36.6 percent growth needed for tax collection to meet with revenue target: SBP report said

KARACHI: The State Bank of Pakistan (SBP) on Friday said that tax collection needs to grow by 36.6 percent in the second half of the FY14 to meet with targeted revenue in this regard; multiple measures have been evolved for improving tax net and for minimizing tax evasions.
According to report of SBP on the state of economy, it said that the measures to increase tax revenues have been guided by expediency rather than a focus on the structural problems in the fiscal system.
The central bank identifies, “Fiscal consolidation has minimal fallout on the prospects for economic growth. In particular, taxation reforms should address the following issues: widening the tax base by eliminating a broad range of tax exemptions; improvement in FBR’s image and clamping down on leakages to minimize tax avoidance and evasion; and enhancing compliance and strengthening the tax.”
Similarly, “FBR tax receipts grew strongly in H1-FY14, but the half-yearly target was missed by Rs 80 billion. This implies that tax collections need to grow by 36.6 percent in the second half of FY14 to meet the full year target, which appears difficult, given the pattern of tax collection in the past several years.”
The report said that FBR tax receipts posted growth of 16.8 percent for H1-FY14, against a nominal increase of 4.5 percent during the same period last year.
However, according to estimates FBR collections for H1-FY14 are short by around Rs 80 billion relative to the half year target, and will need to grow by 36.6 percent in the second half to achieve the target set for FY14. This would be challenging, given the pattern of revenues collection and the nature of tax reforms undertaken so far, SBP report said.
The developments during H1-FY14 indicate that a reduction in subsidies, and increase in tax rates have succeeded in achieving the desired reduction in the fiscal deficit for the current period.
“However, a sustainable improvement in the country’s fiscal situation would require wide ranging reforms that address the following issues: a sustainable increase in tax collection requires widening the tax net by removing exemptions; while the phasing out of power subsidies is urgently required, there is a simultaneous need to initiate comprehensive energy sector reforms, to rule-out the buildup of circular debt; to achieve a substantial reduction in the burden emanating from loss making PSEs, these entities need to be restructured/disinvested on a priority basis; fiscal austerity based on curtailing development spending is not a desirable option, as it will further suppress growth, which would be counterproductive for debt reduction efforts; rebalance the maturity profile of domestic debt, to minimize interest-rate and roll-over risk, and spread out the debt servicing burden; and revitalize NSS products and make them more dynamic.”
The SBP said that around two-third of the entire increase in tax collection came from sales tax during H1-FY14. This was the only category that surpassed the half-year target on account of collection from sales of domestic goods and imports.
The report said, “In domestic sales, most of the increase can be traced to petroleum products, fertilizer, and cement, while the General Sales Tax collection on imports improved due to pickup in imports of petroleum products, machinery and fertilizer. Custom duties, however, remained sluggish during this period.”
It further added that around one-third of the entire increase in FBR taxes came from direct taxes. Most of this increase can be traced to an increase in withholding tax collection on imports, telephone bills and salaries due to increase in rates.