Tax revenue growth in FY19 turns negative first time in half century

KARACHI: Pakistan has witnessed a negative growth in tax collection during the last fiscal year, first time in more than half a century due to dismal performance in revenue mobilisation, official data showed on Friday.

The Federal Board of Revenue’s (FBR) Year Book 2018/19 showed that the FBR collected Rs3.828 trillion during the last fiscal year and failed to reach numbers of Rs3.844 trillion in the preceding fiscal year. Tax collection declined 0.4 percent or Rs15.3 billion year-over-year. Last time, the negative growth of 2.6 percent was recorded in 1967/68 in the FBR revenue collection, according to the annual year book.

The FBR faced Rs607 billion of shortfall against actual revenue collection target of Rs4.435 trillion during the fiscal year of 2018/19. The tax collecting agency further admitted that it had missed the second revised target of Rs4.150 trillion by Rs321.5 billion and collected Rs3.828 trillion.

The FBR attributed the revenue shortfall to suspension of withholding tax on telecom sector by the Supreme Court, reduction in government spending, cut in tax rates on salaried income and import compression. Tax losses included Rs96 billion from petroleum, Rs55 billion from telecom, Rs80 billion on account of reduced government spending, Rs16 billion due to import compression, Rs50 billion due to reduced rates for salaried individuals, and Rs50 billion due to reduction in customs duty.

The FBR said the overall growth in net tax collection declined Rs15.3 billion in FY2019 when compared with the collection of the preceding fiscal year.

The collection of federal excise duty grew around 11.6 percent and custom duties 12.7 percent during the last fiscal year, whereas the sales tax and direct taxes recorded negative growth of 1.8 percent and 5.9 percent, respectively.

In 2018-19, the sales tax was the top revenue generator with 38.1 percent share in total tax collection, followed by direct taxes (37.8 percent), custom duties (17.9 percent) and federal excise duty (6.2 percent). During the last fiscal year, the share of customs duty and federal excise duty increased, whereas the share of direct taxes and sales tax decreased.

The FBR said the last quarter (April – June) of 2018/19 was the worst in terms of tax revenue collection. Monthly growth trend indicated a very good increase in July 2018 and May 2019, but during the remaining ten months either growth was below the double digit or negative.

Negative growth in revenue collection was recorded during five months as compared to corresponding months of the previous year, which was in fact very unusual. “The revenue performance during April and June was very poor with around - 30.7 percent and - 8.9 percent growth,” the FBR said.

The FBR released refunds of around Rs121.6 billion last fiscal compared to around Rs154.7 billion cleared in the preceding fiscal year. The refund amount paid during FY2019 was Rs33.1 billion lower compared to the preceding fiscal year.