IMF programme leaves little bandwidth for FBR to focus on other sectors that have been out of tax net

ISLAMABAD   -  Government lacks a robust strategy for expanding the tax base, which could make the attainment of tax collection target for next year challenging, experts noted on Monday as they warned against overburdening the existing tax payers. 

“The government does not appear to be having any out of the box ideas for expanding tax base,” analyst Hussain Haider said at a pre-budget discussion hosted by Islamabad Policy Institute (IPI). 

After collecting over Rs 4 trillion in taxes in the outgoing financial year, government is reportedly planning to set a tax collection target of Rs 5.8 trillion for the next year. Finance Minister Shaukat Fayyaz Ahmed Tarin has repeatedly said that the government would not further burden the existing tax payers. However, experts were skeptical about the claim. 

“Tarin’s claim looks unrealistic when seen in the context of the overall IMF programme and statements of some of the other officials,” Haider maintained. 

The government has decided to fix Rs 5800 billion as revenue collection target for the Federal Board of Revenue (FBR) for 2021-22. The FBR’s tax projections for the next fiscal year is expected to be set at Rs 5800 billion on the basis of estimated collection of Rs4790 billion in 2020-21.

So far, the tax machinery has collected net revenue of Rs 4,170 billion during July-May 2020-21, which has exceeded the target of Rs 3,994 billion by Rs 176 billion. This represents a growth of about 18 per cent over the collection of Rs 3,549 billion during the same period last year. 

Former member of the prime minister’s Economic Advisory Council,   Sakib Sherani observed that the tax collection in the outgoing year was remarkable, but it had not come from widening of the tax base. 

He said one reason is that the IMF programme leaves little bandwidth for FBR to focus on other sectors that have been out of the tax net. 

Sherani believed that “automatic growth because of tax elasticity and expected increase in GDP growth” may take next year’s tax collection to about Rs5.3 trillion, but taking that further to meet government’s target of Rs5.8 trillion or IMF demand of collecting Rs5.9 trillion would be very challenging. 

Joint Executive Director Sustainable Development Policy Institute (SDPI),  Dr Vaqar Ahmed  opined that Rs5.8 trillion target may not be a too long shot because of expected revival of economic activity, government’s plan to achieve growth rate of 4.8per cent  and possible increase in oil and commodity prices. However, he too worried that much of the collection so far was coming through indirect taxes, while the government was still lagging behind in collecting direct taxes. 

“Indirect taxes have implications for poorer sections of the society and the middle class,” he maintained. 

Dr Ahmed also emphasised on the need for harmonisation of tax regime and provincial governments making their tax machinery more efficient to dig deeper into taxes bases that are the responsibility of the provinces after the 18th amendment like services, transport and agriculture sectors. 

JS Global Capital CEO, Kamran Nasir cautioned that failure to expand the tax base would land the government in problem. He said taxes should be sustainable and allow businesses to expand. 

He also called for cutting government expenses. “It appears from the government’s current spending tendency that curtailing expenditures is low on its priority. Money in many departments is not being well spent,” he asserted. 

MCB Chief Investment Officer, Muhammad Asim stressed on documentation of economy. He praised government’s strategy for growth in exports. 

Faran Rizvi, an analyst, said government should learn from the boom-bust cycles of the past and try to make the growth more sustainable. He also underscored the need for rationalization of taxes. 

IPI Executive Director, Prof Sajjad Bokhari said that notwithstanding the government’s claim about achieving 3.9per cent GDP growth rate, there are questions about the basis, quality, and sustainability of this growth. 

Bokhari said this skepticism stems from the difficulties endured by the general public and the business class throughout the year; and importantly the absence of institutional reforms that could ensure the sustainability of the growth, besides making it equitable in future.