Mohsin Siddiqui (Chief Reporter)
The Federal Board of Revenue (FBR) has recently disclosed its provisional tax collection figures for January 2025, revealing significant insights into the fiscal health of Pakistan’s revenue mechanism. In January alone, the FBR managed to collect Rs 872 billion against an ambitious target of Rs 956 billion, marking a shortfall of Rs 84 billion. This underperformance is part of a broader trend observed over the first seven months of the fiscal year 2024-25, where the revenue body collected Rs 6,496 billion compared to the targeted Rs 6,964 billion, accumulating a gap of Rs 468 billion.
The shortfall in January’s collection, although significant, reflects the ongoing challenges in meeting the set revenue targets amidst economic fluctuations. The FBR’s performance this month indicates a 29% growth on a month-on-month basis, showing a positive trajectory in terms of growth rate, yet it falls short of the expectations set by the fiscal policy. Various factors contribute to this disparity, including economic dynamics, tax compliance rates, and external market influences.
Examining the broader fiscal picture, the FBR has managed to accumulate Rs 6,496 billion from July to January, which, while substantial, does not meet the government’s financial aspirations. This gap of Rs 468 billion underscores the urgency for strategic adjustments in tax collection mechanisms or policy interventions to bolster revenue streams in the remaining fiscal period.
According to sources within the FBR, the current trend of revenue shortfalls is expected to persist into February 2025. However, there’s optimism regarding the fiscal year’s end. The revenue body anticipates a recovery in the last four months of the fiscal year (March to June 2024-25). This expectation is based on the notion of ‘autonomous growth,’ where economic activities are projected to increase naturally due to seasonal factors, policy changes, or other macroeconomic developments.
One specific factor expected to positively impact revenue collection is the import of palm oil, which is slated to increase in March 2024. This uptick in imports will likely lead to higher import taxes, contributing to the revenue figures for the subsequent months. This strategic insight into import trends exemplifies how sector-specific increases can aid in meeting broader fiscal targets.
The shortfall in January and the cumulative deficit over seven months can be attributed to several reasons:
Economic Slowdown: A general slowdown in economic activities might have reduced taxable income and transactions.
Inflation and Exchange Rates: Unanticipated changes in inflation or exchange rates can affect both the cost of goods and the value of the currency, influencing tax revenues.
Tax Evasion and Compliance: Despite efforts, tax evasion remains a challenge, coupled with issues in tax compliance, especially in sectors like real estate and informal trade.
Enhance Compliance: Implement stricter compliance measures or incentives for taxpayers to report income more accurately.
Revise Tax Policies: Adjust tax rates or broaden the tax base to capture more revenue without increasing the burden disproportionately.
Leverage Technology: Use advanced data analytics and digital solutions to improve tax collection efficiency and reduce leakage.
The FBR’s performance in the first half of the fiscal year, while below target, still shows growth. The strategy now should focus on leveraging the expected economic upturn in the later months, particularly through targeted increases in import duties from commodities like palm oil. Additionally, the government might consider temporary fiscal measures or incentives to stimulate economic activities, thereby indirectly supporting revenue growth.
