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Govt hesitant to bring mini-budget to bridge tax collection deficit

ISLAMABAD-The government is reluctant to bring mini budget to bridge the tax collection shortfall that had already reached to Rs284 billion in first six months (July to December) of the current fiscal year due to its political implications and impact on soaring inflation rate.

The officials of ministry of finance and Federal Board of Revenue (FBR) have not ruled out the possibility of announcing mini budget in next couple of months to meet the revised tax collection target.

However, they were of the view that government may drop the idea of mini budget due to the pressure of opposition political parties.

“Mini budget will also result in increase in inflation rate, which is already enhancing from last few months,” said an official of the ministry of finance.

The FBR’s tax collection had recorded at Rs2083 billion during July to December period of the year 2019-20. The government had faced shortfall of Rs284 billion in tax collection in first six months of the current financial year.

Target was Rs2367 billion for the period under review. Keeping in view the massive shortfall, the International Monetary Fund (IMF) had recently cut the unrealistic tax collection target of Rs5.503 trillion to Rs5.238 trillion, a reduction of Rs265 billion.

The IMF had slashed the target on the demand of the government, which was struggling to meet the target from the start of ongoing financial year. Pakistan has agreed under the new structural benchmark condition with the IMF to take ‘additional measures’ on the eve of presenting the budget review before parliament by end of February 2020.

Meanwhile, the FBR on Saturday has issued a press statement. “The tax collection in first 6 months is 2083 billion which is 16.3% higher than last year”, the FBR stated in the statement.

According to the FBR, the 16.3 percent growth in tax collection is the highest growth rate since 2015-16. The FBR has claimed that it had made great efforts to attain this growth despite rather subdued economic activity.

The original target of Rs2367 billion, but it was revised to Rs2197 billion in view of import compression in first quarter. The trend has continued for the second quarter. This compression of over 5 billion dollars has on one hand improved Current Account situation but on the other hand has adversely affected the usual revenue resources of the government.

An estimated loss of Rs56 billion of taxes is incurred on every billion dollar of import compression. FBR has redoubled its efforts on domestic side and has managed to shift its tax dependence on import taxes from 56 percent to a little above 40 percent this year.

With expected upturn of economic activity in last six months and a likely stabilisation of imports, it is expected that FBR is going to collect an unprecedented amount of taxes this year without disrupting and distorting economic activity, the FBR concluded in its statement.

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