The Federal Board of Revenue is finding it difficult to achieve its target of collecting Rs4.4 trillion annual taxes as it suffered losses worth Rs191 billion in ten big sectors during the first seven months of FY 2018-19.
The sectors include Telecom, Petroleum, Goods and Services, Pakistan Stock Exchange, Banking, Automobile, Salaried Class, Food Products and other organised sectors.
The government faced a tax revenue shortfall of Rs 43.88 billion in the petroleum sector due to a reduction in the sales tax rates from July to December, 2018. Sales tax collection on import of petroleum products reduced from Rs94.19 billion to Rs50.30 billion during the period, according to FBR.
When the PTI came to power in August 2018, the effective sales tax rates on four petroleum products were ranged from 1% to 22%. Till December 31, the sales tax rates remained a minimum 0.5% and maximum 13% with minor adjustments, before it jumped to 17% from January 1, 2019 onward mainly to recover losses.
During this period, the import of LNG increased which generated Rs14.57% additional revenue, however, it has not offset this shortfall of Rs43.88 billion, according to FBR.
Due to replacement of furnace oil with LNGO, the domestic consumption of petroleum products also decreased by 29% in six months.
In the natural gas and LNG sector, sales tax collection decreased by 25% or Rs3.98 billion mainly because of some incentives announced for LNG import by fertilizer manufactures and waiver of value addition tax at 3% at the import stage.
A major decrease in revenue was witnessed in the salary sector due to a drastic reduction of the tax rate up to Rs1.2 million of annual salary. The previous government of PML-N took a political move before the general elections by announcing relief to salaried persons against all slabs which causes a big revenue loss to the PTI government.
FBR collections also remained 85% low in the telecom sector mainly because of suspension of WHT from cellular companies by the apex court since June 2018. The PTI government faced drastic revenue impact of Rs21.37 billion due to this decision. It collected just Rs3.67 billion as compared to Rs25 billion during the same period last fiscal year.
An amount of Rs20.45 billion decreased in withholding tax collection from public sector spending due to a reduction in federal PSDP from Rs1030 billion to Rs675 billion and a reduction in ADPs of provinces as well. Slow release of development funds together with slow utilisation of released funds across Pakistan are also major reasons of low tax collections on payments for goods and services.
In the cement sector, FBR faced 23% losses in sales tax collections which are equal to Rs2.81 billion. However, due to increase in FED rate from Rs 1.25/kg to Rs 1.5/kg, the government generated Rs 3.91 billion or 16.6% additional revenue from cement.
Due to an uncertain economic situation, the equity market also performed low. As a result, the government faced Rs4.64 billion (78%) revenue loss during July to December, 2018.
The profit of the banking sector decreased by 10% during January to September which resulted in 3.6% or a Rs1.67 billion revenue loss.
In the automobile sector, sales tax collection decreased by Rs1.18 billion from cars and other vehicles mainly due to an overall economic slowdown and restrictions on non-filers from buying vehicles.
The tobacco sector witnessed 26% growth (Rs8.29 billion) during July-December 2018 due to the introduction of third tier cigarettes by the FBR.
Overall, FBR collected Rs2060.75 billion taxes during July to Dec 2018-19 which is Rs191 billion short of its own target set for the first seven months. However, total tax collections witnessed 3% growth as compared to the same period of FY 2017-18.