FBR Misses August Tax Collection Target by Rs102 Billion

FBR Misses August Tax Collection Target by Rs102 Billion

The Federal Board of Revenue (FBR) fell short of its August 2024 tax collection target by Rs102 billion, despite taking advances from major cities. The FBR blamed import compression for the shortfall, increasing the likelihood of a mini-budget.

The government had set a collection target of Rs898 billion for August, but the FBR only managed to gather Rs796 billion. The shortfall persisted despite advances from Karachi, Lahore, and Islamabad, suggesting a significant gap in meeting tax expectations.

Import Compression and Reduced Revenue

In a statement released on Sunday, the FBR explained the reasons for the revenue shortfall, attributing it mainly to the reduction in imports.

“A cumulative growth of almost 35% has been achieved in the collection of domestic taxes—on the import side, the momentum could not be maintained due to continued compression in imports,” the FBR said.

In August 2024, imports in US dollar terms declined by 2.2% compared to the same month last year, while the decline was 7% in Pakistan Rupee terms.

Despite imposing record new taxes of Rs1.8 trillion in the budget, the FBR’s overall performance remains below expectations, making a mini-budget that could affect imports, incomes, and fertilizers increasingly likely.

Shortfall Despite Advances and Refunds

The International Monetary Fund (IMF) assigned the FBR a target of Rs1.554 trillion for the first two months of the fiscal year. However, the FBR managed to collect only Rs1.456 trillion, resulting in a shortfall of Rs98 billion.

The FBR also released refunds of Rs132 billion during these two months, an increase of 44%, to address liquidity issues faced by exporters.

While the FBR successfully met its revenue target for July, the performance in August has raised concerns about achieving the quarterly target of Rs2.652 trillion set by the IMF. The FBR needs to collect Rs1.22 trillion in September alone to meet this goal, an increasingly challenging task given the poor performance in August.

Government’s Tax Measures and Increased Burdens

The government aims to collect an additional Rs3.7 trillion in taxes, which includes over Rs1.8 trillion in new taxes. The measures have resulted in a maximum income tax rate of 39% for salaried individuals and 50% for business owners. Authorities have also imposed an 18% tax on milk, infant milk, and fat-filled milk, along with a 10% tax on stationery items.

Additionally, an 18% sales tax has been levied on imported vegetables and fruits from Afghanistan, and even everyday items such as buns and rusks are taxed at 10% GST. Medical tests are also subject to tax.

Breakdown of Tax Collections

1. Income Tax: For the first two months, the FBR collected Rs616 billion in income tax, Rs156 billion (26%) higher than the previous year, driven by higher banking profits and increased contributions from salaried workers. Income tax collections exceeded the two-month target by Rs36 billion.
2. Sales Tax: Totalled Rs572 billion, up by Rs99 billion (21%) from the previous year but still fell short of the target by Rs38 billion.
3. Federal Excise Duty: The collection stood at Rs96 billion, Rs16 billion (19%) higher than the previous year, but missed the target by Rs39 billion, despite doubling the duty on cement and introducing new taxes on lubricant oil and property transactions.
4. Customs Duty: Reached Rs172 billion, a Rs6 billion (4%) increase over the previous year, but fell short of the two-month target by Rs56 billion.

The cumulative growth in collections over the first two months was only 21%, which is half the rate needed to achieve the annual target, indicating the likelihood of a significant shortfall by the end of the year.

Impact of Import Mix and Future Outlook

The FBR’s press statement also highlighted a shift in the import mix due to reduced imports of high-duty items such as vehicles, home appliances, garments, fabrics, and footwear, significantly affecting Customs duty collections and other taxes levied at the import stage.

Despite these challenges, the FBR remains optimistic about meeting its revenue targets for the first quarter, expecting an economic turnaround in September due to a lower policy rate and other government interventions.