FBR braces up for worst-ever tax performance in last quarter

KARACHI: Tax managers have estimated a massive 25 percent year-on-year decline in revenue collection during the last quarter of the current fiscal year as government-imposed lockdown adversely upset economic activities, unleashing a fiscal turbulence in an already fragile economy.

Tax officials on Saturday said the estimated collection of Rs845 billion during the last quarter of fiscal year 2019/20 would be around 25 percent less than what was collected in the same quarter of the last fiscal year. The Federal Board of Revenue collected Rs1.126 trillion during the last quarter of 2018/19.

The last quarter is always important period for tax authorities as they collect around 35 percent of the total annual collection during this period.

Coronavirus appeared in Pakistan in February after it first surfaced in Wuhan, China in December last year. The local authorities resorted to lockdown from March 23 to apparently stop the spread of the disease.

The lockdown, which still continues, halted almost all manufacturing and commercial activities. Since the closure of businesses started by March-end there was not much impact on the revenue.

The tax officials said the FBR would have disastrous last three months in terms of revenue as there seems to be a lockdown throughout April.

The annual collection for current fiscal year has been estimated at Rs3.908 trillion as compared with pre-COVID-19 estimates of Rs4.803 trillion. Therefore, the estimated impact of coronavirus on the revenue is around Rs895 billion.

The actual FBR’s collection target for the current fiscal year was set at Rs5.550 trillion, which was first reduced to Rs5.238 trillion. However, the latest IMF report on Pakistan showed latest estimates of Rs4.803 trillion in pre-coronavirus era.

The revenue collection in pre-coronavirus was neither encouraging. The FBR maintained the growth rate of 17 percent up till February but that was not sufficient to reach the revised targets.

However, coronavirus rendered huge losses to the economy and all the targets for economic growths are meaningless due to closure of businesses and halt of commercial activities.

“The economy could contract by 1.5 percent in FY2020 (the first full-year contraction since 1952), a downward revision of about 4 percentage points due to a decline in consumption, investment, international trade, remittances, and private capital flows,” IMF said in a report.

IMF said projected primary fiscal deficit to widen by 2 percentage points of GDP (from 0.8 percent of GDP before crisis) owing to decline in tax revenues due to the closure of businesses and disruptions to trade – import-related taxes account for around 40 percent of the federal tax collection.

Concurrently, the IMF estimated new external financing gap for the last quarter of current fiscal year at $2 billion, keeping SBP reserves at $12 billion by June-end, despite the respite provided by falling oil import bill.

Finally, the COVID-19 shock is likely to reverse the decline in public debt in recent months that was achieved through the fiscal consolidation efforts, the IMF said.

The tax to GDP ratio based on FBR’s collection has been projected at 9.3 percent in FY2020, which was 9.9 percent in the last fiscal year.

The normalcy in post COVID-19 is still uncertain. However, IMF said the economy might loss one trillion of tax revenue during next fiscal year.

The estimate of revenue collection was Rs6.138 trillion in 2020/21, but now the projection is Rs5.101 trillion for the next fiscal year.