Populist PML-N tax reforms hinder PTI plans to double revenue collection

Islamabad: The outgoing government's last-gap populist decision to slash income tax rates has created a dilemma for Prime Minister Imran Khan and his stated target of doubling revenue collection.

In his maiden televised address to the nation, Khan announced plans to overhaul the Federal Board of Revenue (FBR), with a view to set Pakistan on the path to fiscal independence.

However, the FBR would struggle to achieve the budgetary targets set for the financial year 2017-18, because the recent reforms effectively exempted 1.2 million out of 1.4 million taxpayers, according to FBR estimates. The FBR has been instructed to collect Rs4,435 billion this year, against actual collection of just Rs3,735 billion in the fiscal year which concluded on June 30 - itself a Rs200 billion shortfall on the three times-revised target.

In these circumstances, the FBR would struggle to formulate a workable plan to achieve the Rs8,000 billion revenue target publicly set by the leadership of the Pakistan Tehreek-i-Insaf (PTI) administration.

FBR statistics made exclusively available to The News showed that the sharp increase in the tax exemption ceiling to Rs1.2 million a year from Rs400,000, and the corresponding reduction in fixed payable rates, had serious implications for the exchequer.

“This one step has resulted into exclusion of 1.2 million from tax net out of total 1.4 million so there is only 200,000 taxpayers exists on the list,” an FBR assessment said.Its analysis of total returns of the 1.4 million taxpayers revealed that 634,688 salaried employees, businessmen, "Associated of Persons" and companies earned Rs400,000 in the previous fiscal year. They would not be liable to pay income tax this year.

Similarly, a further 431,452 individuals - whose annual taxable income was greater than Rs 400,000 but less than Rs 800,000 - would each now pay a symbolic amount of tax.

The same is applicable to the 140,756 taxpayers who earned more than Rs 800,000 but less than Rs 1.2 million during the previous fiscal year. FBR statistics showed 158,250 taxpayers declared income of more than Rs 1.2 million and less than Rs2.4 million per annum. There were 40,441 taxpayers with taxable income of more than Rs2.4 million and less than Rs3.6 million. Some 45,278 taxpayers declared an annual income of more than Rs3.6 million.

Politically, any move to reverse tax relief measures is bound to be highly unpopular, posing a difficult challenge for the revenue-hungry PTI-led coalition government, a ranking FBR official told The News.

“There is a need to expand the number of potential taxpayers under a broadening of the tax base. Otherwise, any exercise would be rendered eye wash and have no impact on removing the fiscal woes of the country,” he said.