Economy
 
Country’s tax revenues declining
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May 04, 2012
The rampant tax evasion and its undue exemption in different sectors including the agriculture and services led to decline of revenues of the country despite of the fact revenues could be significantly generated in potential areas for mandatory and development expenditure without foreign aid.

Federal Board of Revenue (FBR), which failed to meet annual tax collection target in past many years, is likely to miss the target of this fiscal year owing to the government policy and its lack of political will to broad taxpayers’ base in revenue oriented sectors.

FBR collected Rs 1,550 billion against the target of Rs 1,588 billion in 2010-11, which was later revised from Rs 1,667 billion in the budget. This year in 2011-12, the government has set tax collection target of Rs1,952 billion despite of lots of tax evasion, decline of revenues on slow business and slow addition of new taxpayers.

By the third quarter of the current fiscal year, the tax authorities received 1,226 billion ( Rs136 billion monthly average) taxes while it is struggling hard to collect further Rs 726 billion to attain the challenging target with the average Rs 242 billion taxes in the rest of three months (April to June).

The unfavorable economic macroeconomic situation when business of large scale to small scale sized have been witnessed closure and slowed down owing to persistent energy crisis, it seems impossible for the government to meet the tax collection target despite tall claims however it is likely to miss its annual target again with huge shortfall.

The main tax spinner is petroleum products, which is major areas to collect huge tax easily without any measure or policy issue. It pushed up the inflation that reflects its negative impacts on lives of layman and cost of doing business.

Besides, the government could not meet its target to number of taxpayers and identification of new areas of taxes. On the other hand, the revenue collecting authority is carrying out its utmost efforts to create tax on demand while resolving pending and litigation issues, and action against people who are non-complaint of tax.

From 2008-09 to 2010-11, 0.4 percent to 1.4 percent shortfall witnessed against tax-to-GDP set by the government in budget and achieved in reality, hence the tax authorities and the government did not meet target of revenue generation in its regime so far.

The tax-to-GDP ratio has remained below 10 percent in the past four years of the present government, which miserably fail to widen taxpayers’ base along with new avenues of generating tax. Instead, it kept exemption of taxes o machines and agriculture sector while waive tax on stock markets, tractors as a politically-motivated act in the recent days.

The revenues through taxes may not work well for the economy but tax-to-GDP ratio may up slightly on the slow growth of GDP expected to be settled down between 3 to 4 percent by the end of current fiscal year.

The decrease in revenues and increase in government expenditure led to budget deficit, resultantly the government need to do heavy borrowing from central and commercial banks.

According to the estimates of International Monetary Fun (IMF), the budget deficit could go up to 6.7 percent of GDP equivalent to Rs1,442 billion for the current fiscal year.

The government has already borrowed over Rs1 trillion till first of week of April 2012 to finance its budget deficit of around Rs1,442 billion. The budget deficit hiked by 1.9 percent of GDP in the outgoing fiscal year after government’s decision to take Rs391 billion subsidies of power sector and commodities on books during the current fiscal year.

The government’s primary balance would be standing in the range of deficit 2.9 percent of GDP in fiscal year 2011-12 and projected to decline to 1.7 percent of GDP by next fiscal year, IMF said.

The situation will extremely grim as the government in its plan to manipulate masses opinion will present a tax free budget for attracting votes in the next election, hence the situation for the economic managers will be difficult in the next coming months.

Therefore, the government will continue to maintain its policy on agriculture tax, which has major contribution to economy. Whereas taxes on real estate, stock share and tractors are likely to be declined or kept same that will not only make tax collections and its GDP ratio more vulnerable.


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