+DWSFBR misses

The Federal Board of Revenue’s missing the tax target by Rs 330 billion for the first six months of the current fiscal year is not good news. It means, for a start, that the expansive optimism that saw the CBR tell the IMF’ review mission in November that it did not need any downward revision of its target because of the excessive monsoon flooding, was just plain wrong. As it is, the IMF had revised the target down by Rs 214 billion not just because of the floods, but because of lower inflation than projected.  True, the figure is a marked improvement over what the FBR had told the Prime Minister in a briefing a couple of weeks ago that the shortfall would be about Rs 564 billion. What it also means is that there has not occurred the increased growth that should have accompanied the lowering of inflation. The economy is just not picking up, and there is every sign of the country’s primary surplus being eroded.

One of the consequences of this shortfall in collection is the introduction of a mini-budget, with new taxation measures that would yield Rs 200 billion in extra revenue. This had been agreed by the government during the review, with the focus being an increase from 10 percent to 12.5 percent in the withholding tax on landlines, which should generate Rs 20 billion annually. Similarly, the CBR may increase the withholding tax on cellphones from 15 percent to 17.5 percent, for an annual collection of Rs 24 billion. The sales tax may also be increased from 10 percent to 18 per Rs 16 percent on confectioneries and baked goods.

The collection figures show that across the board, collections have been greater than the year before. This might well indicate that inflation is still helpful, as it does in nominal terms. However, the problem is maintaining a primary surplus if the government wants to continue to remain in the IMF’s good books. The collection targets are fixed by the MF with that primary surplus in mind. However, increasing collection by such tactics as holding back rebates and refunds (it paid less than 47 percent compared to the previous year) will not yield the desired results. What is needed is a path to increased exports. That the CBR is not doing. Nobody is, so it is not possible to judge whether it id part of the problem or part of the solution.