The collection, nonetheless, was Rs2.43 trillion or 26% higher than the preceding year, proving independent analysts correct that the government had set a wrong target in the first place that was impossible to achieve without a mini-budget.
The Federal Board of Revenue (FBR) provisionally collected Rs11.73 trillion in the fiscal 2024-25 – falling short of the target by about Rs1.2 trillion, according to its provisional figures, on Monday, the last day of the financial year.
The federal government had given a commitment to the International Monetary Fund (IMF) that it would increase the tax-to-GDP ratio to 10.6% in fiscal 2024-25. However, the ratio remained at little over 10.2% of the GDP, according to the provisional figures compiled till Monday evening.
The shortfall of about Rs1.2 trillion is unprecedented because the government had imposed a record Rs1.3 trillion in additional taxes in the budget. This follows the fiscal year 2019-20, when the economy suffered greatly due to Covid-19 and as a result the target was missioned by a margin of Rs1.6 trillion.
After assuming the office in August last year, FBR Chairman Rashid Langrial had said that the collection through additional measures might not be more than Rs650 billion due to slowdown of the economy, and inflation falling to single digit.
In July last year, former FBR chairman Amjad Zubair Tiwana had said that irrespective of the amount of efforts that the FBR would put in, the annual collection could not exceed Rs11.8 trillion. His prophecy was proven correct.
The government overburdened the salaried class and taxed almost every essential consumable good, including packaged milk, to raise Rs12.97 trillion in taxes.
The FBR had to chase an unrealistic tax target coupled with a slowing economy and falling inflation rate – the three key factors that have overshadowed the 26% increase in the collection from the sluggish economy.
Finance Minister Muhammad Aurangzeb had vowed to achieve the over Rs12.9 trillion target without the need for the mini-budget. He could not succeed, although the government increased petroleum levy rates to record Rs78 per litre to offset the impact of tax shortfall on the primary budget surplus target. At the start of the fiscal year, the petroleum levy rate was Rs60 per litre on petrol and high speed diesel.
The huge shortfall is also far more than what the government had committed to the IMF just in March this year, when the lender lowered the target by Rs640 billion for the full fiscal year. Subsequently, the government further downward revised the target to Rs11.9 trillion in June, which was missed, too.
Prime Minister Shehbaz Sharif has been personally focusing on the affairs of the FBR and he has tried to introduce many new initiatives, including digital tracking of the economy and focusing on tax evasion prone sectors.
FBR Chairman Langrial also got more fiscal incentives for his workforce, including giving them new 1,300 cc cars and additional one to four monthly salaries.
The federal government approved Rs55 billion worth of two projects for the FBR to strengthen its workforce, set up new custom posts along the Indus River to curb smuggling and upgrade digital infrastructure. The tax authorities said that the results of all these initiatives would be visible in the new fiscal year.
Langrial also vowed to take affidavits from chief finance officers of the companies to check under declaration of the sales and to collect more revenues from the businesses and the people, including the richest people of Pakistan. However, all such initiatives did not help reach the goal.
Also, the government could not meet the commitment to collect Rs50 billion in income taxes from the retailers under the Tajir Dost Scheme. The collection could not even reach Rs50 million.
For the new fiscal year, the government has set the Rs14.13 trillion worth tax target for the FBR, which requires 20% growth in collection over the last fiscal year’s revenues.
For the month of June, the FBR’s target was Rs1.67 trillion. However, despite taking advances and slowing refunds, it could collect Rs1.49 trillion, falling short of the target by about Rs180 billion.
The IMF compelled the country to impose new taxes, primarily burdening the salaried class and levying taxes on nearly all consumable goods, including medical tests, stationery, vegetables, and children’s milk.
Tax collection breakup
The FBR missed its targets for sales tax, federal excise duty, and customs duty but again exceeded the income tax target on the back of over burdening the salaried class.
According to the details, income tax collection amounted to nearly Rs5.8 trillion, Rs340 billion more than the target. It was also Rs1.25 trillion more than the last year. The burden was shared by the salaried class and the corporate sector, as the retailers and landlords still remained under-taxed.
Sales tax collection stood at Rs3.9 trillion, nearly Rs1.03 trillion less than the target of over Rs4.9 trillion. The sales tax remained the most difficult area for the FBR and one of the reasons for low collection was less than estimated growth in large industries. The government had immensely increased the sales tax burden in the budget. The collection was Rs812 billion more than the last year.
The FBR collected Rs767 billion in the federal excise duty, Rs187 billion less than the target. But it was Rs190 billion higher than the last year. The government did not spare homes, lubricants, fruit juices, cement, sugar etc from imposing the excise duty in the last budget. Yet it miserably failed to achieve the target.
Custom duty collection stood at Rs1.28 trillion, Rs315 billion below the target. The collection was hit by lower-than projected import volumes. It was Rs173 billion more than the last year. The FBR paid Rs493 billion in tax refunds, which were Rs13 billion more than the preceding year.