The Federal Board of Revenue has to take heavy taxation measures including withdrawal of exemptions/zero-rating during the upcoming budget (2011-12) to meet over-ambitious revenue collection target of nearly Rs 1.952 trillion in the next fiscal year.
Sources told Business Recorder here on Wednesday that so far the revenue collection has reached around Rs 1147 billion during July-April (2010-11) against downward revised annual target of Rs 1588 billion, reflecting a shortfall of Rs 441 billion. The FBR has to collect over Rs 220.5 billion in the last two months of 2011-12, which seemed to be an uphill task by the end of current fiscal. At the time of announcement of budget (2010-11), the tax projections for 2010-11 were Rs 1667 billion. Later the revenue collection target was revised downward to Rs 1604 billion and now the target has been further slashed to Rs 1588 billion. In case the FBR fails to meet the thrice downward revised target of Rs 1588 billion by the end of June 2011, it would have a direct effect on the revenue estimates of 1.952 trillion set for 2011-12.
The FBR has reportedly drafted two different tax projections for 2011-2012 on the basis of assumption that whether the reformed general sales tax (RGST) would be implemented or not.
According to the FBR, the implementation of RGST would enable the tax authorities to collect Rs 1950 billion revenue including 16 percent growth over Rs 1588 billion revised target for the current fiscal, Rs 72 billion on account of RGST and Rs 36 billion through administrative and enforcement measures. In case the RGST would be implemented, the government has already committed to reduce the sales tax rate from 17 to 15 percent with one percent decrease in sales tax has revenue impact of around Rs 30 billion. The FBR has estimated that the accumulative revenue impact of these measures would result in generation of revenue to the tune of over Rs 1950 in next fiscal.
In case of non-implementation of RGST, the revenue target for the next fiscal has been worked out around Rs 1968 billion following removal of exemptions/zero rating of Rs 90 billion. Without the RGST, the estimated target could be around at Rs 1968 billion for 2011-12 including Rs 1842 billion with 16 percent growth in revenue and withdrawal of exemptions/zero-rating. Besides, the FBR has estimated to collect around Rs 36 billion through enforcement/administrative measures. The total amount of tax revenue would come to around Rs 1968 billion for next fiscal taking into account the said areas of revenue collection. However, the government may not touch the existing rate of sales tax of 17 percent in case the revised RGST is not being implemented in 2011-12, sources said.
Sources said that the exact figure of taxation measures would depend on the final decision on the RGST in view of the tax projections based on the said two options. The Revenue Advisory Council of the FBR headed by Dr Hafiz Pasha had observed that Rs 1850 billion would be a realistic revenue collection target for 2011-12. According to the RAC, Rs 1850 billion would be a target, which seems achievable for next fiscal year 2011-12.
However, any move of the government to set Rs 1952 billion as revenue collection target would be over-ambitious which could not be achieved keeping in view the current pace of revenue collection in 2010-11. During recent meetings of the RAC, the tax projections for the next fiscal year would depend on the performance of the tax machinery during May-June 2010-11. Taking into account economic factors and current position of revenue collection, the estimated projection of Rs 1850 billion seems to be a very realistic figure for next fiscal year.
Sources said that when the budget for 2010-11 was announced, the total net impact of taxation measures and administrative/enforcement efforts of the FBR was worked out at Rs 133.232 billion for fiscal 2010-11. Out of total Rs 133.232 billion aggregated revenue impact, the revenue measures of over Rs 83 billion were taken in the budget. The government had estimated to generate Rs 51 billion with taxation measures in sales tax/federal excise duty, Rs 32 billion through direct taxes while another Rs 50 billion through improving administrative measures in the FBR during 2010-11. The total tax measures were estimated at around Rs 83 billion. The administrative measures on the customs side were estimated to the generated an additional Rs 50 billion in 2010-11 by checking smuggling, under-invoicing and applying accurate valuation rulings.
Sources said that the FBR has also estimated to generate revenue in case the proposed Gross Asset Tax (GAT) replaces one percent turnover tax in budget 2011-12. The enforcement would recover amount from the tax evaders and short-filers of the sales tax returns. The tax arrears of around Rs 131 billion has been stuck up in courts including Rs 83 billion income tax arrears, Rs 38 billion sales tax and Rs 10 billion customs duty arrears.
The FBR has also detected irregularities worth Rs 25.9 billion of illegal input tax adjustment worth Rs 7.9 billion in more than 4000 cases and Rs 7 billion in LTU Karachi and Rs 11 billion in LTU Lahore. The FBR has estimated to recover huge amount through recovery of arrears and illegal input tax adjustments. The FBR has also raised huge income tax demands against the taxpayers, who have concealed their income during current fiscal.