January 14, 2008	Monday	Muharram 04, 1429

The government is set to revise downward the annual tax revenue collection target following Rs36 billion shortfall during the first half year of the current fiscal year.

Indications are that the ambitious revenue target of Rs1, 025 billion may not be achieved and may be scaled down to less than a trillion.

Tax pundits concede that this shortfall in tax revenue may touch Rs60 billion. The shortfall may turn out to be even higher as the tax machinery generally becomes ineffective during elections which have also been delayed. However, if the situation remains stable in the post-election period, the CBR expects that revenue realisation may be around one trillion rupees.

The Chairman Federal Board of Revenue (FBR), M Abdullah Yousuf sees the shortfall in revenue as the outcome of recent countrywide disturbances which brought the economy to a standstill. The CBR considers the month of December is of immense importance for revenue collection.

A major set back for the tax machinery was the unexpected sharp drop in revenue with corporate returns by December 31, 2007. It was less than a billion rupees against Rs28 billion during the same period last year.

Mr Yousuf admitted the revenue loss would be irretrievable even in the second half year of the current fiscal year. However, he said, the tax machinery is poised to mop up one trillion rupees, provided the economic momentum continues in the second half with other things remaining the same.

Provisional figures show around Rs36 billion shortfall in tax revenue as it stood at Rs429 billion during the first half of the current fiscal as against the target of Rs465 billion. No doubt, the revenue collection witnessed a growth of Rs19 billion, when compared with the last year collection of Rs410 billion. This growth in revenue cannot be actually assessed as the refunds being withheld by the tax authorities are not know.

The statistics for the July-November showed that the growth in revenue collection materialised on the back of substantial decline in payment of refunds by almost 50 per cent (Rs20 billion) to taxpayers of all the federal taxes — income tax, sales tax, federal excise duty (FED) and customs duty. Total refunds paid stood at Rs20.648 billion in July-November this year as against Rs41.137 billion last year. It is feared that billions of rupees of subsidies of both individuals and exporters are being withheld in a bid to show some growth in revenue.

FBR Member Fiscal Research and Statistics, Dr Ather Maqsood said it has not been officially decided to revise downward the revenue collection target. However, he said achieving the budgetary revenue target appears difficult..

He said during the first half year of 2007-08, direct taxes suffered a loss of Rs23 billion, sales tax Rs10 billion, and federal excise duty and customs duty Rs1 billion each. He attributed many factors to this lower collection including the disturbances which are hampering the normal domestic and foreign trading.

The tax official, however, said that the corporate tax revenue will go up to Rs4 to Rs5 billion after the filing of corporate returns now extended till January 15. It was expected that maximum revenue will be generated in the shape of advance tax from corporates which are due in March and June next, he added, .

January 2008 would be the real barometer for testing the revenue potential in the months ahead. The government had set the annual revenue target at Rs1, 025 billion for 2007-08. It was assumed that economy will sustain a growth of 7.2 per cent. The State Bank now estimates growth rate at 6.6-7 per cent. Independent economists put it at six per cent. The rest of the growth in revenue was expected from additional taxation measures by bringing more tax-evaders in the net.

Some tax adjustment proposals have been made in the last budget to raise an additional revenue of around Rs44.425 billion. However, relief measures have also been taken, which would result in net revenue loss of around Rs9.68 billion to the national kitty.

Economist Dr A R Kemal felt concerned that the universal self- assessment scheme (USAS) was loosing its momentum. There has been a sharp drop in the payments along with tax returns. The FBR officials are also perturbed over it.

He said if the revenue is falling and the imports are still rising, it might be because of low level of manufacturing. However, he lamented that manufacturing production data is not available to identify the reasons for this fall. This implies that the tax to GDP target will not be met.

If it is established that the manufacturing output has declined, then the tax revenue would subsequently remain behind the target as maximum revenue is generated from this sector. Dr Kemal said that all this implies that fiscal deficit will be more than five per cent.