Rs 56 billion monthly tax effect due to import compression, if continues, may worsen budget deficit, sources in the Finance Ministry said on condition of anonymity.

Sources further said that Rs 224 billion impact in revenue was noted due to import compression in the first four months of the current fiscal year (July-Oct). They added that FBR high-ups during the meeting with the Advisor to the PM on Finance Dr Abdul Hafeez Shaikh have claimed that primary reason for difference between the target and collection of revenue was import compression during July-October 2019 and stated that average 31 percent taxes are collected at import stage in the form of customs duty, sales tax and withholding tax at the rates, 7.93 percent, 17 percent and 6 percent, respectively.

Sources added that as per State Bank of Pakistan (SBP), monthly import compression (on the basis of first quarter $3.23 billion) was $1.08 billion with rupee value at $1= Rs 156 average.

Sources on condition of anonymity acknowledged that the growth in revenue collection would be far below the required 44 percent to achieve the projected tax target for the current fiscal year and shortfall in revenue collection would consequently increase fiscal deficit and may make it difficult for achieving primary deficit target agreed with the International Monetary Fund (IMF) in the coming reviews of $6 billion Extended Fund Facility (EFF).

There has been reliance, according to sources, on retail and wholesale sectors with sources maintaining that "if growth in revenue comes, it would be from service as well as retail and wholesale sectors and the tax authorities are trying to find a middle way."

The government has twice postponed implementation of CNIC condition - first for two months and recently for another three months - making it effective from February 2020 onwards. It is unclear whether the CNIC condition would be implemented during the remaining five months of the current fiscal year or not.