ISLAMABAD -  Following massive shortfall in tax collection during first half of ongoing financial year, the government is either to slash the development budget or to impose new taxes to restrict the budget deficit within target.

The government had budgeted to keep the deficit at 3.8 percent of GDP or at Rs1.276 trillion by the end of June this year. However, the government might struggle to restrict after Federal Board of Revenue (FBR) had witnessed massive shortfall of Rs150 billion during July-December of the year 2016-17, as it collected Rs1465 billion.

The government had set Rs1615 billion tax collection target for July-December period with the International Monetary Fund (IMF). The FBR's performance at around 7 percent for the six month period ended in December 2016, reflecting catching up of the shortfall experienced in the initial months, largely on account of giving relief to consumers on petroleum prices together with sales tax refunds of Rs45 billions.

Apart from tax collection shortfall, the federal government would have to depend on provincial governments to give Rs339 billion cash surplus budget. Budget deficit would go beyond the target of Rs1.3 trillion if the government does not take revenue generation measures or reduce its expenditures, especially development budget.

The government is already releasing funds for Public Sector Development Programme (PSDP) at much slower pace during current financial year. Ministry of Planning and Development had released only 35 percent (Rs280 billion) of the annual budget of Rs800 billion during first half of the year 2016-17. Under the approved disbursement mechanism, the government should have released at least 40 percent of the annual development budget (Rs320 billion).

The government had already made commitment with the IMF to slash the development budget by Rs420 billion. According to documents released by the IMF, the country's consolidated PSDP (Public Sector Development Programme) has been put at Rs1255 billion instead of Rs1675 billion approved by the parliament for the current fiscal year (FY2017).

The federal PSDP spending for FY17 has been revised to Rs620 billion against the budgetary allocation of Rs800 billion - a reduction of Rs180 billion. Similarly, the provincial development budget has been revised to Rs635 billion as against Rs875 billion approved by the parliament.

Pakistan had already agreed with the International Monetary Fund (IMF) for announcing mini-budget for meeting its tax collection and budget deficit target. Budget deficit had already recorded at higher side, at Rs437.9 billion during the first quarter of the ongoing financial year. The country's expenditures were recorded at Rs1,300.1 billion as compared to revenues of Rs862.2 billion, taking the deficit to Rs437 billion (1.3 percent of the GDP) during July-September of the fiscal year 2016-17, according to data of the ministry of finance.