A shortfall of more than Rs51 billion in the targeted federal tax collection in the first four months may represent a continuing trend for the rest of the current fiscal year. Tax pundits concede that this shortfall could double over the next few months owing to lax enforcement, sluggish economic growth and ill-timed move for tax amnesty .
The shortfall this year may turn out to be even higher than the presently reckoned Rs100 billion as the tax machinery generally becomes less effective during elections. The tenure of the present PPP-led government ends on March 16, 2013. And the caretaker setup will hold elections in May.
If the situation remains politically unstable in the post-election period, the collection target of Rs2,381 billion will be a far cry, as the monthly revenue peaks in June
A senior tax official attributes revenue shortfall to lax enforcement of sales tax on domestic products, rationalisation of income tax rates especially revision of salary slabs along with rise in exemption thresholds for salaried taxpayers.
The Federal Board of Revenue collected Rs548 billion during July-October as against the target of Rs599 billion. So far, the collection for November is also far behind the target, the official added.
At the same time, Punjab’s share in collection of sales tax on services is projected at Rs27 billion for 2012-13. The Punjab Revenue Board has started collecting sales tax on services this year.
With the exclusion of sales tax collection on services by Punjab from the overall revenue target of the FBR, the target will also be revised downward, the official admitted. The shortfall in revenue will also be adjusted in the revised revenue collection.
The FBR is facing two other problems. Senior officials of the Inland Revenue Service (IRS), which collects more than 80 per cent revenue, have challenged the appointment of FBR Chairman Ali Arshad Hakeem in superior courts. Subsequently, it has been reported that IRS officials are not cooperating with the chairman, who is from the private sector.
Similarly, the payment of input tax adjustment has emerged as a major source of corruption in the FBR. A substantial increase is witnessed in payment of sales tax refund, which needs a thorough investigation to plug loopholes.
Last year, the FBR took advance taxes to the tune of Rs30 billion to show positive results.
Despite the advances, shortfall of more than Rs70 billion in the revenue target was recorded in 2011-12. “We have adjusted the advance taxes in the last few months taken last year”, the official revealed. Some tax officials felt concerned that the universal self-assessment scheme (USAS) was loosing momentum. There was a huge drop in the payments and tax returns. FBR officials are now looking at some easy ways to raise few billion instead of seeking long term solutions.
As large—scale manufacturing is increasing, revenues need to increase. It recorded an impressive growth of over four per cent in September 2012.
The GST compliance rate has declined from 79.6 per cent in 1999-2000 to 50 per cent in 2011-12. A similar decline is witnessed in income tax. These two are the major revenue spinners, but the FBR seems least bothered to bring tax dodgers into the net.
The National Accountability Bureau (NAB) has estimated $500 billion worth of assets of the rich in foreign countries while the Federal Bureau of Investigation (FBI) projects these assets at $100 billion.
Similarly, NADRA has provided data with full details of 3.1 million tax evaders to the FBR. While having all details on the finger tips, the FBR is reluctant to launch a crack down against tax evaders.
Instead, short-term devices are being evolved to meet the current year’s target such as controversial tax amnesty scheme and out of court settlement of cases involving billions worth of tax revenue. The FBR is eying an amount of Rs86 billion from amnesty schemes.
The FBR also sought approval from the parliament to allow cases of arrears stuck up in courts to be settled through alternative dispute resolution committees. More than Rs256 billion is stuck in court cases. After approval from the parliament, the FBR could resolve these cases within 45 days in the alternate dispute committees.
If approved by the parliament, these measures may provide a breathing space to the FBR to reach closer to the target by end June 2013.