CBR scuttles hope of large increase in tax revenues
By Sultan Ahmed
The gap between the revenue projections of the optimistic budget makers and the dogmatic Central Board of Revenue (CBR) is widening.
In fact as the revenue target goes on increasing in view of the financial needs of the government, the revenue collected remain largely static in spite of the manner the CBR is being whipped into action.
The tax revenue for the financial year that has just ended was Rs401 billion which was just Rs8 billion higher than the Rs393 billion collected in the preceding year.
The original revenue target for last year was Rs457 billion and after four scaling down of the target the final figure was fixed at 414 billion. But the chairman of the CBR, Mr Riaz Malik was firm earlier that the collection would not exceed Rs 400 billion.
While the finance ministry officials were hopeful of hitting the four hundred and fourteen billion target despite adverse economic conditions.
And now the revenue target for the current year is Rs460 billion and the Finance Minister Shaukat Aziz is quite confident of achieving the target along with an economic growth rate of 4.5 per cent and a four per cent inflation.
He is encouraged in that presumption by the fact that the tax revenues in the last financial year crossed the mark of Rs.400 billion and the performance of the sales tax sector and the income tax department have been quite commendable.
But if the finance minister’s expectations have to come true, the economic growth rate has to be far higher particularly in the tax paying industrial sector and in the area of increased imports.
The approaches of the finance ministry and the CBR to revenue collection are quite different. While the finance ministry fixes a far higher target, about Rs50 billion more than last year to prod the CBR to produce more and also in the expectation that the new year will be better than last year.
But the CBR chairman in an interview is categorical that higher revenue is dependent on higher economic growth, which would also mean higher imports. Explaining the set back suffered in revenue collection he said, last year the assumption was that imports in rupee terms would go up by fourteen percent instead they grew by three percent and the 11 per cent decline in imports meant loss of Rs16 billion in revenue collection.
Along with that the payment of refunds amount to 14 to 15 billion which was supposed to be made later. And the overall economy was supposed to grow by 10 per cent, he says but instead it grew by six per cent which meant a loss of another Rs14 billion in the context of sales tax, income tax and excise duties.
Now, those who sought to reform the CBR particularly Mr. Shahid Hussain, former vice president of the World Bank has been arguing that an increase in revenues is possible by forty to fifty percent if corruption is checked and the CBR is totally restructured.
But Mr Riaz Malik says that the CBR officials are already doing their very best and hence a large rise in tax revenues was not possible without a high rise in economic growth rate particularly in the tax paying areas.
Meanwhile, a British company has been employed by the government to restructure the CBR and advise it on measures to boost the revenues. But the CBR chairman says that the tax survey which was earlier hoped to raise the revenues in a big way had not really boosted the revenues.
It is a fact that 150,000 new tax payers were added but each one paid small amounts and the wealthy traders having shops in elite areas of the country pay Rs5000 as tax.
He says the tax cannot be collected by force and the impression created during the tax survey of “lashkarkashi” should be shelved. Mr Riaz Malik thinks that the measures introduced now in the budget to account for the income and expenditure of the tax payer supported by the receipts is the right approach to tax collection. Says the CBR chief, “This is the first step towards the documentation of the economy and very close to the objective of the tax survey”.
What all that means is the high hopes raised of large increases in tax revenues through stamping out corruption and increasing the efficiency of the CBR may not materialize in spite of even what the British experts might advise the CBR.
There is clearly merit in the argument of the CBR chief that tax revenues could increase essentially through higher economic growth particularly in the tax paying sectors and the government should give due attention to that.
Without such an increase in economic growth, the increase in revenues may be too marginal even after sales tax has emerged as the number one tax followed by income tax.
The CBR officials had earlier said elimination of corruption in their ranks and restructuring of the CBR may increase the tax revenues by around 10 per cent and not the high figures quoted by Mr. Shahid Hussain.
That disconcerting claim seems to come true even after CBR has been lambasted with singular severity and equated with corruption.
Low tax payments may not be the result of only massive evasion but also the outcome of the honest tax payers getting too little or nothing in return for the taxes they pay.
And the compulsion on them to pay for their own water, make their own arrangements for power, pay heavily for the education of their children and medical treatment of their families.
And full tax payments by the people also demand a reduction in the high taxes as well as shrinking the number of the too many taxes and the corruption which envelopes them.
