ISLAMABAD: In the wake of continued import compression, the Federal Board of Revenue has projected a downward revision in the tax collection target by Rs170 billion and now estimates to fetch Rs7,300 billion by June 30, 2023, against an earlier target of Rs7,470 billion.
The revised projection of FBR’s tax collection target will be shared with the IMF on the sidelines of upcoming Donors Conference for reconstruction in the flood-affected areas, scheduled to be held in Geneva on January 9, 2023, whereby the Fund’s delegation, led by the IMF’s mission chief, is expected to participate.
The FBR has accomplished its internal workings and assessed that the tax collection target of Rs7,470 billion would be missed by a margin of Rs170 billion. So, the annual tax collection will fetch Rs7,300 billion into the national kitty.
According to the work done by the FBR and shared with the Ministry of Finance, the import compression played havoc with tax collection, so the customs duty collection witnessed a dip in the first half (July-Dec) period of the current fiscal year.
The FBR’s Inland Revenue has estimated that they would be able to materialise the assigned tax collection target in the second half (Jan-June) period of the current fiscal year, so the income tax, sales tax and federal excise duty (FED) related targets would remain intact. The FBR anticipates income tax collection of Rs3,024 billion, sales tax collection of Rs3,076 billion, and FED collection of Rs402 billion. The target for customs duty collection was Rs953 billion. Sources said that through internal arrangements, the customs duty collection target was jacked up and set at Rs1,150 billion. In the first six months (July-Dec), the FBR collected Rs470 billion through customs duty collection, with a potential shortfall of Rs 90 billion.
The compression of imports resulted in reduction of $9 billion; the imports stood at $31 billion in the first six months of the current fiscal year against $40 billion in the same period of the last financial year. As a result, the contribution of tax collection at the import stage fell from 52 percent in the previous fiscal year to around 43 percent in the first half of the current fiscal.
Now the customs authorities have estimated that they might face a shortfall of Rs110 billion in the second half of the current fiscal year, but through various administrative measures they would be able to fetch Rs30 billion, and the expected revenue shortfall would be around Rs170 billion for the whole financial year.
To keep the budget deficit within the agreed-upon limit with the IMF, the government has finalised the imposition of flood levy in the range of 1 to 3 percent through a presidential ordinance to discourage imports. On the proposal of slapping a windfall profit tax, the government has changed its mind and is now considering imposing it in the form of a levy. These two measures, in the form of a levy, will generate Rs94 billion in revenue in the second half of the current fiscal year.
The flood levy in the range of 1 to 3 percent on imports will bring in revenues of Rs70 billion, and the levy in the form of windfall profits from the banking sector is expected to collect Rs30 billion.
However, the government decided to keep revenue estimates from the mini-budget on the lower and more conservative side.
It is quite hard to predict the imports’ compression in the remaining period of the current fiscal year.
The FBR has assumed that the import compression will not further aggravate in the coming months, and with the status quo, the revenue collection will face a Rs170 billion dip.
