FBR misses direct tax collection target as income falls: annual report
KARACHI: The tax authorities have missed the collection target of direct taxes for the fiscal year 2020/21 due to a fall in the income of taxpayers, the Federal Board of Revenue (FBR) said in its annual report issued on Friday.
Initially, the collection target of direct taxes was set at Rs2.043 trillion for the fiscal year 2020/21. The collection target was later reduced to Rs1.789 trillion; however, despite downward revision, the collection target for direct taxes was missed by Rs63 billion.
The FBR collected Rs1.726 trillion under the head of direct taxes during the fiscal year 2020/21, which is 96.5 per cent of the target.
According to the report, the fiscal year 2020/21 would be remembered as a historic year, as the collection surpassed the Rs4 trillion-mark for the first time in the history of the country.
Despite the Covid-19-related challenges, the revenue board has been able to surpass its revised target of Rs4.691 trillion by around Rs43 billion. All the taxes except direct taxes have surpassed their targets, which fell short by 3.5 per cent.
The FBR said that the direct taxes have contributed 36.5 per cent to the total tax collected during FY 2020/21. The net collection stood at Rs1.726 trillion, reflecting a growth of 13.3 per cent over the previous financial year collection of Rs1.523 trillion.
An amount of Rs91.3 billion has been paid back as refund to the claimants in FY 2020/21 as against Rs68.6 billion during FY 2019/20. The collection of income tax comprises withholding taxes (WHT), advance tax / payments with returns and collection on demand.
The share of collection on demand in the total income tax at 4.6 per cent remains meager; however, significant efforts were made during FY 2020/21 to enhance the contribution of the collection on demand, which provides a true reflection of the efforts made by the FBR field offices for enhancing revenues and curbing tax evasion.
During FY 2020/21, the overall collection from the collection on demand stood at Rs80.1 billion against Rs60.8 billion collected in the previous financial year, showing a growth of 31.8 per cent over the previous year.
The recovery from the arrear demand has shown a substantial growth of around 75 per cent, whereas the current demand increased 19.9 per cent.
To further improve this trend, thorough desk audits by the field formations can prove beneficial in increasing the share of the collection on demand in the overall income tax collection.
An amount of Rs465.8 billion has been collected during 2020/21, compared with Rs404.5 billion in the 2019/20 under the head of advance tax/payments with returns.
The major contribution has come from the advance tax collection with Rs411.7 billion against Rs348.10 billion in FY 2019/20, registering a growth of 18.3 per cent.
Under the head payments with returns, Rs54.1 billion has been collected during FY 2020/21 against Rs56.5 billion in FY 2019/20, showing a negative growth of 4.3 per cent.
“The negative growth could be attributable to the decline in [the] taxable incomes during FY 2019/20 due to [the] Covid-19 lockdowns.”
In absolute terms during 2020/21 the FBR has collected Rs4.734 trillion against Rs3.997 trillion collected in the preceding financial year, indicating a growth of 18.4 per cent. All the taxes have recorded a positive and double-digit growth.
The annual report also showed that in absolute terms, Rs736.8 billion has been higher than the amount collected in the previous financial year.
The sales tax collection has exhibited the highest growth at 24.1 per cent; followed by Customs, 19.3 per cent; direct taxes, 13.3 per cent; and the federal excise duty, 11.6 per cent.
Further break-up of sales tax indicates that the growth at the import stage (27.6 per cent) has outstripped the growth of the domestic sales tax (20 per cent).
The FBR said during 2020/21, the sales tax remained the top revenue generator with 41.9 per cent share; followed by the direct taxes with 36.5 per cent; Customs, 15.8 per cent and the federal excise duty, 5.9 per cent.
“The increasing share of sales tax and declining contribution of direct taxes needs attention and policy intervention, keeping in view the more progressive nature of direct taxes,” the report added.
As per the policy of the government to support the businesses community during the severe Covid-19-induced economic crisis, the revenue board made higher refund payments.
As a whole, during FY 2020/21, refunds of around Rs323 billion were made, compared with around Rs174 billion paid in FY 2019/20, registering an increase of more than Rs149 billion, compared with the previous year.
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