achievement of target of FED. Among major items, cigarette was top most revenue generator with 36.9 percent share in FED collection, followed by SED (13.3 percent), cement (13.0 percent), services (12.6 percent), beverages (9.4 percent), natural gas (5.1 percent) and POL products (3.9 percent). Only seven major spinners of FED contributed 94.2 percent of the total FED collection in 2009-2010.
The FED had contributed 9.1 percent to the total tax collection during 2009-10. The tax collection realised has been Rs 121.2 billion in 2009-10 against Rs 117.5 billion in 2008-09 yielding a growth of 3.2 percent. In the budget 2009-10, the rate of cement was brought down from 900M/T to 700M/T. Despite growth in the production of cement by around 10 percent, a decline of 10.5 percent was recorded in revenue realisation. Around 12 percent decline in the services is understandable in the context that insurance and banking services were transferred from FED to sales tax. The collection from beverages, natural gas and POL products has improved by 7.4 percent, 8.7 percent and 14.6 percent respectively. As far as 1 percent SED is concerned, a double-digit growth has been recorded. Its share has also improved from 12.1 percent in 2008-09 to 13.3 percent during 2009-10.
The overall revenue collection target in 2009-2010 has been achieved to the extent of 96.3 percent due to several reasons for shortfall in revenue collection during the period under review. The FBR has also identified major reasons of shortfall in 2009-10.
Firstly, the general economic slowdown during the first half of the year has hampered resource mobilisation. Secondly, the size Federal Public Sector Development Programme (PSDP) was slashed down by more than 50 percent which caused loss of revenue by about Rs 12 billion on account of withholding tax (WHT) on contracts/supplies-a major revenue spinner of withholding taxes.
Thirdly, the negative growth in the manufacturing sector during the first half of 2009-2010 has impacted revenue collection on account of federal excise duty (FED). However, gradual increase in the manufacturing sector was witnessed during the second half of the year.
Fourthly, energy crises throughout the year badly affected the production process and ultimately revenue realisation. Fifthly, the negative growth in imports during the first half of the year resulted in less revenue realisation on account of sales tax on imports. However, imports did pick up during the second half of the year, but did not generate sufficient revenue to make up the losses.
Sixthly, the capital value tax (CVT) generated negligible additional amount of Rs 1.1 billion against the projected amount of Rs 15 billion due to increase in the CVT rate from 2 to 4 percent. Seventhly, the GST on sugar was reduced from 16 percent to 8 percent from August 2009, which negatively affected revenue realisation by about Rs 10 billion during FY: 2009-10.
Eighthly, the reduction of GST rate on telecommunication from 21 percent to 19.5 percent negatively affected revenue realisation by 11 percent. The report further said that share of direct taxes in total federal tax receipts has increased from around 15 percent in early 1990s to 32 percent in 2000-01. It has touched new heights of 40 percent in fiscal 09-10. Similarly, the growth pattern, which was uneven but on the rise during the past few years, has also declined from 48.3 percent in fiscal 06-07 to 19.2 percent in fiscal 09-10.
A number of reasons are there for this slowdown in revenue realisation in few years. Apart from general economic slowdown and energy crisis during the period under review, the major set back has been due to 52 percent reduction in the size of federal PSDP, which has adversely affected the revenue realisation by about Rs 12 billion from WHT on Contracts. Similarly, CVT was projected to generate additional revenue of Rs 15 billion on account of increase in the CVT rate from 2 percent to 4 percent that has yielded insignificant amount at the end of the year mainly due to slump in the property business and also fragmentation in the size of plots by dealers to avoid CVT etc, FBR added.