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March 20, 2019

Record shortfall


March 20, 2019

Instead of getting better, as was promised, tax collection in Pakistan is set to hit a historic low by the end of this fiscal year. The government’s own projections anticipate that the FBR will hit a Rs485.9 billion shortfall by June this year. The development should be alarming, in a context where the FBR has made much hoopla about every letter it has sent and every new tax initiative whispered in its corridors. In reality, its actual performance can be considered the poorest ever, and the fault must be shared with the sitting PTI government. Going by its own words, the PTI government came in with an agenda to ‘tighten the ship.’ After taking power, the government had promised two things: it would tighten government spending and increase revenue. The numbers, though, tell a different story. While one must wonder how much of the downfall was in the control of the government and how much in the hands of the FBR, surely the government must question its own strategies if the budget deficit hits 7 percent of the GDP this year. With development spending already slashed, where will the government find places to cut down in the budget for next year?

The trouble with fiscal tightening is that part of the revenue shortfall has come from two key components: reducing development spending and reducing imports. The government can claim that both of these were necessary, but one must question why the revenue expected from both was not adjusted accordingly. Lower government development spending alone is set to lead to a Rs80 billion shortfall in revenue collection, while customs is set to contribute another Rs50 billion less than projected. Reduced salary rates will contribute Rs50 billion in revenue lost. Moreover, the SC’s orders against withholding taxes on telecom will cause a Rs55 billion loss, but this is an issue where the government was in the wrong in the first place.

Shortfalls are also there in the collection of withholding tax, sales tax, petroleum tax. What is more worrying is that the next four months are set to be worse than the first eight months. The shortfall between July, 2018 and February, 2019 was Rs233.2 billion. The shortfall projected for the next four months is Rs252.7 billion. This means that, if anything, the performance of the government and the FBR is getting worse. While much of the shortfall has to do with policy measures, there would be less of a problem had the projections not been so off the mark. Given that the need to increase revenue collection itself is quite obvious what with the high budget deficit, the bigger issue is over-projecting revenue. The numbers do not look good.

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