ISLAMABAD: At the conclusion of its performance review with the visiting International Monetary Fund (IMF) delegation, top officials of the Federal Board of Revenue (FBR) have denied all talk of a “mini-budget” to bridge the shortfall in revenue collection posted in the first two quarters of this fiscal year.
“We have mostly met our second quarter targets” official sources told Dawn, but added two problematic areas — taxation and electricity — where the focus of the talks lay.
But official sources said that during these meetings there was no discussion of any mini-budget. “There is nothing like new taxes at the moment”, they said, adding the rumours are based on hearsay. The talks so far have only focused on a review of the previous quarter’s performance, they told Dawn.
The policy talks, in which benchmarks for the next quarter will be set, have not begun yet so talk of a “mini budget” is premature. They claim that the Fund has given a “satisfactory” review of FBR’s performance despite missing the revenue target by Rs105bn in the second quarter of this fiscal year.
No room for more revenue measures in a slowing economy, tax officials say
At the outset, it has been conveyed to the IMF that FBR will not be able to reach even close to the revised target of Rs5.270 trillion. “We cannot achieve this target” the official privy to meetings told Dawn. “We believe economy is already slowing and have told them that no further taxes can be added because they will cause businesses in Pakistan to close down,” he said. Whether the IMF agrees to further downward revision in the tax revenue target will be decided in the policy phase of the talks, which is now set to begin.
It is estimated that FBR revenue collection will remain around Rs4.8tr as against Rs3.85tr of last year. “This will be an increase of Rs1tr in one year,” the official said, adding it will be a highest year annual growth in revenue collection ever. This claim was also repeated by Finance Adviser Dr Hafeez Shaikh in a television appearance on Thursday night.
In that appearance, he also emphasised that the government is looking towards non-tax revenues to help meet its target in the remaining months of the fiscal year, although he was evasive when the host asked about plans for a “mini-budget”.
“The word mini-budget is used very loosely in this country,” he said when asked directly whether there is any possibility of one. “Economic management does not mean you give a budget once a year and then you sit,” he went on. “It is a continuous programme wherever there is a weakness you address it, wherever there is an overshoot, you correct it.” Throughout, he avoided giving a direct yes or no answer to whether or not there will be new tax measures in the near future to help plug growing revenue shortfalls.
The current target for non-tax revenues is Rs1.2tr, he said in that show, and expressed confidence that with telecom licence renewals and privatisation proceeds, to take two examples, they might even surpass this.
The FBR officials pointed out that in the last few years, the tax body has posted an increase of an average Rs400bn per annum increase in revenue collection. “This year we added over Rs1tr from last year’s collection, which is a total good number,” the official said, adding it cannot be increased in a slowing economy.
In the first year of the programme, the FBR has conveyed to the Fund that revenue shortfalls can be compensated in the shape of non-tax revenue. This compensation will take overall revenue to over Rs5tr.
However, the IMF officials are said to have replied that non-tax revenue is a one-time gain which can be raised from sales of LNG plants or profits of the State Bank of Pakistan, but cannot be counted on to meet the benchmarks for revenue performance over the programmes three years.
At the conclusion of the performance review, it has been noted that primary deficit is also not an issue for the current fiscal year. This target can easily be achieved even if the FBR performance in terms of revenue collection fails to improve, the officials who spoke to Dawn said.
“We have conveyed to IMF that major hit is coming from shortfall in revenue collection on imports,” the official said, adding that this collection has declined by over Rs280bn during the first two quarters.
Last year, the annual tax collected on imports was Rs2tr.
The second quarter tax target is projected at more than Rs1,300bn but it is estimated that revenue shortfall in the third quarter will remain around Rs150bn keeping in view the economy’s performance.