Pakistan has met the International Monetary Fund (IMF)’s condition about revenue collection for the first quarter of current fiscal year as it collected Rs2.023 trillion, exceeding the goal by a big margin, though challenges to broaden the tax base remain.

As against the IMF’s quarterly target of Rs1.977 trillion, the Federal Board of Revenue (FBR) collected Rs2.023 trillion during the July-September quarter, according to the provisional figures. The tax receipts were Rs46 billion higher than the IMF’s target. The higher collection would help Pakistani authorities to offset some of the excesses on the expenditure side.

The FBR is expected to make a formal announcement on Saturday, although Thursday was the last working day of the month. The FBR achieved almost 34% growth in tax collection and got Rs507 billion more than the last fiscal year. During the first quarter of the previous year, it had received revenues of Rs1.51 trillion.

However, the FBR once again struggled to ensure timely filing of income tax returns. With only two days left before the deadline, it has so far received only 1.6 million annual tax returns. The figure is not expected to dramatically increase by Saturday, as in the last tax year, the FBR had received 4.9 million income tax returns.

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It stated on Thursday that it would not grant any extension in the date for filing tax returns and people and companies should discharge their legal obligation by September 30. However, the laws are lenient as people can submit their annual wealth and income tax statements anytime by paying a nominal penalty of Rs1,000.

Low tax collection has remained a chronic issue as taxation has skewed towards the indirect mode that has hurt poor people the most. Despite imposing heavy taxes in the last fiscal year, the FBR collected Rs7.164 trillion, hardly equal to 8.6% of the national economy. One of the reasons for the low collection was the political patronage of tax-evading sectors like real estate, traders, stock market and exporters. The salaried class paid Rs264 billion in taxes in the last fiscal year compared to the payment of just Rs74 billion by the exporters.

For the current fiscal year, Pakistan has agreed with the IMF that it will strive to collect Rs9.415 trillion in taxes. However, most of the taxes are indirect in nature.

Interim Finance Minister Dr Shamshad Akhtar has proposed to tax the highly under-taxed sectors like agriculture, retail and real estate.

It was the third consecutive month when the FBR achieved its monthly target. It collected Rs815 billion in September against Rs560 billion in the same month of last year.

Targets for the third consecutive month along with other structural and indicative benchmarks of the IMF deal have been met. But out of the four types of taxes – income tax, sales tax, federal excise duty (FED) and customs duty, the FBR met only income tax and FED targets.

Income tax collection amounted to Rs925 billion, up Rs324 billion, or 54%, during the first three months of current fiscal year. Income tax collection was Rs145 billion more than the target, offsetting the impact of missed sales tax and customs duty targets.

Sales tax remained the weakest area as its collection reached Rs722 billion, which was Rs102 billion, or 17%, more than the last fiscal year. The amount was Rs55 billion less than the target due to low growth in tax receipts at the import stage.

The FBR collected Rs128 billion in FED with 66% growth. It was Rs13 billion more than the three-month target.

The collection of customs duty stood below target by Rs57 billion. The FBR received Rs248 billion in customs duty, which was 14% higher than the last year. Rupee devaluation and an increase in commodity prices in the global market helped improve the collection. But it still fell short of the target.

Published in The Express Tribune, September 29^th, 2023.

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