A ship without a captain

Mehtab Haider.
March 09, 2020

The government seems indifferent to the increasing fiscal woes of the country as they are least bothered with the growing criticism on widening gap between revenues and expenditures and their inability to find and appoint a suitable and permanent head for Federal Board of Revenue (FBR).

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The government seems indifferent to the increasing fiscal woes of the country as they are least bothered with the growing criticism on widening gap between revenues and expenditures and their inability to find and appoint a suitable and permanent head for Federal Board of Revenue (FBR).

After the departure of outgoing Shabbar Zaidi on medical grounds, Nausheen Javed has been given the charge of acting chairperson at a time when the FBR is facing a mammoth revenue shortfall. How can she focus on achieving revenue collection target when there was no knowing whether she will be in the office of chairperson or not? In such an uncertainty it can easily be predicted the FBR is heading towards recording an historic revenue shortfall in the current fiscal year.

It is the discretion of Prime Minister (PM) Imran Khan to take a decision to this effect. What has barred him for making this appointment is beyond comprehension. The gravity of the situation can be assessed by the fact the FBR is required to collect over Rs21 billion every day over next 120 days without considering any holiday in March-June period to achieve the revised tax collection target of Rs5.238 trillion.

There are some practical problems and the PM has not yet firmed up his mind regarding appointing Special Assistant to PM on Revenues Haroon Akhtar Khan at this position. However, the Adviser to PM on Finance Dr Abdul Hafeez Shaikh wants to see chairman FBR of his choice and Ahmed Mujtaba Memon is his top choice.

If the PM decides to appoint Akhtar his Special Assistant on Revenues, the premier will have to take the decision on what will be his reporting line. Will Special Assistant to PM on Revenues report to Dr Shaikh first and then to PM and how much powers he will have to appoint the team of his choice into the folds of the FBR? The proposal for appointing Akhtar as chairman is unacceptable to him as his close confidants say he will not accept any weak position, where he has to wait for approvals for weeks and by end of day face inquiry for any failure.

On one side this political game is on, while the FBR, on the other, is faced with a massive tax shortfall in the first eight months (July-February) of the current fiscal year.

The board collected Rs2.714 trillion during the July-February period against the revised downward target of Rs3.039 trillion, so the shortfall stood at Rs325 billion.

The deficit has been yawning further with every passing month as it increased Rs107 billion in February 2020 and ballooned from Rs218 billion in the first seven months to Rs325 billion in the eight months.

The FBR had envisaged a tax collection target of Rs5.555 trillion on the eve of the budget for 2019-20 but after the completion of the first review and release of second tranche under the International Monetary Fund (IMF) programme, the government had slashed down the target in writing from Rs5.555 trillion to Rs5.238 trillion, so monthly and quarterly targets also got reduced accordingly.

The FBR has provisionally collected Rs310 billion in February till February 28, 2020 against the desired target of Rs417 billion, indicating a mammoth shortfall of Rs107 billion alone in one month (February).

The FBR will have to collect Rs2.524 trillion in the remaining four months (March-June) in order to display its downward revised target of Rs5.238 trillion on its board on June 30, 2020.

During the recently-concluded staff level agreement with IMF, the government made a fresh request to further slash down the FBR target from Rs5.238 trillion to Rs4.800 trillion.

In order to compensate for the FBR’s shortfall, the government jacked up the petroleum levy on hydrocarbon products for pocketing an at least additional Rs10 billion on a monthly basis with effect from March 1, 2020.

The government has made commitments with the IMF for increasing non-tax revenues in order to make up for the FBR shortfall.

Now the government adopted the strategy to increase its reliance on non-tax revenues. This strategy is under implementation. Through increased non-tax revenues, the government has saved the IMF programme from derailment. By submitting the revised fiscal plan where the reliance on State Bank of Pakistan (SBP) profit increased and dependence on petroleum levy also jacked up, the government paved the way for striking staff level agreement with the IMF last week.

Now after getting implementation on additional measures, the IMF’s Executive Board will consider approval of third tranche worth $450 million under $6 billion Extended Fund Facility (EFF).

However, the government has adopted this course of action for increasing non-tax revenues because it does not become a part of federal divisible pool (FDP) under National Finance Commission (NFC) and the provinces do not have any share in this revenue stream. If the government had decided to raise the GST (general sales tax) on petroleum products then it would have become part of the FDP and the provinces would have claimed their lion’s share out of it in accordance with resource distribution formula under the NFC arrangement.

Keeping in view the increasing shortfall, the government decided to jack up petroleum levy under the IMF programme because oil prices had tumbled in the international market, giving the government an option to not to pass on its full benefits to the consumers by increasing petroleum levy substantially.

The petroleum levy on diesel was increased by Rs7.05 to Rs25.05/litre.

If the government had kept it constant at the previous level of Rs18/litre, the diesel would have become cheaper by Rs7.05/ liter.

Similarly, the said levy on petrol was raised by Rs4.75 to Rs19.75/litre. Had it not been done, the petrol would have gone cheaper by another Rs4.75.

On kerosene, it went up by Rs6.33 to Rs12.33/litre and had it not been the case, its price would have come down by Rs6.33/litre.

The petroleum levy on light diesel increased Rs1.94 to Rs4.94/litre. If it were frozen at the previous Rs3/litre, the light diesel would go cheaper by another Rs1.94.

With this performance on the fiscal front, the government might manage second review of the IMF successfully in the first week of April but it would have to fix FBR’s revenue collection and energy sector issues, otherwise it would not be possible for Pakistan to complete the remaining reviews of fund programme with patchwork only.

The writer is a staff member

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