The Federal Board of Revenue (FBR) missed its revised tax collection target for the first half of the fiscal year by Rs330 billion, a smaller shortfall than official estimates, reducing the immediate risk of a mini-budget that could have affected users of solar panels and smartphones among others.
Provisional figures show the FBR collected Rs6.16 trillion during July to December. The amount was Rs545 billion lower than the original target for the period, but remained below the shortfall the tax authority had projected in briefings to the prime minister, where the gap was estimated at Rs564 billion.
The reduced gap has eased pressure on the government to introduce additional tax measures in January that could have affected users of solar panels, mobile phones and banking services. However, the option of a mini-budget remains available under commitments made with the International Monetary Fund (IMF).
Revenue collection in December was supported by Rs391 billion gathered on the last day of the month after banks were kept open until 10pm. The FBR also paid Rs38 billion in refunds during December, 47 percent less than the amount paid in the same month last year.
Despite these efforts, the authority missed the monthly target by Rs20 billion, though the shortfall was lower than in previous months.
Tax collection during the first six months increased by 10 percent compared to the corresponding period last year, a rate well below what is required to achieve the annual revenue target of nearly Rs14 trillion.
During the IMF programme review, the Fund reduced the FBR’s annual revenue target by Rs214 billion to account for lower inflation, weaker economic growth and the impact of floods. Both sides agreed that if revenue slippages widened, the government would introduce additional tax measures of at least Rs200 billion.
Sources said Pakistan had informed the IMF that proposed measures could include increasing sales tax on solar panels, raising withholding tax on cash withdrawals, and increasing taxes on mobile and landline phone usage. Another proposal involved extending federal excise duty to confectionery and biscuits.
Under one option, the withholding tax on cash withdrawals by non-filers could be raised from 0.8 percent to 1.5 percent. Another proposal involves increasing withholding tax on landline phones from 10 percent to 12.5 percent, which is expected to generate Rs20 billion annually. The withholding tax on cellular calls could also be increased from 15 percent to 17.5 percent, generating an estimated Rs24 billion per year.
The government has also agreed to raise sales tax from 10 percent to 18 percent, while a proposal to impose a 16 percent federal excise duty on confectionery and biscuits could generate Rs70 billion annually.
Tax-wise data shows income tax collection reached Rs3.03 trillion against a target of Rs3.3 trillion, recording nine percent growth. Sales tax collection stood at Rs2.09 trillion, reflecting a 10 percent increase.
Federal excise duty collection amounted to Rs400 billion, up 11 percent from last year, while customs duty collection reached Rs642 billion, showing an eight percent increase but remaining below the target.
Meanwhile, exporters raised concerns with Prime Minister Shehbaz Sharif over the FBR’s decision to scrutinise income tax returns. Pakistan Retail Business Council Chairman Ziad Bashir wrote to the prime minister, warning that the move could “easily be misconstrued as an attempt to provoke friction between the business community and the elected leadership.”
Earlier this week, the FBR issued instructions to its field formations to examine tax returns of exporters on the grounds that taxable incomes may have been understated following changes in the export taxation regime.
The directives asked field formations to closely review declarations of major exporters within their jurisdictions to identify any abnormal reduction, inconsistency or change in reporting patterns following the amendment.
Bashir said the export sector was already operating under high effective tax rates, energy tariffs, interest rates and financing costs, adding that broad and open-ended scrutiny instructions sent a troubling signal to businesses.
“If this trajectory continues, one is compelled to ask whether the system is inadvertently or otherwise signalling that exporters should simply wind up their businesses,” Bashir stated.
The FBR management has maintained that exporters will not be targeted and that cases selected for scrutiny will be monitored to avoid undue hardship.