ISLAMABAD:
In a significant setback, the government has missed its two-month tax collection target by a wide margin of Rs111 billion, despite imposing a record Rs1.8 trillion in new taxes in the budgetexacerbating economic hardship for citizens.
This shortfall casts serious doubt on the credibility of the national budget and the feasibility of the $7 billion International Monetary Fund (IMF) programme, which now appears irrelevant even before its approval by the IMF executive board.
According to provisional figures, the Federal Board of Revenue (FBR) managed to collect only Rs1.441 trillion by the end of August, compared to the Rs1.554 trillion target for July-August. This represents a growth rate of 26%, significantly lower than the 40% growth rate needed to achieve the annual goal. Consequently, the FBR fell Rs111 billion short of its target.
The FBR’s provisional figures may improve by Rs5 to Rs10 billion after the final clearance from banks, but this will still leave a substantial gap.
Government sources suggest that a mini-budget may be imminent if the IMF insists on adhering to its fiscal framework, which is based on an ambitious Rs12.97 trillion annual tax collection target. This target forced Pakistan to introduce Rs1.8 trillion in new taxes, which primarily affect the salaried class and increase the cost of essential goods, including medical tests, stationery, vegetables, and infant milk.
Despite these measures, the FBR missed its targets for sales tax, federal excise duty, and customs duties. Income tax collection was the only exception, where the FBR exceeded its target.
Prime Minister Shehbaz Sharif’s decision to appoint Rashid Langrial, a distinguished officer from the Pakistan Administrative Service, as the new FBR chairman has so far failed to produce the desired results. Langrial replaced Amjad Zubair Tiwana, who was compelled to take early retirement after being sidelined by the government.
The FBR successfully met its revenue target for July but fell short of August’s target by Rs115 billion. The government aims to collect an additional Rs3.7 trillion in taxes from the struggling economy, including over Rs1.8 trillion in new taxes. This has resulted in a maximum income tax rate of 39% for salaried individuals, with business owners facing a 50% tax rate.
The government has also imposed an 18% tax on milk, infant milk, and fat-filled milk, as well as a 10% tax on stationery items. Additionally, an 18% sales tax has been levied on imported vegetables and fruits from Afghanistan, and even everyday items such as buns and rusks have been taxed at 10% GST. Medical tests have also been subjected to tax.
Under the terms of the agreement between Pakistan and the IMF, the government must introduce additional measures if revenue falls short. This could lead to a mini-budget targeting sectors such as fertilisers, imports, and professional and contractor incomes.
Pakistan is already struggling to secure external financing from bilateral creditors to meet the IMF’s prior conditions. The Rs111 billion revenue shortfall for the first two months of the fiscal year further complicates the situation, and the gap is expected to widen in September.
The IMF has released its board meeting agenda through September 9, and Pakistan’s case has not been included.
For the first quarter, the IMF has set a tax collection target of Rs2.652 trillion for Pakistan, requiring the FBR to collect Rs1.22 trillion in September alonean increasingly unlikely prospect given the poor performance in August.
The details show that income tax collection for the first two months of the fiscal year amounted to Rs610 billion, which is Rs150 billion, or one-third, higher than the previous year. This increase was driven by higher banking profits and increased contributions from salaried workers, with income tax collections exceeding the two-month target by Rs30 billion.
Sales tax collections totalled Rs570 billion, up by Rs112 billion or 24% compared to the previous year, but still fell short of the target by Rs40 billion. The FBR collected Rs236 billion in domestic sales tax, compared to Rs143 billion last year, driven by the imposition of new taxes, including those on milk. At the import stage, sales tax collections increased by 6% to Rs332 billion.
The FBR collected Rs96 billion in federal excise duty, which was Rs22 billion or 30% higher than the previous year. However, the excise duty target was missed by a significant margin of Rs39 billion, despite doubling the duty on cement and introducing new taxes on lubricant oil and property transactions.
Customs duty collections reached Rs170 billion, an increase of Rs12 billion or 7%, but still fell Rs58 billion short of the two-month target.
For August, the IMF had set a tax collection target of Rs898 billion for the FBR. By the end of the month, only Rs783 billion had been collected.
