Revenue shortfall

Published April 15, 2019

FINANCE Minister Asad Umar has reiterated that his government is now close to a deal with the IMF on a bailout package, but the growing revenue shortfalls being reported by the FBR should be a serious cause for concern for him.

As per the latest report, which builds upon similar reports that were received earlier, the FBR is headed towards a near-historic revenue shortfall of Rs450bn if the present lacklustre pace of revenue collection continues.

The shortfall is against targets set by the government itself, and not by previous administrations, so the present set of rulers cannot make the excuse that the targets were unrealistic. The slow revenue collection owes mainly to the virtual absence of a vision on the part of the present government when it comes to the crucial question of increasing the tax base.

It has been pointed out before, and it bears repeating, that the effort launched by the government to serve notices on high-net-worth individuals who are either underreporting their income (in view of their visible standard of living) or are simply not filing their tax returns, is a good exercise to encourage compliance, but it can never be considered a revenue-generating measure.

Such exercises have been going on for over 10 years now, but have never succeeded in raising large amounts of revenue. Other than this, the only idea the FBR seems to have for increasing revenue generation is to squeeze compliant taxpayers harder through the aggressive use of the tax body’s discretionary authority.

The backlash that this has engendered from the business community is going to eat away at whatever little goodwill the government has left.

A base-broadening exercise involves a larger vision, something akin to legislating on a Value Added Tax, or the greater and more cerebral use of the Active Taxpayer List and penalties for non-filers of tax returns.

On both these fronts, the government is either backpedalling or refusing to entertain bigger ideas. Entering an IMF programme with no vision on broadening the base of taxation will be a recipe for failure, since the programme will require a significantly ramped-up revenue effort, and without broadening the base, this will increase the burden on compliant taxpayers beyond what they are bearing today.

One-off gimmicks like a tax amnesty scheme or the sale of public assets to raise money are not the way forward and certainly no replacement for a comprehensive vision of reform.

Published in Dawn, April 15th, 2019

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