Revenue collection unlikely to rise to occasion

Tax collection is expected to remain challenging for third straight year (2021), primarily due to sluggish economic activities, which no sooner had started recovering from the first than they were hit by the second wave of COVID-19, whose mutated variants are now posing new threats around the world.

Federal Board of Revenue (FBR) is a federal tax collecting agency and contributes around 64 percent of the total revenue collection in the country.

So far, FBR’s performance is not good enough to help reduce budget deficit and create room for other development expenditures.

The FBR managed to post 4 percent growth in collection during the first five months (July–November) of 2020/2021. It collected Rs1,688 billion during the period under review as compared with Rs1,623 billion collected in the same period last fiscal year.

The tax agency was assigned a collection target of Rs4,963 billion for the tax year 2021 at 24 percent growth over the preceding year’s total collection of Rs3,997 billion.

Given the current performance, the FBR needs another Rs3,275 billion during next seven months of this fiscal year at 38 percent growth rate to achieve the revenue collection target, which is a gigantic task.

It may be noted that the overall economy was dampened due to coronavirus pandemic and revenue collection was no exception.

However, the revenue collection growth in the first five months should have been higher owing to inflationary expansion and GDP growth target for this fiscal year.

The average consumer price index (CPI) increased 8.75 percent during July–November 2020/2021. In the budget speech, the GDP growth for the fiscal year under review had been estimated at 2.1 percent.

Therefore, the growth in revenue collection may be around 10 to 11 percent during the first five months of FY21.

According to budget documents for FY21, the government had estimated an increase of 5 percent in expenditures and budget deficit at 7 percent.

Therefore, any shortfall in revenue collection may balloon the budget deficit adding to the difficulties of economic managers in the next fiscal year.

Tax collection during fiscal years 2018/2019 and 2019/2020 remained discouraging that may be attributed to economic slowdown and the first wave of the coronavirus pandemic.

Revenue collection in FY2019 was the worst in the past 51 years.

“The overall growth in collection remained dismal during fiscal year 2018/2019. The overall collection fell by 0.4 percent, which is Rs15.3 billion lesser than the collection of fiscal year 2017/2018. It is pertinent to mention that last time the negative growth (-2.6 percent) was recorded in 1967-68 in the FBR collection,” according to the annual revenue collection report for fiscal year 2018/2019.

In the following year the revenue collection posted 4.4 percent growth to Rs3,997 billion as compared with Rs3,828 billion in the preceding fiscal year. The fiscal year 2019/2020 was a challenging year for tax collection. The FBR estimated the tax collection loss of over Rs500 billion due to coronavirus pandemic and subsequent lockdown.

“The average growth of the first eight months was 17.5 percent and if that same pace had continued, the collection of the FBR would have been around Rs4,500 billion,” said the annual revenue collection report for fiscal year 2019/2020.

The strain of the coronavirus pandemic continued in fiscal year 2020/2021, especially after the second wave of the pandemic.

The ministry of finance in its economic update for December 2020 hoped that FBR with its concerted efforts would improve the tax collection through various policy and the administrative measures, boosting tax collection in the coming months. “Moreover, with the current pace of tax collection, FBR is likely to achieve its tax collection target for the first half of the current fiscal year,” the ministry said.

Taxpayers, who were facing liquidity crunch due to the COVID-19, were facilitated through the release of refunds. The FBR issued refunds to the tune of Rs235 billion during fiscal year 2019/2020 as compared with Rs69 billion in the preceding fiscal year, showing an increase of 340 percent. Similarly, the issuance of refunds during the first five months of the fiscal year 2020/2021 was at Rs80 billion as compared with Rs41 billion during the corresponding period of the last fiscal year.

Moreover, the return filing for tax year 2019 made a history by hitting over three million. For the tax year 2020 the FBR received 2.2 million tax returns till December 26, 2020. Though the number of returns filed for tax year 2020 is much lower than the previous year, the FBR’s new stronger enforcement measures will improve it down the line.

The FBR will issue Active Taxpayers List (ATL) for tax year 2020 on March 01, 2021 and it is endeavoring to increase the number of return filers.

The FBR is issuing notices to taxpayers to comply with the mandatory requirement of return filing along with fine and penalty as the last date for filing expired on December 08, 2020.

Further, the taxpayers are also receiving notices of prosecution for non-compliance. As per the Income Tax Ordinance, 2020, deliberate non-compliance of return filing is an offence and punishment is one year imprisonment, which may extend to three years along with fine and penalties.

Besides, the FBR has also taken measures during the fiscal year 2020/2021 for the documentation of the economy such as enforcing video surveillance systems at manufacturing units and monitoring of sales at big retailers outlets.