LAHORE: The Punjab government is anticipating a shortfall of close to Rs550 billion in federal transfers this financial year under the National Finance Commission (NFC) award because of a sharp reduction in tax collection target of the Federal Board of Revenue (FBR) from original estimate of Rs5.5 trillion to around Rs3.9tr owing to the shutdown of the economy to slow the spread of the Covid-19 infections.

The anticipated shortfall in federal transfers is slightly more than a third of Punjab’s originally projected share of Rs1,611.4bn in the budget from the federal divisible tax pool, according to the provincial budget documents. In addition to this massive reduction in its income, the provincial government is also facing a big hole in provincial tax target collection. The overall provincial tax loss is feared to be in excess of 40 per cent this year, according to a provincial tax collector.

The provincial administration of chief minister Usman Buzdar was struggling to pace up its tax collection long before the coronavirus contagion forced it to lock down the economy almost six weeks back. In the first seven months of the current financial year to January, the province had collected just 42.3pc, Rs124.7bn, of its tax target of Rs294.9bn for the entire year. According to the civil accounts, the collection of the provincial services tax - the largest provincial tax - stood at just 37pc of the full year estimate of Rs166.5bn, or equal to 55pc of the total provincial tax target.

Over 40pc drop in provincial tax collection feared

Senior officials told Dawn that the massive shortfall and dismal provincial tax effort had forced the government to freeze its development budget at Rs175bn for the year. The government had budgeted Rs308bn for its development projects this year. That also included schemes worth Rs18.2bn funded by the multilateral and bilateral lenders. Besides, it had inflated the size of the provincial development investment in the budget to Rs350bn by including infrastructure projects worth Rs42bn, none of which has materialised so far.

Senior provincial finance department officials expected the federal tax collection to be somewhere between Rs3.7tr and Rs3.8tr at the most, even below the revised target of Rs3.9tr.

“The financial situation of the province is very grim. We faced with an unprecedented squeeze because of the enormous shortfall in the projected federal and provincial tax income. We are now trying to get the federal government share part of foreign assistance the country is receiving from multilateral and bilateral donors to fight off the negative economic impact of the pandemic with the provinces,” an official said of the provincial government’s efforts to raise funds to partially make up for income losses to make essential payments.

More than 80pc of Punjab’s income comes from the federal transfers and 13-15pc from the provincial taxes.

A new investment strategy developed by the Punjab Planning and Development Board for quicker recovery of the provincial economy from the effects of the coronavirus lockdown has called for doubling public development investment stimulus to over Rs600bn next fiscal year. According to the document, the province could face an economic loss of up to 4pc of provincial output a month because of the Covid-19 shutdown. It says the economic losses could jump to $18-20bn should the lockdown continue for three months.

Published in Dawn, April 30th, 2020