Taxation target?

The message from the government on the taxation target has become more and more confusing this week. Talking at Parliament House about the Rs5.5 trillion taxation target, FBR Chairman Shabbar Zaidi on Monday said that the IMF had refused requests to slash the annual target. Despite this, he insisted that the FBR will continue to try and convince the IMF that reducing the target was the only way forward. This is not an unexpected situation. The taxation target was double the tax collection in the previous year, which means that it would be near impossible to reach that lofty figure amidst an economy undergoing contraction. The words from the FBR chairman offer a slight relief to citizens, although the cut in tax target being proposed is not more than five percent at the current moment. Based on current projections, the IMF and the government worked out that realistic tax collection would hit a maximum of Rs5,270 billion based on the current tax collection. Independent projections estimate a maximum of Rs4,500 billion that the FBR can realistically collect.

This means that the FBR could be looking towards a serious shortfall in actual tax collection – which is going to look even worse if the taxation targets are not adjusted accordingly. No doubt this is something that should have been done when the budget was being drafted, rather than now. Much of the confidence that the target could be met came from the FBR just before the budget was announced. Having taken stock of the real situation, the FBR seems to have changed tune. However, Finance Adviser Hafeez Shaikh has insisted that the government would try to exceed its revenue collection, especially in the area of non-tax revenue. What that means as far as the relationship between the tax authorities and the finance ministry goes remains to be seen, but the plans to create a new tax authority could be a result of the two authorities not seeing eye to eye.

The trouble is that tax collection is already facing a Rs170 billion shortfall after the FBR confirmed that it has only collected Rs1,280 billion against a target of Rs1,447 billion. This is 16 percent higher than last year, but puts the government’s fiscal plans in jeopardy. Already, the government has put forward a precariously balanced budget, which projects the highest fiscal deficit in the country’s history. The FBR not being able to meet its targets would put it in a worse situation. There is, though, a strong case for biting the bullet and accepting that the tax collection target was always too high to start with. One would hope sense will prevail; otherwise, we can look forward to another mini-budget with new tax measures in the coming months.