ISLAMABAD: To avert a possible setback to the PML-N government, the tax machinery has evolved a comprehensive strategy involving regulatory measures for bridging the revenue shortfall of Rs59 billion witnessed in the first quarter of the current fiscal year.
The shortfall was mainly driven by Inland Revenue that consists of income tax, sales tax and federal excise duty (FED).
Finance Minister Ishaq Dar is said to have taken notice of the shortfall in revenue and asked the FBR top management to achieve the original target at any cost.
A two-step strategy has been evolved to deal with the shortfall: a change in the top management of the large taxpayers units (LTUs) and regional tax offices (RTOs) that did not perform well in July-September and the identification of steps needed for improving the collection of sales tax, income tax and FED to recover the earlier shortfall.
In the first step, top taxmen of LTUs and RTOs were transferred, with a few exceptions, who did not achieve their revenue collection targets for the first quarter.
The target for the Inland Revenue was Rs587bn while the actual collection was Rs528bn for July-September, which left a shortfall of Rs59bn. For the second quarter (October-December), the target for the Inland Revenue is Rs790bn.
Mr Dar headed a meeting at the Ministry of Finance on Tuesday to review the proposed revenue measures for recovering the shortfall in the second quarter of 2016-17.
An official source told Dawn that these steps will help bridge the shortfall in the revenue collection. “We have to register growth of 19.6pc instead of 16.6pc in the second quarter to bridge the shortfall of the first quarter,” the source said.
This will help the Federal Board of Revenue (FBR) collect additional Rs20bn per month in the next three months. Year-on-year growth of 23pc was witnessed in the second quarter of 2015-16.
Six withholding taxes were identified as ones that need extra efforts and better enforcement to collect revenue in the second quarter. Several small measures in income tax, sales tax and FED will also be taken to boost the revenue collection.
In the first quarter, a major loss was witnessed in the payment against tax demands. About Rs391bn of income tax was stuck in court litigation. Usually the settlement of such cases takes at least four months.
“We have made a strategy to clear at least Rs15bn per month through court settlements,” the source said, adding that even the settlement of Rs5bn per month will be a realistic figure to cover the shortfall.
The FBR admitted it took Rs18bn to Rs20bn as advance tax in 2015-16 to show favourable tax collection figures. Most of the advance tax collected in the last fiscal year was adjusted in the first quarter of 2016-17. “Our focus on advance tax in the second quarter will help generate Rs4bn to Rs5bn additional revenue per month,” the source claimed.
A dedicated team has been tasked to monitor transactions of contractors with the AG Office and civic bodies. “We are expecting Rs5bn from this account because of better enforcement and close monitoring,” the source added.
Another area with a revenue shortfall was the withholding tax collected on banking transactions. The only reason for the shortfall was a slowdown in property transactions because of the upward revision in valuation tables. “We are expecting the resumption of property transactions in the months ahead,” the source said.
A whopping Rs18bn loss occurred in the sales tax collection for not increasing petroleum prices in the first quarter of 2016-17.
Two new automation systems in sales tax have been introduced to plug loopholes that caused a revenue loss of billions of rupees. As a result of the introduction of the Sales Tax Real-Time Invoice Verification System with the beginning of the current fiscal year, 50pc growth was recorded in the tax payment of power distribution companies (Discos).
According to the source, Rs400m to Rs500m per month was received from Lahore Electric Supply Company (Lesco), but the collection reached Rs1.5bn in September. “We are expecting similar growth from other Discos as well,” it said.
The per-month additional revenue from Discos was projected at Rs5bn in the second quarter of the current fiscal year. As many as 70pc contractors pay just 3.5pc sales tax instead of 17pc by showing fake sales tax numbers at the AG Office. “We have introduced a better system at the AG Office to plug this loophole,” the source said, adding that it will generate sizable tax for the national exchequer.
“We have also identified top 100 traders who did not file sales tax returns this year along with a payment of Rs7bn,” the source said, noting that the sales tax department already started a recovery drive from October. According to the source, Rs8bn to Rs10bn can potentially be collected from these traders.