The Federal Board of Revenue (FBR) in Pakistan faced a setback in May 2023 as it failed to meet the tax collection target by Rs49 billion. Despite achieving growth in certain areas, a combination of reduced imports, a sluggish economy, and revised GDP growth rates posed challenges for the FBR.
The FBR had set a tax collection target of Rs621 billion for May 2023; however, it fell short, collecting a net amount of Rs572 billion. Refunds totaling Rs33 billion were issued during the month. While domestic taxes showed notable growth, the overall collection did not meet expectations.
Despite the overall shortfall, the FBR witnessed positive growth in domestic tax collections. Under the head of domestic income tax, Rs205 billion was collected, reflecting a substantial year-on-year growth of 57% compared to May 2022. The domestic sales tax also showed a healthy year-on-year growth rate of 28%, with collections reaching nearly Rs100 billion. Additionally, the Federal Excise Duty (FED) collections amounted to Rs41 billion, indicating a significant year-on-year increase of 32%. Overall, a cumulative growth of almost 44% has been achieved in the collection of domestic taxes.
The FBR faced difficulties in maintaining the same level of momentum on the import side, primarily due to an unprecedented compression in imports. In May 2023, imports in the country declined by 37% in US dollar terms compared to the same period in the previous year. This decline was particularly pronounced in high-duty items such as vehicles, home appliances, garments, fabrics, footwear, and other miscellaneous consumer goods, leading to a shift in the import mix. As a result, the collection of Customs duties and other import-related taxes experienced an 18% dip and an 11% overall decline, respectively. However, despite these challenges, the FBR managed to register an overall growth rate of 16% compared to the previous year.
The Federal Board of Revenue faced hurdles in achieving the tax collection target for May 2023, with a shortfall of Rs49 billion. The decline in imports, along with a slower economy and revised GDP growth rates, contributed to this challenge. Despite the setback, the FBR demonstrated growth in domestic tax collections, emphasizing its commitment to enhancing revenue streams within the country. Efforts to address the import-related challenges and stimulate economic growth will remain crucial for the FBR’s future tax collection targets.