The news item that the revenue targets for the current financial year may be revised was not surprising in its subject matter as it was in its timing. For downward (never, upward) revisions of revenue targets are a fact of our fiscal mismanagement and have stopped surprising all and sundry. However, never before such a step was contemplated so early in the financial year.

Mercifully a few days later, it was announced that the government and the IMF agreed not to revise the tax targets (Dawn, August 13). But would it be possible for the CBR to achieve a revenue target of Rs460.6 billion? A downward revision contemplated, though not implemented, so early in the financial year is an unmistakable indicator of coming events. Let us examine the prospect of achievement of current year’s revenue targets in the historical perspective with a focus on the shortfall which transpired in the collection of just concluded financial year (2001-02).

Against a target of Rs457.7 billion, collection of Rs403.8 billion was made, yielding a massive shortfall of Rs53.7 billion. The blame was fixed on the external shocks. Events of September 11, December 13 and India amassing its forces on our borders were cited as causes for stunting the economic growth which resulted in poor collection of taxes. Undoubtedly these factors adversely affected our economy and the collection of taxes.

But only to some extent. Not to the extent as to be held responsible in entirety for such a massive shortfall. Then, what went wrong? The same that has been going wrong from year to year. The facts and our historical experience reveal that our economic managers knowingly over-pitch the budgetary estimates year after year, without any hope in the world of achieving them.

Let us start the appraisal of this statement with the analysis of the figures of budget estimates and actual collection of various taxes for the financial year 2001-02 with reference to actual collection of the earlier year (2000-01), given in the column 2 of the following table (Table 1).

What is apparent even from a cursory glance is that all taxes registered a fall, the biggest being under the head of the customs duties. The collection under this head not only fell short of the budget estimates (by Rs21.6 billion) but also of the collection figures of immediately preceding year (by Rs16.5 billion). The negative growth was not unexpected. When there was an across-the-board reduction in the custom duties from 35 to 30 per cent, it was unrealistic to expect a growth. This fact, one can safely assume, was known to the framers of the budget but was ignored.

The central excise duties also registered negative growth. It was not realistic to expect a growth when excise duty on various items was replaced by sales tax. It is a dying levy. Sooner it is merged with Sales Tax, the better.

The second biggest shortfall occurred in the collection of sales tax. It would have been much bigger had the tax not been imposed on medicines in the last quarter of the financial year.

Obviously, the collection from this source did not form part of the budgetary estimates in June 2001. The implication is obvious. The original estimates were overstated.

Though the fall in the collection of direct taxes is substantial (Rs7 billion), it appears insignificant by comparison.

The very title of this levy is a misnomer. When more than 37 per cent of this tax consists of deduction at source as final determination of liability and, what in all honesty should be called, a turnover tax, it can not be called a direct tax by any stretch of imagination.

This portion of the tax remained largely unaffected by external shocks. the collection of this component of the tax is a reflection more on the performance of collecting agencies (banks, big corporations, contractors, National Saving Centres etc.) than the CBR funcationaries.

All these facts and figures lead to the irresistible conclusion that the shortfall would have occurred even if the external shocks had not been there.

This observation would be further validated if we examine the budget estimates and budget collections of last eleven years. Table-2:

Never in the course of the eleven years cited above, we have been able to meet our original budget estimates. And the fall was not trivial. In 5 years, the percentage of fall was in double digits, going as high as 14.91 per cent. In another three years, it was close to double digits, 9 per cent and higher. One wonders what external shocks could explain these unfailing failures.

In the backdrop of our historical experience, can we reasonably hope to achieve the targets of the current financial year? Let the figures speak for themselves.

Table-3:

At the very outset, an increase of 14.06 per cent appears patently unrealistic when the increase in GDP is forecast in the vicinity of 4 per cent. There is no visible sign of revival of the economy or improvement in investment climate. The estimated increase appears realistic only in two taxes, namely the direct taxes and the central excise duty.

Although one wishes that there is a greater growth in direct taxes and that growth occurs without the inclusion of the component which, in reality, is an indirect tax.

This approach is not contemplated because collection of a direct tax is a far more difficult task than the collection of indirect taxes. The survey of business and industries conducted in the year 2000, it was claimed, would add Rs 100 billion to the collection of direct taxes. What happened to those tall claims?

The expected increase of Rs39.4 billion or 23.69 per cent in collection of sales tax appears to be totally unrealistic. The impact of imposition of the tax on medicines [this tax has now been withdrawn] for the full year can not be expected to yield so much of revenue. Unless the economic managers impose sales tax on yet another item (one wonders which item is now left from the documented economy), the achievement of this target is highly improbable.

Same observation could be made about the budget estimates of customs duty. The maximum tariff has been reduced from 30 to 25 per cent and yet the growth is anticipated at 17.7 per cent. It appears totally illogical.

But logic has never been the strong suit of our economic managers. As the above figures amply prove.Logic has always been ignored and a premeditated perfidy has been perpetuated through all these years. Honesty, like charity, begins at home. If the government expects the people of this country to be truthful and forthright in their dealings with the government and each other, it has to set an example first.

No point in inventing figures which can not be achieved. Better speak the unsavoury truth, than come up with half truths and untruths.