FBR estimates Rs60bln in oil tax losses in first half

KARACHI: The Federal Board of Revenue (FBR) is likely to incur Rs60 billion in losses during the first half of the current fiscal year of 2018/19 as the government struggles to shed reliance on sale taxes on petroleum products, sources said on Monday.

The tax authorities also estimated a sharp decline of 46 percent in revenue collection from petroleum products in November 2018 owing to a significant reduction in sales tax rates, said the sources.

The sources said the estimates prepared by the Large Taxpayers Unit (LTU) Karachi showed that the constant reduction in sales tax on two main items, including motor spirit and high speed diesel (HSD) would bring the collection under the heads down to Rs15.7 billion in November from Rs29 billion collected during the same month of the last year.

The sources said the reduced sales tax rates on petroleum, oil and lubricant (POL) products are taking their toll on revenue collection. The LTU Karachi estimated the revenue loss likely to reach a staggering Rs60 billion during the first half (July-December) of the current fiscal year.

POL products have been the major source of revenue collection for the government. Yet, the historically-low sales tax rates on POL will make it difficult for the tax managers to achieve the annual revenue collection target, according to the sources.

Sales tax rates on motor spirit (petrol) witnessed a continuous decline since the start of the current fiscal year. Sales tax on petrol declined 16 percent in July over the same month of the last fiscal year. Sales tax on petrol was cut by 30 percent, 22 percent and 63 percent in August, September and October, respectively. Sales tax reduction for motor spirit was estimated at 61 percent for November alone.

Sales tax on HSD was raised by nine percent, 0.44 percent and 7.5 percent for July, August and September, respectively over the corresponding months a year ago. The government, however, decided to reduce sales tax on HSD by 15.54 percent year-on-year in October and a further 39.56 percent in November.

For November, the government fixed sales tax rates on motor spirit and HSD at 4.21 and 12 percent, respectively.

The FBR faced Rs60 billion in revenue shortfall during the first four months as it collected Rs1.106 trillion as against the target of Rs1.166 trillion.

Revenue collection during the first four months was, however, seven percent up from the collection of Rs1.034 trillion in the July-October period a year earlier. The FBR is required to maintain a 12.7 percent growth to achieve its annual target.

The government is facing a daunting task to raise Rs4.4 trillion in revenue in the current fiscal year and to contain budget deficit at 5.1 percent, compared to the earlier target of 4.9 percent, and as against 6.6 percent recorded in the last fiscal year of 2017/18.