The Federal Board of Revenue's (FBR) year book has termed the 2,381 billion rupee 2012-13 budgetary target as challenging as it envisages a whopping 27 percent growth over the previous year's collection. The year book also reveals that last year's total collection was 1,883 billion rupees - an amount slightly lower than the data contained in the budget document which gave total revenue collection by FBR in 2011-12 as 1,952 billion rupees against the budgeted 1,952 billion rupees.
It is unclear whether these new statistics include the rather innovative ways the FBR routinely undertakes to show better collections that is in fact the case including advance tax. Thus the new data implies lower collections that would account for a higher budget deficit last year.
The question is whether these challenging revenue collection targets are realistic? While data suggests that the FBR has rarely if ever met the budgetary targets yet they are based on the well accepted fact that tax evasion, if contained, can lead to a significant increase in revenue collection. There is no doubt that evasion is rampant in many sectors. Farm income exempted from tax under our constitution, is usually reinvested in other lucrative ventures that are not exempt from tax notably the real estate sector or indeed in other productive sectors or conspicuous consumption that is taxable. To be able to tax this income the FBR needs to work closely with the provinces and access their data to better track the money trail that may start on the farm but end up in sectors that are liable to tax. While this would no doubt not capture all the farm income of rich landlords yet it would certainly be able to capture a major portion of such income.
In addition, the FBR recently announced that it had identified over three million non-filers, people who it needs to go against instead of offering them an amnesty scheme. This scheme is unlikely to bear fruit in attracting money banked by Pakistanis abroad with several governments mulling over proposals to disallow resident Pakistanis from banking in their country as these Pakistanis may opt to shift their assets to offshore accounts and/or to countries where they would be allowed to bank their assets - a line of action that they may prefer due to their concerns over the taxes that maybe imposed on this income at a future date.
Revenue collection remains a major source of concern to multilaterals as well as bilateral donors. The October 4 press release issued by visiting International Monetary Fund team stated that the "underlying inflation remains high and represents a regressive tax that disproportionately hurts the poor." The IMF proposed that "on the revenue side, while there has been some improvement in collections, tax revenue should be raised further through sustained policy measures and strengthened administration both at the federal and provincial level, including a significant step-up in the Federal Board of Revenue's enforcement activities". Or, in other words, the IMF suggested that not only is there a need to implement policy measures that must include rendering that tax system more equitable, less anomalous and more fair but there is also a need to step up FBR's enforcement activities that must include proactively going after the evaders and by sharing data with the provinces follow the money trail to investments that are taxable. To conclude, raising tax revenue is very doable but a commitment to reforming the structure, by, for example, closing the sales tax chain, and stepping up enforcing activities are critical to achieving this objective.