ISLAMABAD: Pointing to serious flaws in tax system, the State Bank of Pakistan declared that the sliding economy could not be healed until tax base is expanded and all income generating sectors bring into tax net.
In its monetary policy statement the SBP said that miseries of the national economy were likely to continue as tax measures had only added to the burden of existing taxpayers instead of taxing the untaxed sectors.
It, however, pointed out that tax revenues grew sharply by 19.0 percent in Q1-FY14 against 10.3 percent in the corresponding period of last year. This growth is still lower than what is required to achieve the annual budget target. It said that the FBR tax collection increased grew by 17.2 percent during Q1-FY14 against 27.8 percent required to achieve the FY14 target of Rs2,475 billion. This is despite additional measures announced by the government to strengthen tax administration and revenue collection, including increase in GST from 16 to 17 percent, removal of exemptions, and introduction of some new taxes.
The total tax revenues also include Rs20.8 billion collected as development surcharges on gas, which is the highest level for a quarter, it added. The SBP said that reliance on temporary non-tax revenues to contain fiscal deficit in essence highlights that further efforts will be required to address the structural fiscal weaknesses.
Total revenues have mostly increased due to one-off non-tax revenues of Rs125 billion. These include proceeds of Rs 68 billion from Universal Service Fund (USF) accumulated over many years and mark-up income of Rs57 billion received from PSEs and provinces. Moreover, foreign grants of Rs10 billion have also contributed to non-tax revenues. Reliance on temporary non-tax revenues to contain fiscal deficit in essence highlights that further effort is required to address the structural fiscal weaknesses. With tax revenues at Rs806 billion during July-November FY14, the FBR would have to deliver a 32.9 percent growth during the remaining months of FY14 to meet the budget target. Achieving this growth seems difficult as it is more than twice the average growth of 16.0 percent in past 10 years for the same period, the SBP said.
