The FBR’s performance has deteriorated despite distributing 1,000 cars and increasing salaries by up to 400% to incentivise officers to perform better. Photo: AFP
ISLAMABAD:
Pakistan has delivered on three out of five major fiscal conditions set by the International Monetary Fund (IMF) for the next $1 billion loan tranche largely on the back of high interest rates and petroleum levy collection, but it could not be able to broaden the tax base.
The Federal Board of Revenue (FBR) remained the weakest link in the chain, which could not meet the downward-revised, first-half target and failed to deliver on the condition of collecting Rs366 billion income tax from retail firms despite adjusting the goalpost.
Many of the initiatives taken by FBR Chairman Rashid Langrial either have been put on hold or are facing resistance from pressure groups.
According to the fiscal operations summary for July-December of the current fiscal year, which the Ministry of Finance released on Friday, the government delivered on three IMF conditions. It achieved the overall primary budget surplus and provincial cash surplus and met the provincial tax revenue target.
But the targets of increasing the FBR’s total tax collection and generating revenue from retail individuals, the Associations of Persons and companies were missed.
The fiscal summary indicates that the performance mainly hinged on central bank’s profits and petroleum levy collection from consumers using fuel even in an 800cc car, motorcycle, tractor or rickshaw.
The FBR’s performance remained a concern, which failed to achieve the downward-revised target of Rs6.490 trillion. It missed the IMF-given goal by Rs330 billion. Likewise, after the failure of the Tajir Dost Scheme, the income tax collection from retailers fell short by a wide margin.
The government and the IMF had agreed to change the target segment from individual retailers to the retail sector and they started treating the income tax received from entities like power distribution companies and telecommunication firms as retail income tax. Yet the results were not promising.
Finance Minister Muhammad Aurangzeb said last Wednesday that tax base could not be broadened while the FBR chairman sought an in-camera meeting to disclose the names of people who were a hurdle in the way of FBR’s enforcement measures.
The IMF has set multiple fiscal conditions, which are critical for the upcoming third review talks pertaining to the fourth loan tranche of $1 billion. The finance ministry said that it had met the conditions of releasing subsidies to the BISP and power sector.
The fiscal summary showed that Pakistan met the targets of primary budget surplus for the federal government as well as net revenue collection and cash surplus for the four provinces.
Against the primary surplus target of Rs3.2 trillion, the federal government reported a surplus of Rs4.1 trillion, or 3.2% of gross domestic product (GDP). It was primarily due to fully booking the estimated annual central bank profit of Rs2.42 trillion during the six-month period.
High interest rates suit the federal government as they increase the central bank profits that are used to show the cash surplus. Likewise, the government collected Rs823 billion on account of petroleum levy on diesel and petrol being consumed by the rich and poor alike.
The central bank in its last monetary policy cautioned that it would be challenging to achieve the annual primary budget surplus target. The four provinces collectively generated a cash surplus of Rs1.18 trillion, exceeding the Rs752 billion target. They also collected Rs569 billion revenue, eclipsing the Rs488 billion target.
Provincial governments enjoy significant fiscal flexibility due to increased revenues under the National Finance Commission (NFC) award. During the July-December period, the provinces spent approximately Rs3.5 trillion, with development spending reaching Rs950 billion. Their total revenue stood at Rs4.7 trillion, of which Rs3.6 trillion came from their share in federal taxes.
A breakdown of provincial performance shows that Punjab, with total revenue of Rs2.2 trillion, spent Rs1.5 trillion, generating a surplus of Rs609 billion. However, the province showed a statistical discrepancy of Rs144 billion, mainly due to increase in commercial bank deposits.
Sindh booked a cash surplus of Rs353 billion after spending over Rs1 trillion, which was well below its total revenue. The province reported a statistical discrepancy of Rs83 billion.
Khyber-Pakhtunkhwa (K-P) recorded a budget surplus of Rs175 billion, with Rs752 billion income and Rs576 billion expenditures. K-P also had a statistical discrepancy of Rs52 billion. Balochistan posted Rs42 billion cash surplus on the back of Rs378 billion income and Rs366 billion expenses.
Pakistan has agreed to approximately 50 conditions under the $7 billion IMF programme. As part of it, the provincial governments must generate a total cash surplus of Rs1.5 trillion in the current fiscal year.
On the expenditure side, the federal government spent Rs7.1 trillion during the first half, with current expenditures reaching Rs6.8 trillion. It paid Rs3.6 trillion in interest costs, which was lower than last year due to reduction in rates. Defence spending amounted to Rs1.04 trillion, while Rs380 billion was allocated to civil government operations and pension payments rose to Rs504 billion.
Additionally, Rs71 billion worth of statistical discrepancies were recorded in federal accounts. After distributing the provincial share, the federal government’s net income stood at Rs6.4 trillion in H1 on the back of higher central bank profits and petroleum levy collection.
