FBR jubilant over massive growth in revenue collection
Pakistan’s tax authorities are jubilant over massive growth in the revenue collection, as it has witnessed an increase of 38.3 per cent, which is surely a reason to celebrate.
This is a historic performance exhibited by the Federal Board of Revenue (FBR) during the first quarter (July-September) of the fiscal year 2021/22.
The revenue body collected Rs1.395 trillion during the period under review, compared with over a trillion rupees collected in the same period of the last year. Further, the national tax agency also surpassed the revenue collection target of Rs1.211 trillion for the period by Rs186 billion.
In a statement the FBR claims: “This spectacular performance at the outset of the year shows that [the] FBR is well on its way to achieving the assigned target of Rs5.829 trillion for the year, despite the daunting challenges, compelling constraints posed by the coronavirus pandemic, and sporadic tax cuts announced by the government as relief and price stabilisation measures.”
But are all these real? Has the FBR made efforts to make history for the revenue collection in the first quarter?
What are the contributions of adversities that made blessings? The FBR should look into the realities for future revenue collection, especially to achieve the daunting task of the Rs5.829 trillion revenue collection target for the current fiscal year.
A major chunk of the revenue has been realised due to the factors, which included a sharp decline in the rupee value against the dollar; burgeoning import bill; and low base effect of the comparative period of the last fiscal year due to the Covid-19 pandemic.
The free-fall in the local currency against the dollar has jacked up the prices and resulted in substantial addition to the revenue collection. The rupee fell Rs13.26, or 8.42 per cent, since the start of the current fiscal year to reach an all-time low against the greenback. The exchange rate closed at Rs157.54 on June 30, 2021 and recorded historic low at Rs170.80 against the greenback on October 4, 2021.
The external debt of the government is calculated on the basis of the dollar. The outstanding external debt and liabilities as of June 30, 2021, if converted in rupee at Rs157.54 against the dollar, were Rs19.251 trillion. The debt and liabilities of the government without making an addition or reduction to the level of June 30, 2021 increased over Rs1.750 trillion due to the deterioration in the rupee value, while calculating the debt at Rs170.80 to the dollar. It is interesting to note the revenue board has collected an additional Rs395 billion in the first quarter of the current fiscal year at the cost of significant rise in debt burden.
The lower rupee value significantly pushed up the prices of essential items. The inflation based on the Sensitive Price Indicator (SPI), which measures prices of essential kitchen items, recorded an increase of 16.25 per cent during the first quarter of the current fiscal year, compared with 12.46 per cent in the corresponding period of the last fiscal year. The price inflation contributes to the rise in the consumption tax collection.
Since Pakistan is a major importing country to meet its domestic demand. The fall in the rupee value has increased the prices of imported items, which helped the Federal Board of Revenue in terms of higher amount of collection in duty and taxes.
It is not only the rupee that helped the revenue board in generating additional revenue but the massive growth in import bill in terms of volume played its part.
The import bill of the country climbed 65 per cent to $18.63 billion during the first quarter (July-September) of the current fiscal year, compared with $11.86 billion in the same period of the last fiscal year.
The collection of duty and taxes, at the import stage, is around 44 per cent of the total revenue collection. The collection of duty and taxes on imports during the fiscal year 2020/21 was around Rs2.083 trillion, of the total revenue collection at the national level of Rs4.734 trillion.
The massive growth in import bill during the period under review may be attributed to the revival of the economic activities after ease in the cases related to the coronavirus pandemic. The domestic demand for both finished products and industrial raw materials registered phenomenal growth. Further, the ease in the coronavirus cases globally also pushed up the demand and resulted in international price hikes of commodities.
The Federal Board of Revenue claimed a historic growth in revenue collection during the first quarter of the current fiscal year, while comparing the same period of the last fiscal year. During the last fiscal year, the economic activities were halted due to an alarming rise in the coronavirus pandemic and the government was taking measures to stop the spread.
The revenue collection target during the fiscal year 2021/22 for the FBR has been fixed at Rs5.829 trillion, which demands growth of 23.1 per cent over the collection of Rs4.734 trillion made during FY 2020/21. In absolute terms, around Rs1.094 trillion additional revenues are to be collected in FY 2021/22 to meet the target.
The Ministry of Finance prepared a revenue forecast for FY 2021/22 by applying the buoyancy estimates and projected respective macroeconomic indicators would be Rs5.336 trillion without the policy/administrative measures. After adding the policy/administrative measures, the target would be Rs5.829 trillion. “However the revenue collection and achieving of target would largely depend on the performance of the economy against the targets.”
The FBR has a history of missing revenue collection targets in the past or achieving revised downward collection targets. The pace of the collection growth so far can help the tax authorities achieve the target for the fiscal year 2021/22. But will the phenomenal increase in revenue collection be worthwhile in the presence of adversities with the rupee fall, high import bill and increase in debt burden.
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