ISLAMABAD: In an alarming development, the government has projected highest-ever tax shortfall being faced by the FBR in its whole history since inception as this increasing shortfall might touch Rs485.9 billion till end June 2019.

In absolute figures, the FBR is heading towards the highest ever tax shortfall of its history with increasing threat that the country’s budget deficit might inch towards 7 percent of GDP for the current fiscal year against 6.6 percent of GDP recorded last year under PML-N led regime. Therefore, the PTI-led government is all set to make new records on fiscal front in the current fiscal year.

According to official projections shared with the government disclosed on Sunday that the declining trend in FBR’s revenue collection might continue in remaining four months (March-June) period of the current fiscal year and it was feared that the tax shortfall might stand at Rs252.7 billion in the next four months. The FBR had already faced shortfall of Rs233.2 billion in first eight months (July-Feb) period and after projected shortfall of Rs252.7 billion in the next four months, the overall shortfall might touch historic peak of Rs485.9 billion during first year of PTI-led regime.

The analysis of all major taxes done and shared with the government disclosed that overall tax shortfall on account of Income Tax, Sales Tax and Federal Excise Duty (FED) was projected at Rs434 billion during the whole current fiscal year while the shortfall in Customs Duty collection was anticipated at Rs50 billion so the overall shortfall might touch Rs485.9 billion till June 30, 2019.

Income Tax: Seven reasons have been cited as major causes of revenue shortfall in the current fiscal year.

Reduced Tax Rates on Salary: In Finance Act 2018, the rate of tax on salary income was drastically reduced and the threshold was increased from Rs0.4 million to Rs1.2 million in one go. These changes brought substantial decrease in withholding taxes collected through various government and private withholding agents. The revenue impact of these changes caused revenue loss of Rs32.4 billion so far in the first eight months (July-Feb) period of the current fiscal year and it is estimated that total revenue loss for whole fiscal year would stand at Rs50 billion for 2018-19.

Telecom Sector: The Supreme Court of Pakistan issued verdict against withholding tax imposed on telecom subscribers resulting in massive loss of revenue under section 236 of Income Tax Ordinance 2001 up to the range of Rs34 billion during first eight months so far. Total estimated loss from telecom sector is estimated at around Rs55 billion during the whole financial year.

Reduced Government Spending: Owing to slashed PSDP (Public Sector Development Programme) the revenue collection under section 153 of the Income Tax Ordinance 2001 from contractors, suppliers and service providers reduced significantly. The so far revenue shortfall stood at Rs54 billion in first eight months period of the current fiscal year and total expected loss on this head would stand at Rs80 billion in the whole financial year.

Import Compression: In the wake of reduction in imports, the tax deduction under section 148 of the Income Tax Ordinance slashed by Rs11 billion during first eight months of the current fiscal year and total revenue loss would be estimated to go up to Rs16 billion till end June 2019.

Abolition of Tax on Cash withdrawal from filers: Owing to recent changes in section 231A of the Income Tax Ordinance, the expected revenue shortfall was estimated at Rs5 billion in four months (March-June) period of the current fiscal year.

Banking Sector Reduced Profitability: The reduced profitability of commercial banks resulted in reduction of tax on dividend income and its revenue impact for first eight months stood at Rs16 billion. The annual loss is estimated to be around Rs25 billion.

Implication of Payment under Amnesty Scheme: In the last fiscal year 2017-18, the payment of taxes under Amnesty Scheme stood at Rs120 billion which was one time phenomena and the same is not expected this year.

Sales Tax and FED: During first eight months from July 1, 2018 to Feb 2019, the sales tax domestic collection (net) stood at Rs373.15 billion against envisaged target of Rs407.1 billion. However, in the budget 2019, the sales tax rates were reduced as a considered policy decision resulting in relief of Rs38.1 billion in POL products, fertilizer, feed gas for fertilizer and restriction in car booking by non-filers.

Petroleum Products: As a policy decision to facilitate consumption of LNG, import of Furnace Oil (FO) has been restricted. The local refineries do not have sufficient storage capacity to store FO and reportedly had to reduce refining of crude oil in tandem with their supplies of FO. The official data indicates that there is almost 29 percent reduction in consumption of High Speed Diesel (HSD) & FO from 9.1 MT (2017) to 6.5 MT in 2018. The consumption of Motor Spirit (MS) is almost the same. The average sales tax rate during March to June 2018 were around 16 percent and 25.2 percent on MS and HSD respectively which are now at standard rate of 17 percent and expected to remain the same till end June 2019. The collection on all POL products declined by 21 percent as it fetched Rs131.4 billion in first eight months of the current fiscal against Rs166.5 billion in the same period of the last financial year. With stagnant growth in MS, the quantitative decline in consumption of High Speed Diesel and difference in average sales tax rate from 25.2 percent to 17 percent will result in less collection from POL sector by Rs17 billion in remaining four months (March-June) period of the current fiscal year. The sales tax on imports has so far faced shortfall of Rs29 billion up to Feb 2019 and it is expected that total shortfall on this account might touch Rs44 billion till June 2019.

Natural Gas: Policy measures have resulted in decrease in revenue collection during first eight months and the same trend is expected to persist in remaining four months of the current fiscal year.

The reduced rate of GST from 17 percent (+3 percent value addition tax) to 12 percent on import of LNG and local supply thereof.

The reduction in rate of sales tax to 2 percent on all fertilizers and consequential reduction in sales tax to 5 percent on supply of natural gas to fertilizer plants for use as feed stock to avoid accumulation of input tax.

Sales Tax on LNG imported by fertilizer manufacturers for use as feed stock is exempted in Finance Bill 2018.

There is waiver of value addition tax @ 3 percent chargeable on import of LNG under Rule 58B of Sales Tax Special Procedures 2007.

The FBR has so far faced negative growth of 26.5 percent in sales tax collection on natural gas as the FBR collected Rs14.1 billion in first eight months so far in the current fiscal year against collection of Rs19.2 billion in the same period of the last financial year. An additional shortfall to the tune of Rs2.6 billion has been estimated in the remaining period of the current fiscal year.

Automobile and Motorcycles: The sales tax collection on motor vehicles and motor cycles declined by Rs3 billion and Rs1 billion respectively in first eight months so far.

Federal Excise Duty (FED) Domestic: FED at import stage is collected on import of edible oil. The domestic base is related to tobacco, cement, airlines, beverages, aerated water etc. The FED collection stood at Rs129 billion so far in eight months of the current fiscal against Rs114 billion in the same period of last year, registering a positive growth of 13 percent.

Customs Duty: The FBR has so far collected Rs444 billion in shape of Customs Duty (CD) in first eight months of the current fiscal year and they will have to collect Rs291 billion more in remaining four months (March-June) period to display the envisaged target of Rs735 billion on its board on June 30, 2019. The FBR is expected to collect Rs241 billion in remaining four months against the desired target of Rs291 billion indicating that it is going to face shortfall of Rs50 billion on account of customs duty collection owing to compressed imports.