The Federal Board of Revenue (FBR) surpassed its monthly target of Rs 441 billion in February and collected Rs 443 billion in taxes. This is a major increase than February last year as the tax machinery collected Rs 345 billion in February last year. The Federal Board of Revenue also exceeded its eight-month target of Rs. 3.5 trillion by Rs 268 billion and collected Rs 3.8 trillion in the current fiscal year.
The targets, however, were only achieved because of Pakistan’s import-biased economy. The share of import tariffs as a percentage of total tax collection accounted for more than 50 percent, which helped guise the vulnerabilities in the national sales tax collection system.
Even after such an import-biased economy, with import tariffs accounting for so much of the total tax collection, FBR had missed its monthly targets for December and January. The monthly tax targets are expected to soar because under a deal with the International Monetary Fund (IMF), Pakistan would be forced to collect more taxes and generate more income through tax collection. Under the deal, the current tax target of Rs 5.8 trillion will soar to Rs 6.1 trillion demanding an increase in the monthly targets.
The FBR has not revised its monthly targets despite imposing a 17% sales tax on almost every consumable item. In any event, the FBR decides to change its monthly targets in accordance with the IMF, the task of tax collection would become difficult as Pakistan relies on imports, and the import economy of the country would take a battering from increased taxes.
The Federal Board of Revenue (FBR) collected Rs3.79 trillion in the first eight months of the current fiscal year (8MFY22), exceeding the target of Rs3.53tr by Rs268 billion, provisional data compiled by the tax body showed on Monday.
— Economy of Pakistan (@Pakistanomy) March 1, 2022
Despite widening claims, indirect taxes remained the main source of tax generation in the country. The Federal Board of Revenue collected ~65 percent of taxes from indirect taxes – general sales tax, customs duty, and excise duty. The share of income tax in total tax revenue stood at around 33 percent, further burdening the people.
However, Prime Minister in the address to the people on 28th February, slashed petroleum prices and also increased the cash handouts given under the Ehsaas program. Prime Minister further mentioned a tax exemption for the IT sector, relieving them of foreign exchange restrictions.
An increase in tax is expected as the FBR took to Twitter and said that “FBR is pursuing its vision of ensuring ease of doing business & is all set to achieve its massive budgetary target of Rs 6.1 Trillion and, thus, create history,” which of course would only be possible if the tax machinery increases the monthly tax target for the remaining four months of the current fiscal year.