Effortless revenue gains

LAHORE: It looks odd that the tax revenues are still up when the production in the revenue generating sectors is on sharp decline. Auto sector production has declined by 50 percent; cement production is down 16 percent.

The Federal Board of Revenue (FBR) has collected net revenue of Rs1,841 billion during July-October of current financial year 2021-22, which has exceeded

the target of Rs1,608 billion by Rs233 billion. This represents a growth of about 36.6 percent over the collection of Rs1,347 billion during the same period last year.

This is good for the country, but it is a mystery how this was achieved. Large scale manufacturing posted a nominal decline of 0.4 percent in the first quarter of this fiscal.

The FBR has not expanded its tax base. The imports of all major raw materials have been curtailed by 50 percent.

Has under filing been controlled and under-invoicing checked?

We need even more revenue as our fiscal deficit is much higher. We have the potential to double these revenues.

If the FBR can increase tax collection by over 36 percent in the recessionary period of July-October, then we must expect it to double its revenues when import restrictions are lifted.

In fact, the revenues can be doubled even with import restriction if the FBR employees make efforts in the field to nab tax evaders.

Currently, 96 percent of the total tax revenue is collected automatically through indirect methods. The income tax of employees is deducted automatically from their salaries every month.

Most corporate and business entities deposit their income tax in withholding tax mode.

There might be many employers that deduct income tax from employees’ salaries but do not deposit it with the revenue department.

In fact, the federal tax ombudsman identified few such cases. If the FBR staff of over 25,000 moves in the field and makes efforts to nab tax evaders, the tax collection could reach the roof.

The lethargy of tax collectors can be judged by the fact that FBR is sitting on a data mine of financial dealings that millions of citizens conduct round the year. But they either restrict themselves to issuing notices periodically for the last 10 years, or they do not have the heart to confront the influential tax evaders.

Another factor could be that they have compromised after obtaining their rent.

It seems that the revenue increase has got little to do with the FBR efforts. Most of the revenue increase was achieved through indirect taxes.

The sales tax was levied on all processed foods that contributed to higher revenues. A major part of increased revenue was generated from the levies on petroleum products.

The registration of point of sales outlets also contributed to additional taxes. And with the abnormal increase in power rates, the taxes on power bills have also multiplied.

All these measures impact the poor more than the affluent.

And the tax evaders that have accumulated illegal wealth continue to enjoy life without paying any taxes.

The additional revenues have come without any efforts by the tax collectors.