ISLAMABAD: Pakistan’s tax-to-GDP ratio had dropped drastically to 8.5 percent during last financial year 2012-13 from 9.1 percent the preceding year 2011-12 mainly due to the dismal performance of tax authorities which missed the annual revenue collection target by Rs 442 billion.
According to ‘Year Book 2012-13’, Federal Board of Revenue collected Rs. 1939 billion during previous fiscal year as against the original target of Rs 2381 billion leaving shortfall at Rs 442 billion. The report also said that FBR failed to achieve the revised revenue collection target of Rs 2007 billion.
Prior to release of the Year Book (2012-13), Ministry of Finance had assigned the FBR to explain the reasons behind such massive shortfall in revenue collection during 2012-13. FBR during the last two months conducted an in-house exercise, analysed data for 2012-13 and finalised the said report. FBR explained in detail all factors responsible for revenue shortfall during 2012-13.
FBR in its report stated that revenue collection target set for previous fiscal year 2012-13 was gigantic and its achievement was very difficult amid severe energy crisis and law and order situation in the country. The target was linked with expected growth in GDP, the rate of inflation, tax buoyancy and other key economic indicators such as growth in the Large Scale Manufacturing sector and imports. However, the tax department miserably failed to achieve the target. The original target of Rs.2381 billion was however downward revised to Rs. 2007 billion. But FBR could collect only Rs. 1,939.4 billion.
FBR put blame on external as well as internal factors for missing the annual target. The assumption for setting target for 2012-13 was too ambitious. It was estimated at the time of fixation of target for FY: 2012-13 that the Nominal GDP growth will be 16pc during the year i.e., real GDP was estimated to grow by 4pc and inflation by 12pc. Similarly, total as well as dutiable imports were estimated to grow by 14.5pc and Large Scale Manufacturing (LSM) by 17.2pc in nominal terms. On the contrary, the actual macroeconomic indicators remained below the expected outcome during 2012-13. For instance, real GDP growth was 3.6pc and inflation was 7.8pc. As a result the nominal GDP growth was 11.4pc during 2012-13. Similarly, projection for total import and dutiable imports was 14.5pc, but imports grew by only 8.4pc whereas dutiable imports grew only by 3.3pc. Moreover, Large Scale Manufacturing actually grew by 11.2pc in nominal terms against estimate of 17.2pc.
Similarly, the tax department noted that the target for 2012-13 was fixed on the basis of Rs. 1,952 billion to be collected by end of June 2012-13 but actually the collection for the year 2012-13 ended up at Rs. 1,883 billion. Thus, the base was eroded by Rs 69 billion right from the beginning of FY: 2012-13.
According to the report, there were a number of other internal factors which further contributed in the shortfall. FBR had to bear deficit of Rs 34 billion due to shifting of sales tax on services from FBR to PRA (Provincial Revenue Authority), which was integral part of FBR target of Rs. 2381 billion. Reduction in rate of sales tax from Rs 7 to Rs 4 per unit of electricity in cases of Steel Melters and Re-rolling Units resulted in the decline of collection of Sales Tax. Suspension of section 153 A, introduced through Finance Act 2012 which was a major documentation measure having revenue impact of approximately Rs.15 billion. Reduction in rate of FED on sugar from 8pc to 0.5pc on quantity cleared locally equal to exported sugar caused lesser collection of FED. Reduction in sales tax rates on some items (e.g. Steel and Plastic) from 22pc and 19.5pc to 16pc in Budget 2012-13 vastly affected the collection.
The break-up of Rs 1939.4 billion revealed that collection under direct taxes has been 739.7 billion, which is higher by 0.2pc as compared to the corresponding period of last year. An amount of Rs. 841.3 billion has been collected under sales tax head during FY: 2012-13 indicating a growth of 4.5pc over the collection of Rs. 804.9 billion in the comparable period of last year. Sales tax collection from imports has attained no growth in CFY as compared to PFY. However, sales tax domestic has attained a growth of 9.7pc during the July-June 2012-13. As far as customs duty is concerned, around Rs. 239 billion has been collected during the year 2012-13. The collection has recorded a growth of 10.2pc over the collection of Rs 216.9 billion in the corresponding period of last year.
The report, however, stated that to gear up the resource mobilisation efforts a new team has been brought in FBR to work with zeal and determination. With the help of changed management FBR strives to meet the revenue target of Rs 2475 billion fixed for fiscal year 2013-14.