FBR has to collect Rs1.196tr in Sept to avoid IMF demand for more revenue steps

ISLAMABAD: The Federal Board of Revenue (FBR) confirmed on Sunday that tax collection in the first two months of current financial year, July and August, stood at Rs1,456 billion against the target of Rs1,554 billion, showing a shortfall of Rs98bn in line with the target agreed with the IMF.

Now the FBR has to collect Rs1,196 bn during the ongoing month (Sept 2024) for putting up Rs2,652 bn collection till September 30, 2024, as agreed with the IMF; otherwise, the Fund might come up with the demand of a mini-budget if the shortfall exceeds by more than Rs60 billion in achieving the first quarter target.

The chart shared by the FBR also showed that inflation receded from 28 to 11 per cent in the first two months, compared to the same period of the last fiscal year that also resulted in reduced tax revenues.

According to the FBR’s announcement made on Sunday, the Board collected gross revenues of Rs1,588 billion for the months of July and August 2024. Against a target of Rs1,554 billion, the FBR collected Rs1,456 billion in net revenue and refunds of Rs132 billion (44pc more than last year) were issued to the exporters to resolve their liquidity problems.

The FBR collected Rs593 billion under the head of domestic income tax as compared to Rs437 billion in July and August 2023, thereby showing a growth of 36pc. A healthy year-on year growth of 40pc was achieved in the domestic sales tax with collection of almost Rs314 billion. Around Rs86 billion were collected as Federal Excise Duty (FED) showing a year-on-year increase of 13pc.

As a result, a cumulative growth of almost 35pc has been achieved in the collection of domestic taxes. However, on the import side, the same momentum could not be maintained due to continued compression in imports. In US dollar terms, imports in the country have declined by 2.2pc in August 2024 as compared to August 2023. Similarly, the imports during August 2024 in PKR value also showed a decline of 7pc as compared to August last year.

Moreover, the import of high duty items such as vehicles, home appliances, as well as miscellaneous consumer goods such as garments, fabrics, footwear etc., have reduced significantly, changing the import mix. This trend has impacted the collection of Customs duties as well as other taxes collected at import stage. Despite a modest increase of 4pc in collection of Customs duties, the FBR’s overall growth in net collection registered a 21pc increase on collection of previous year. The FBR is likely to achieve the revenue targets of the first quarter as both the economic activity and imports are expected to show a healthy turnaround in the month of September due to lower policy rate and other interventions being made by the government in recent months.

The growth is also likely to show a significant increase as a result of digitisation and other FBR’s reforms, which are currently being very keenly supervised by the prime minister and finance minister. These reforms include end-to-end monitoring of supply chains, automated production monitoring, POS, AI-based data integration, import scanning and strict integrity management of FBR workforce. The FBR is also doing a revamp of its business processes to facilitate business growth and ease.