Revenue collection challenge for FBR as imports fall

ISLAMABAD: Following import compression, the FBR has been faced with the enormous burden of addressing a revenue shortfall at the import stage in the current fiscal year’s continuing month (October 2022).

The duty is now on the Inland Revenue Service (IRS) to bridge the gap created at the start of the import stage by including customs, withholding tax and sales tax on imports.

“To prevent an estimated shortfall for the current month (October 2022), the FBR will have to collect additional taxes through direct taxes (DT) such as income tax and general sales tax on the domestic stage,” official sources in the FBR revealed to The News on Wednesday.

On the other hand, the IMF has conveyed its concerns over a possible shortfall on account of the Petroleum Development Levy (PDL) and asked Islamabad to curtail the budget and primary deficits within the planned limits. On the eve of the last review accomplished in August 2022 and the report released on Sept 1, 2022, it stated that in case of a shortfall, there should be a contingency plan to take additional taxation measures, including slapping 17 percent GST on POL products and increasing FED on beverages and tobacco. The government had already jacked up taxation on tobacco, so now there is no other option but to increase taxation on POL and beverages if the revenue faces a shortfall.

On the sidelines of the IMF/World Bank annual meetings, the Fund staff expressed concern over Islamabad’s lacklustre approach to slapping PDL on petroleum products, following which the government jacked up PDL in the second half of October when Pakistan’s team was visiting Washington.

However, Federal Minister for Finance Ishaq Dar argued before the IMF high-ups that the government would curtail the budget deficit within the desired limits but there should be exceptions related to flood-related expenditures. There should be no concern from the IMF about where the government manages its revenue targets, including the FBR collection target and the PDL, but overall revenue collection would be materialised despite the compounded difficulties that surfaced in the aftermath of severe floods.

The government planned PDL to the tune of Rs855 billion for the current fiscal year, with the possibility of jacking up the PDL ceiling to Rs50 per liter. At the existing pace, the IMF expects that there might be a shortfall in the current fiscal year, so the government would be asked to take other additional measures to bridge the gap to avoid slippages on the envisaged budget deficit, especially the primary deficit for the current fiscal year.

The FBR, in its official tweet, stated on Monday that the board collection touched Rs2,000 billion, a month earlier than last year. The FBR also expressed optimism about achieving the collection target set for FY2022–23. The FBR’s tax collection envisages Rs7,470 billion for the current fiscal year.

The FBR envisaged a tax collection target of Rs534 billion for the outgoing month (October 2022). The FBR had collected Rs1,635 billion in the first quarter (July-September) period of the current fiscal year against the fixed target of Rs1,609 billion, so it surpassed the target by Rs26 billion. For September 2022, the FBR collected Rs685 billion, against the desired target of Rs684 billion.

In the wake of import compressions, the FBR faces difficulties in materialising the desired tax collection target for the ongoing month (October 2022) as the Large Taxpayer Units (LTUs) located in Karachi, Lahore, and Islamabad might face difficulty in achieving the targets. In the case of Karachi LTU, the tax collection target was fixed at Rs150 billion for October 2022 but it was expected that maximum collection could go up to only Rs130–135 billion. So in one office there was an expected shortfall of Rs15 to Rs20 billion.