Revenue matters and onslaught of inflation

ByAsrar Raouf

Former Civil Servent


November 5, 2022

Revenue matters

Asrar Raouf looks at the issues of revenue matters collection and consistent inflation

The financial situation of the country is still not out of the woods though the coalition government is doing its best to rectify the situation there is not a great deal of fiscal place available to financial managers. The gap between the available resources, revenue matters, and the demands for meeting the needs of expenditure is so great that it is no more possible to manage the economy without foreign financial assistance which has become formidably difficult to obtain.

This issue has been galvanized by the policies pursued by successive governments during the last many decades but their policies have resulted in exacerbated by such policies and it will take a long time to recover from the negative effects created by such policies. The financial managers are understandably constrained to devise policies that are aimed at restoring rational financial sense in the country and matters will not improve unless such an approach comes to the fore.

The policy imperatives so far are based upon ad-hoc solutions that have so far proved self-defeating in the long run and the economy comes back to a grinding halt whenever a crisis hits the country. The economy was never based upon long-term structural footings and the financial planners were never given enough latitude to devise policies that require patience as they have long gestation periods.

The state institutions are however doing their bit to contribute whatever they can to enhance revenue matters collection according to the given targets. In this context, it is reported that the Federal Board of Revenue (FBR) has been able to surpass its tax collection target for the first four months (July-Oct) period of the current fiscal with a slight margin but the overall growth in revenue collection has dropped mainly because of import compression.

FBR’s Revenue Matters Collection

It is certainly worrying to note that the tax collection has fallen behind its monthly target of Rs.534 billion for October 2022 as the provisional collection stood at Rs.513 billion till 31 October 2022 making the FBR face a shortfall of Rs.21 billion for achieving the desired FBR’s revenue collection endeavors,” one top FBR official said on Monday on the condition of anonymity. Now the government will have to hold very tough upcoming parleys with the IMF review venue of the review monthly tax collection target.

The reason forwarded for the shortfall is ostensibly import compression and this handicap would render parleying with IMF rather cumbersome as the talks with a mission which is expected to take place in mid-November 2022. The IMF has already stated that owing to limited fiscal space it would be difficult to accept any shortfall in revenue matters collection target and will not agree to condone it.

In this context it is reported that the FBR has provisionally collected Rs.2,148 billion in the first four months of the current fiscal year against the desired target of Rs.2,144 billion, surpassing the target with a slight margin of Rs.4 billion. The FBR had exceeded its first quarter target with a margin of Rs.26 billion as it fetched Rs.1,635 billion against the desired target of Rs.1,609 billion.

And the FBR envisaged a tax collection target of Rs.534 billion for October 2022. The FBR has provisionally collected Rs.513 billion so it faced a shortfall of Rs.21 billion. The FBR’s tax collection is envisaged at Rs.7,470 billion for the current fiscal year. The FBR had collected Rs.1,635 billion in the first quarter (July-September) period of the current fiscal year against the fixed target of Rs.1,609 billion so surpassed the target by Rs.26 billion.

International Monetary Funds

For September 2022, the FBR collected Rs.685 billion against the desired target of Rs.684 billion. In the wake of imports compressions, the FBR faces difficulties in materializing the desired tax collection target for October 2022 as the Large Taxpayer Units (BTUs) in Karachi, the tax collection target was fixed at Rs.150 billion for October 2022 and it faced a shortfall for materializing it. It is yet to see how much it faced a shortfall in the outgoing month of October 2022.

However, it is getting problematic for the tax collecting agency of the country as the FBR has faced a 34% reduction in income tax returns filing as though it has managed to achieve its four-month target of Rs.2.14 trillion but may face difficulties in keeping the momentum from now onwards.

It is the difficulties experienced by the taxation machinery that has compelled the finance minister to extend the date for filing the tax filing date for the second time. The tax machinery has remained unable to broaden the tax base, with the number of income tax return filers remaining lower than 2.5 million – showing a reduction of 34% in the base compared to the previous tax year.

For the tax year 2021, as many as Rs. 3.8 million returns had been filed. Pakistan financial managers had ensured the International Monetary Fund (IMF) that it would add a minimum of 700,000 additional taxpayers to the base by broadening the net to encompass traders.

Instead, it has fallen short of the previous year’s number by over Rs.1.3 million. Effectively, the FBR’s base is two million lower than its own conservative target. The most worrying problem facing finance managers is the ever-rising inflation that has refused to abate and has made life miserable for the common people.

Pakistan’s Population In Rural Areas

It is reported that the current level of inflation is 26.6% in October and the pace of the price hikes further accelerated to nearly 30% in rural areas where a majority of the population lives as prices of all essential commodities are on the rise. The inflation reading was more than double the increase of around 13% in wages, making it difficult for most people to make ends meet.

These figures are provided by the official agencies but there are figures that reveal that inflation could be higher than portrayed by the official side as the price variable pinches much more than what comes through in figures. For July-October of the current fiscal year, average inflation came in at 25.5%, which was more than double the official target of 11.5% for the current fiscal year, set before the floods.

A majority of Pakistan’s population lives in rural areas whose income level is less than the earnings of people residing in cities. The continuous surge in inflation indicates the failure of the ruling alliance, which has not been able to check price hikes.

It is reported that prices of the perishable food items group surged by 70.5% in October, indicating how much difficult it had become for even a middle-class family to run a kitchen without compromising on other expenditures. In any case, the core inflation is now higher than the State Bank’s policy rate of 15% and this is a lot to say as SBP is supposed to mirror the national economic situation accurately but in Pakistan, the reverse is the case. In this case, it is not very difficult to judge the predicament faced by the ordinary citizen who sees no chance of any relief coming his way. The Weekender


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