FBR Exceeds First-Month Target Amidst Challenges; Faces Issues with New Tax Scheme

The Federal Board of Revenue (FBR) has made a strong start in the new fiscal year by surpassing its first-month target of Rs656 billion. The FBR collected Rs659.5 billion, reflecting a growth rate of just under 22%. This robust performance is crucial as the agency aims for an ambitious annual tax target of nearly Rs13 trillion, which requires a 40% growth rate for the fiscal year.

According to an FBR press statement, this achievement highlights the agency’s dedication to meeting its revenue goals despite ongoing economic challenges. The outgoing Chairman of the FBR, Malik Amjad Zubair Tiwana, who has announced his early retirement effective August 15th, has demonstrated his effectiveness in meeting targets despite criticism. The prime minister is expected to appoint a Pakistan Administrative Service (PAS) officer as the new chairman.

However, the FBR faces difficulties with the new tax scheme for traders, which has seen limited compliance. The scheme aimed to collect Rs1,500 income tax per trader, but only three traders participated, contributing a mere Rs1,500 in the first month. Under the scheme, traders who pay their annual tax in advance are entitled to a 25% discount. The FBR plans to implement punitive measures, including sealing shops and imposing imprisonment, but a lack of workforce may hinder these efforts.

To address revenue shortfalls, the government has imposed a withholding tax of up to 2.5% on supplies to retailers, aiming to collect Rs95 billion this fiscal year. The FBR has also delayed notifying revised property valuation rates, which were expected to increase federal revenue by Rs30 billion annually. The delay in implementing these rates has already cost the FBR Rs2.5 billion in July.

The government has set a tax target of Rs12.970 trillion for the FBR this year, necessitating a 40% increase in collections. Income tax collections in July amounted to Rs284 billion, marking a 20% increase from the previous year, driven by higher banking profits and contributions from the salaried class. Sales tax collections reached Rs256 billion, up by 27%, with Rs92 billion collected at the domestic stage and Rs163 billion at the import stage. Federal Excise Duty (FED) collections totaled Rs38 billion, a 22% increase, while customs duties amounted to Rs82 billion, reflecting a 13.3% rise.

Meanwhile, the All Pakistan Textile Mills Association has requested an extension for filing sales tax returns due to operational hurdles caused by delayed returns from power distribution companies. The gridlock resulting from SRO 350 is impacting industrial activity across the country, highlighting the need for regulatory adjustments to support economic recovery and growth.

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