FBR Collects Rs3.35 trillion, Exceeding its Target

Because of weak domestic sales tax collection and a slowdown in imports, the Federal Board of Revenue (FBR) beat its seven-month tax collection target by Rs262 billion but fell short of its monthly aim for the second month in a row.

The Federal Bureau of Revenue collected over 53 percent of the total revenue at the import stage, which concealed the agency’s shortcomings in domestic sales tax.

According to a statement from the Federal Board of Revenue, the FBR provisionally received Rs3.35 trillion between July and January of the current fiscal year, compared to the initial, relatively modest tax target of approximately Rs3.1 trillion.

The collection was Rs780 billion, or 30%, greater than the previous year’s collection of Rs2.57 trillion, which was Rs2.57 trillion at the same time as last year.

The Federal Board of Revenue (FBR) said that it paid Rs182 billion in tax refunds, an increase of 36% over the previous year. Sales tax payments at the stage of importation climbed by 69 percent, while domestic sales tax collection decreased by roughly 10 percent, which speaks volumes about the inefficiency of the tax collecting system, according to official numbers.

Although the nominal gross domestic product (GDP) growth rate was expected to be 16 percent, the collection of domestic sales taxes decreased significantly.

Despite placing a 17 percent sales tax on practically every consumable item, including pastries, bread, and meals served in restaurants, the Federal Bureau of Revenue has not raised its monthly objectives in the last few months.

According to an agreement with the International Monetary Fund (IMF), the existing aim of Rs5.829 trillion would be increased to Rs6.179 trillion, resulting in modifications to the monthly targets as well.

It has now been proven that the IMF’s concerns about the consistency of the FBR’s performance over the long term, which was based on the possibility of a slowdown in imports, were justified, as the FBR missed its monthly target for a second time in a row in January 2022, confirming its earlier concerns.

It fell short of the Rs27 billion monthly tax revenue aim. According to the preliminary data, the tax authorities collected Rs430 billion in January, compared to a target of Rs457 billion in the previous month.

The Federal Bureau of Revenue (FBR) underperformed its revenue goals for sales tax, federal excise duty, and customs duty in January. However, the Rs15 billion objective for income tax collection was exceeded by a significant margin.

The Federal Reserve lost an opportunity to make fundamental adjustments during a period in which it was reaping windfall profits because of a sharp depreciation of the currency and increased imports.

Once the objective is formally revised upward and imports stabilise, tax officials may encounter some difficulties in the future.

Performance from the beginning of the year

Although Prime Minister Imran Khan has emphasised the need to broaden the tax base, there has been little change in the share of various taxes on overall tax collection, and indirect taxes have continued to be the most significant source of revenue creation.

Altogether, the FBR collected 65 percent of indirect taxes, or Rs2.2 trillion, which included general sales tax, customs duty, and federal excise duty. These were the three primary sources of indirect taxes for the FBR.

Similarly, Rs1.75 trillion, or 52.5 percent, of the entire collection was made at the stage of importation, according to the data.

Increased inflationary pressure has resulted from the reliance on indirect taxes in an environment where the rupee is depreciating against the dollar. It is difficult to find a single item that is consumed by both children and adults that has not been taxed in the mini-budget.

In the first seven months of the current fiscal year, the Federal Board of Revenue (FBR) collected Rs1.18 trillion in income tax, an increase of Rs229 billion, or over one-fourth, over the same time the previous year.

More than Rs164 billion in income tax was collected at the stage of importation, exceeding the objective of Rs19 billion set for the period July-January FY22 by a significant margin. The percentage of income tax receipts in total revenue was 35%, which meant that persons with lower payment ability were subjected to an increasing burden. The Pakistan Tehreek-e-Insaf (PTI) campaigned on the promise of increasing the percentage of direct taxes from 38 percent to 45 percent in their election programme.

Because of the substantial dependence on import taxes, the Federal Bureau of Revenue (FBR) saw a 35% increase in sales tax collections between July and January. It collected Rs1.45 trillion in sales tax, an increase of Rs374 billion over the previous year.

Because of a decline in domestic sales tax collection, the overall rise in sales tax collections was less than the increase in sales tax receipts at the importation stage of the supply chain.

The Federal Board of Revenue (FBR) collected Rs423 billion in domestic sales tax this year, a 9.6 percent decrease from the previous year’s collection of Rs468 billion.

Instead, sales tax collections at the import stage reached Rs1.02 trillion in the first seven months of FY22, compared with Rs609 billion in the same period of the previous year. The amount of sales tax collected at the stage of importation increased by Rs419 billion, or 69 percent, over the previous year.

Because of increasing imports, the overall sales tax collection exceeded the aim by Rs190 billion when compared to the previous year.

The federal excise tax collection was Rs172 billion, which was an Rs23 billion increase over the same time the previous year, according to the government.

Customs duty collections grew to Rs548 billion, an increase of Rs152 billion, or 38 percent, from Rs465 billion in the previous year. It came in at Rs55 billion more than the projected amount.