Zero-rating elimination provides impetus to FBR collection

Zero-rating elimination provides impetus to FBR collection

ISLAMABAD: Elimination of zero-rating regime on five export oriented sectors has provided impetus to tax collection during current fiscal year, said Pakistan Economic Survey 2019/2020 issued on Thursday.

The survey said that tax collection of Federal Board of Revenue (FBR) has witnessed a remarkable turnaround during the current fiscal year after posting negative growth of 0.4 percent in FY2019.

The overall FBR tax collection grew by 10.8 percent to Rs3,300.6 billion during July-April, FY2020 against Rs 2,980.0 billion in the comparable period last year.

Within the total, the domestic component of tax revenue collected by the FBR grew by 14.7 percent to stand at Rs 2,777.7 billion in first ten months of the current fiscal year against Rs 2,421.1 billion in the comparable period last year.

“The rise in tax collection is attributed to various policy initiatives implemented at the start of FY2020 such as charging sales tax on more items at the retail price under 3rd Schedule, reinstatement of taxes on telecom services and an upward revision of tax rates on various salary slabs.

“In addition, an upward revision in the federal excise duty (FED) rates and the abolishment of the zero-rating regime on five export-oriented sectors provided further impetus to FBR tax collection.”

Direct Taxes

The net collection of direct taxes has registered a growth of 14.1 percent during the first ten months of FY2020. The net collection has increased from Rs 1,071.7 billion to Rs 1,223.2 billion.

The bulk of the tax revenues of direct taxes is realized from income tax. The major contributors of income tax are withholding tax, voluntary payments and collection on demand.

Indirect Taxes

The gross and net collections of indirect taxes have witnessed a growth of 11.4 percent and 8.9 percent respectively. It is accounted for 62.9 percent of the total FBR tax revenues.

Sales Tax

Within indirect taxes, net collection of sales tax increased by 15.7 percent. The gross and net sales tax collection during July-April, FY2020 has been Rs 1,424.8 billion and Rs 1,348.4 billion respectively, showing a growth of 20.1 percent and 15.7 percent respectively.

In fact, around 55.0 percent of total sales tax was contributed by a sales tax on import during July-April, FY2020, while the rest was contributed by the domestic sector.

Federal Excise Duty

The collection of federal excise duties (FED) during July-April, FY2020 has recorded 12.0 percent growth. The net collection has stood at Rs 206.1 billion during July-April, FY2020 as against Rs 184.0 billion during the same period last year.

The major revenue spinners of FED are cigarettes, cement, services and beverages.

Customs Duty

Customs duty has registered a negative growth of 6.8 percent and 6.5 percent in gross andnet revenues respectively.

The net collection has decreased from Rs 558.9 billion duringJuly-April, FY2019 to Rs 522.8 billion during July-April, FY2020.

The major revenuespinners of customs duty have been vehicles, mineral fuels, iron and steel, electricalmachinery, plastic, edible fruits etc.

Impact of COVID-19 on FBR Tax Collection

COVID-19 pandemic has casted a significant impact on revenue collection efforts of FBR.

During the first eight months of FY2020, FBR recorded total revenue collection of Rs 2,738 billion with a growth rate of 17.5 percent over last fiscal year. FBR was able to achieve 91.4 percent of its (first revised) target for the period.

However, after the outbreak of COVID-19 pandemic, an average negative growth rate of 13.4 percent was recorded during March 2020 and April 2020 as compared to last year as well as compared to the projected collection.

The situation is likely to exacerbate further during the month of May and slight recovery is expected in the last month of the financial year because of usual lumped government spending.

Assessment of the full impact of COVID-19 on FBR’s tax collection merits analysis of the various expected and projected revenue figures prior to the time of crisis emergence.

FBR’s target which stood at Rs 4,807 billion was revised downwards to Rs 3,908 billion keeping in view the economic slowdown consequent to the pandemic.

The aforementioned revision had thus forecasted a revenue loss of Rs 899 billion. Nevertheless, the actual shortfall is expected to be higher than what has been projected.

The Federal Government has recently announced an incentive package for the construction sector, fulfilling the longstanding demand of builders and developers for fixed income tax and declaration of the construction sector as an industry.

The package would not only revive the construction industry but also serve as a catalyst to enhance business activity in forty different economic sectors. Furthermore, FBR is also striving for simplification of laws and procedures to reduce the cost of doing business and lower administrative burden.

The total impact of COVID-19 pandemic is yet to be determined. The dynamic and challenging nature of the crisis necessitates an equally dynamic and vigorous strategy that is capable of being evolved in response to the demands made on it.