Despite Record New Taxes, Advance Collections, and Refund Restrictions
ISLAMABAD:
The tax collection shortfall has surged to an alarming Rs1.03 trillion during the first 11 months of the current fiscal year, despite the government introducing record new taxes in the budget, collecting advance payments, withdrawing funds directly from bank accounts, and blocking refunds to companies and individuals.
In May alone, the Federal Board of Revenue (FBR) recorded a massive shortfall of Rs205 billion, even while issuing 5.3% fewer refunds compared to the previous year. This disappointing performance raises serious questions about the government’s tax strategy, which has heavily targeted already burdened segments of the economy.
A major factor behind the failure to meet monthly targets is the lack of new recovery of arrears from ongoing litigation cases—something both the government and the FBR had pledged to resolve promptly.
According to FBR data, the agency collected Rs10.21 trillion between July and May of the current fiscal year, missing the target by Rs1.03 trillion. While this represents a 28% increase (about Rs2.2 trillion) over the previous year’s collections, it still falls short of what was required to stay on track.
The higher collection compared to last year was mainly due to the imposition of additional taxes, especially on the salaried class and corporations, along with expanding the sales tax base to previously untaxed sectors. Nevertheless, the FBR could not meet its set target by over Rs1 trillion.
The FBR did not provide comments before the publication of this report.
This shortfall greatly exceeds the government’s adjusted target agreed upon with the International Monetary Fund (IMF) in March, when the IMF lowered the full-year collection target by Rs640 billion.
During a National Assembly Standing Committee on Finance meeting held on Thursday, PPP MNA Mirza Ikhtiar Baig accused the FBR of illegally withdrawing funds from multiple bank accounts in Karachi to meet collection goals. He also highlighted the case of Utopia Industry, one of the top 12 exporters, which is struggling to recover Rs3 billion in refunds—a problem faced by many industries despite official assurances that refunds are processed within 72 hours.
Data shows that in May, the FBR issued Rs2 billion (5.3%) fewer refunds than in May last year. Total refunds disbursed during the 11 months reached just Rs458 billion, up only 1.1%, far below the 28% rise in overall tax collection.
The salaried class was the hardest hit, paying a record Rs437 billion in taxes through April, an increase of 52% (Rs150 billion) over the previous year.
For May, the FBR’s tax collection target was Rs1.1 trillion, but despite collecting advance payments and reducing refunds, actual revenue reached Rs907 billion. The monthly collection was Rs271 billion (43%) higher than the same month last year, a senior FBR official described as commendable under the current circumstances.
The IMF pressured Pakistan to introduce new taxes, disproportionately affecting the salaried class and taxing nearly all consumable goods, including medical tests, stationery, vegetables, and even children’s milk.
Between July and May, the FBR fell short of its targets for sales tax, federal excise duty (FED), and customs duty but exceeded income tax targets mainly due to heavy levies on the salaried class.
Income tax collections hit Rs4.9 trillion during the first 11 months, surpassing the target by Rs296 billion and last year’s figure by Rs1.1 trillion. The burden was shared by salaried individuals and corporations, while retailers and landlords remained largely untaxed.
Sales tax collections reached Rs3.5 trillion, falling short by Rs900 billion against the Rs4.4 trillion target. Sales tax collection remains a major challenge for the FBR, partly due to slower-than-expected growth in large industries. Despite the government’s substantial increase in sales tax rates in the budget, the shortfall persists, though the collection was Rs755 billion higher than last year.
FED collections totaled Rs672 billion, Rs166 billion below target but Rs180 billion higher than the previous year. The government expanded FED to items including homes, lubricants, fruit juices, cement, and sugar in the recent budget, but targets still were not met.
Customs duty revenue was Rs1.16 trillion, missing the target by Rs265 billion. The shortfall is attributed to lower import volumes than anticipated and manipulation of goods declaration forms by importers with corrupt assistance. However, customs collections were Rs172 billion higher than last year.
