FBR’s inability to meet revenue target questioned

[Naveed Yaseen]

Rupee fall, high inflation may offset decrease in imports
By Mansoor Ahmad
LAHORE: Economists have expressed concern over reported inability of the Federal Board of Revenue to achieve the tax collection target of Rs1,360 billion in the current fiscal year despite a massive decline in rupee value and high inflation.

They point out that the Customs wing of FBR should collect much higher revenue than last year as prices of import items in rupee terms have increased by 26 per cent due to the currency’s depreciation against the US dollar. They say the imports this year could at best be 10 per cent lower although figures till January indicate a rise in the import bill. Even with a 10 per cent decline the collection of customs duty and sales tax on imports should register a 16 per cent increase on the back of rupee’s weakness.

Senior economist Naveed Anwar Khan, an FCA, said the FBR’s argument that lower imports had hampered its ability to meet the revenue target was wrong. He said inflation last year was 11.8 per cent while during the first seven months of the current fiscal inflation averaged over 22 per cent. “This factor alone indicates higher circulation of money in the system warranting increased revenues.”

Khan said the rupee depreciation and higher inflation had adequately helped meet the expected shortfall in taxes from the manufacturing sector which had recorded negative growth. He, however, pointed out that lower growth did not necessarily mean that tax collection would not be up to expectations and said other factors like inflation and currency value could make up for the weak growth.

Chartered Accountant Faisal Qamar said the economic planners were expecting the growth rate to be lower than last year which was reflected in the budget. The downward growth projection was made when the global recession was nowhere in sight.

“The GDP growth is bound to go further down after recession struck many countries around the world.” In fact, he added, expectations of a bumper wheat crop had given heart to the economic planners as agriculture was the only important sector which was likely to register positive growth.

Faisal said the weak growth should not be an excuse for a decrease in revenue collection because the manufacturing sector had pushed up prices of their products to offset unsatisfactory sales.

Certified Public Accountant Asif Ali Shahid elaborated the impact of high prices on tax collection, saying sugar production this year would fall compared to last year because of less sugarcane crop. Cement production would decline due to slowdown in construction activities and lower exports to India which earlier had become a major importer of cement from Pakistan.

The textile sector, he said, had already registered a negative growth due to fall in exports. “The car industry is in shambles with sales going down by over 40 per cent. Only the tractor manufacturers are in a comfortable position and they too fear a downslide once imported subsidised tractors start reaching the country.”

However, he added, revenue losses from these industries should be minimal. “Cement prices have increased from Rs240 per bag last year to Rs365 per bag meaning a higher sales tax. Local consumption has declined by 10-15 per cent but the prices have risen by 30 per cent which would keep tax collection stable.”

He said ex-mill sugar prices had gone up from Rs23 per kg to Rs40 resulting in increased sales tax. Car manufacturers have jacked up prices by over 50 per cent during the last nine months. Revenues from motorcycles and tractors would be higher this year.

Similarly, Asif said there should be no decline in income tax collection from the salaried class. If all these factors were taken into account, he added, there was no reason for the FBR to miss its revenue target.

He said the FBR had reorganised its departments in haste and disturbed the tax collectors at a time when stability was needed. Posting income tax officers for sales tax collection or vice versa, he said, had affected the efficiency of tax officials after integration of the customs and sales tax department with the income tax to form Inland Revenue wing.

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