ISLAMABAD, March 29: The Federal Board of Revenue (FBR) is likely to remain short of the revenue target of Rs1,025 billion for the fiscal year 2007-08 owing to shortfall of Rs35 billion recorded during the first half year, says an official report.

With a major setback in direct tax collection, which will not be easy to recoup, and increasing pressure on indirect taxes, more than extra effort is required to generate this possible shortfall in the target provided the overall economic situation remains stable during the next six months (Jan-June) period.

The second quarterly report (Oct-Dec) issued here on Saturday said that up to December 2007 target of Rs470.2 billion has been achieved to the extent of 92.5 per cent, thus putting additional pressure of over 7 per cent to make-up for this underperformance in domestic resource mobilisation during the second half of the year.

One of the reasons could be that there had been ‘too frequent’ changes (extensions) in the dates of filing of income tax and GST returns in response to political uncertainty, holidays and administrative reasons.

The tax-wise decomposition reveals that the major ripple has been created by direct taxes. With less than targeted collection of direct taxes, the composition of the federal tax pie has changed. The contribution of direct taxes during the first half year has reduced to 37.8 per cent from 42 per cent in the same period last year.

Similarly, the share of customs duties has declined from 15 per cent to 14 per cent. As should be obvious, this loss has been picked up by the remaining two taxes – the share of sales tax has increased by 3 per cent and, that of FED increased by 1.6 per cent.

Incidentally, except for excise duty no other tax has been able to achieve the assigned revenue targets. In the case of customs duty and sales tax (import), while the suspension of work at ports during the last week of December has resulted into short collection, it was all along anticipated that this shortfall will be made up in January 2008, and it actually has happened.

As far as domestic taxes are concerned, the performance of sales tax (domestic) has been hit hard by closures and remains difficult to be recouped. For direct taxes, it may be recalled that the month of December is always critical for the overall achievement of the target. This is so because major corporations and businesses not only submit their yearly tax returns but also pay second installment of advance tax.

Notwithstanding this importance, there has been a serious shortfall on account of payments with returns. And quite unexpectedly, the major taxpayers have also opted to make less payments of advance tax for one reason or other. As a result, the overall receipts in December 2007, instead of recording any growth, have fallen short of December 2006 collection by Rs25 billion, which is 6.2 per cent of the overall revenue target of direct taxes.