FBR Pakistan’s tax officials are overjoyed at the enormous increase in revenue collection, which has increased by 38.3 percent, which is certainly cause for celebration.
The Federal Board of Revenue (FBR) delivered a remarkable performance in the first quarter (July-September) of fiscal year 2021/22.
During the time under review, the revenue agency collected Rs1.395 trillion, compared to nearly a trillion rupees in the same period the previous year. Furthermore, the national tax agency exceeded the Rs1.211 trillion revenue collection target for the period by Rs186 billion.
The FBR claims in a statement that “despite daunting challenges, compelling constraints posed by the coronavirus pandemic, and sporadic tax cuts announced by the government as relief and price stabilisation measures,” “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.”
Are all of these, however, true? Is the FBR attempting to set a new record for revenue collection in the first quarter?
What are the ways in which adversity has resulted in blessings? The FBR should investigate the reality of future tax collection, particularly in order to meet the challenging target of Rs5.829 trillion for the current fiscal year.
A significant portion of the income was realised as a result of variables such as the rupee’s rapid depreciation against the dollar, the rising import bill, and the low base impact of the previous fiscal year’s comparable period due to the Covid-19 epidemic.
The sharp depreciation of the local currency versus the dollar has pushed up prices and resulted in a significant increase in tax collection. Since the start of the current fiscal year, the rupee has lost Rs13.26, or 8.42 percent, versus the dollar, reaching an all-time low. On June 30, 2021, the currency rate ended at Rs157.54, and on October 4, 2021, it hit an all-time low of Rs170.80 versus the greenback.
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 percent 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.