Short on revenue

Every year the government presents a budget that sets unrealistically high targets for economic growth and revenue collection. The fantasy the government indulges in, to appease the IMF’s demand for a smaller budget deficit, is that tax collection will improve by many multiples. Invariably, many months later, it quietly admits that revenue targets won’t be met. That same rigmarole has played out again. The budget for the current fiscal year had projected a revenue increase of 16 percent over the previous year but in the first eight months of the fiscal year it has only achieved an eight percent increase. This leaves us facing a Rs300 billion shortfall from the revenue target should the current rate of collection continue. The smallest increase, as always, has been in the collection of income tax. As everyone is all too aware, the state has never had the will to collect income tax from the wealthy. Much of the tax burden is borne by the salaried class whose income tax is collected at source. Even adopting punitive measures, like higher interest rates for bank transactions and loans, for those who do not file their tax returns has made a negligible difference to the rate of collection. With the industrial and financial elite closely allied to the government – no matter which party is in power – there has never been a serious crackdown on tax evasion.

Rather than going after the rich, the government tries to make up the shortfall by imposing more taxes on those who can least afford it. The largest growth in revenue collection has been through the GST, where the government has collected Rs1 billion more than it did during the corresponding period in the previous fiscal year. The GST is highly regressive and hits the middle class and the poor hardest. It is also surely not a coincidence that petrol and diesel prices have been raised at a time when revenue targets could not be met. The IMF has long advocated removing all power subsidies and the government, reluctant to go after tax dodgers, can use this as a way to reduce the budget deficit. Once again it is the working class that suffers the most. The FBR had estimated that the number of active taxpayers would rise to 1.8 million in the current year, itself a figure which is a fraction of the people who should be filing income tax returns. The number in the Active Taxpayers List issued in February stands at 1.21 million. The government should be focusing on adding the number to that list rather than raising the GST and removing power subsidies. Right now, the strategy seems to be to balance the budget on the backs of the poor.