ISLAMABAD   -  The government might struggle to restrict budget deficit at targeted seven per cent of the GDP after slashing down the tax collection target by Rs246 billion during current fiscal year and expected increase in expenditures amid Covid-19.

The incumbent government, which is successfully achieving its tax as well as non-tax collection targets so far, is unlikely to control the budget deficit at Rs3.195 trillion in ongoing fiscal year (FY21). However, the government of Pakistan had recently agreed with the International Monetary Fund (IMF) to revise downwards the annual tax collection target for FY2020-21 by Rs246 billion to Rs4,717 billion from Rs4,963 billion. The reduction in tax collection target would create problems for maintaining budget deficit within the target.

“Yes, tax collection target has been reduced to Rs4717 billion for current fiscal year, as budgeted target (Rs4963 billion) was unrealistic and difficult to achieve,” said a senior official of the Federal Board of Revenue (FBR) while talking to The Nation. He said that revised target is also challenging but the government would try to achieve it by keeping its eight months performance regarding tax collection. He also said that government would eliminate some of the income tax exemptions within ongoing financial year, which would help in generating more revenues.

In first eight months (July to February) of FY21, the FBR had exceeded the tax collection target by Rs18 billion. The FBR had collected net revenue of Rs.2916 billion during July-February period, which had exceeded the target of Rs.2898 billion. This represents a growth of about 6 per cent over the collection of Rs.2750 billion during the same period of the last year. The improved revenue performance is a reflection of growing economic activities in the country despite facing the continued challenge of second wave of COVID-19. “During March-June 2021, it is expected that this revenue performance would be improved substantially compared to 2020 when economic activities were disrupted,” said FBR.

However, the government might struggle to restrict the budget deficit within the target of seven per cent of the GDP after slashing down the tax collection target and expected increase in expenditures of the country. The ministry of finance had already warned of increase in expenditures in remaining months of the FY21. “The expenditure side is expected to remain under pressure due to COVID related expenditures,” the ministry said in its monthly report, ‘Monthly Economic Update & Outlook, February 2021’.

Budget deficit is already on the higher side in the first half (July to December) of the ongoing financial year. Pakistan’s fiscal deficit was recorded at 3.1 per cent of the GDP (Rs1, 393 billion) during July-December of FY21. In mid-year budget review report for fiscal year 2020-21 placed before the National Assembly, the Finance Ministry had projected the overall fiscal deficit at seven per cent of the GDP.

The government’s non tax collection has shown massive increase of 151 per cent in July to December period of the year 2020-21, which had helped in restricting the deficit at 3.1 per cent of the GDP in first half of the current financial year. Non tax collection was recorded at Rs895.3 billion in first half of the ongoing financial year as compared to Rs356.3 billion in the same period of the previous year, according to the latest data of the ministry of finance.