ISLAMABAD: The Federal Board of Revenue missed its revenue collection target by nearly Rs386 billion in the first half of the current fiscal year, as a decline in imports and lower-than-expected inflation impacted tax receipts.
According to provisional figures released on Tuesday, FBR collected Rs5.623 trillion between July and December against the target of Rs6.009tr. However, the collection is 26pc higher compared to the year-ago figure of Rs4.466tr.
The shortfall is largely attributed to reduced tax collection from imports due to a slowdown in trade, sluggish manufacturing growth and unexpectedly low inflation, which has dropped to single digits in recent months.
December alone saw a gap of Rs47bn, with Rs1.326tr collected against a target of Rs1.373tr. However, this represented a 35pc increase compared to Rs984bn collected in December last year.
Slowdown in imports, low inflation hamper tax collection in July-December
The government’s overly ambitious revenue target of Rs12.913tr for FY25, a 40pc increase from FY24, is now backfiring. The refusal to cut expenses and the unexpected hike in the revenue target make it seem nearly impossible to achieve.
The FBR paid Rs273bn in refunds to taxpayers in the first half of the FY25, up from Rs234bn in the same period last year, representing a 16.66pc increase. The FBR paid Rs70bn in refunds in December compared to Rs38bn in the same month last year, a reduction of 84pc.
The government believes that the additional revenue of Rs3.659tr in FY25 will be achieved from three main factors. It hopes that GDP growth of 3pc, large-scale manufacturing expanding at 3.5pc with inflation at 12.9pc, and imports growing at 16.9pc will collectively yield an additional Rs1.863tr in revenue in FY25.
Independent economists estimate that real revenue collection in FY25 will be approximately Rs12tr.
FBR Chairman Rashid Mahmood Langrial said in the second quarter, FBR achieved the highest tax-to-GDP ratio per quarter in the last four years. The tax-to-GDP ratio for the second quarter is 10.8pc, which surpasses the IMF target of 10.6pc.
The IMF team will visit Islamabad in late February or early March to conduct the first economic review under the 37-month, $7bn EFF. The revenue shortfall is expected to be managed by adjusting autonomous growth and reducing expenditures instead of introducing new taxes.
In July-December, income tax collections totalled Rs2.780tr, exceeding the target of Rs2.524tr by Rs256bn. The income tax collection recorded a growth of 29pc when compared with last year’s collection of Rs2.149tr.
The sales tax collection fell short of the target by Rs380bn in the first half of FY25, totalling Rs1.898tr. The sales tax collection recorded a growth of 25pc compared with last year’s collection of Rs1.514tr. The customs collection also fell short of the target by Rs155bn as its collection stood at Rs598bn during the months under review.
Published in Dawn, January 1st, 2025
