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Government Exceeds Rs6.7 Trillion Tax Target

Government Exceeds Rs6.7 Trillion Tax Target

In Islamabad, the government has surpassed its nine-month tax collection target, exceeding over Rs6.7 trillion for the current fiscal year. This achievement has been primarily driven by sustained growth in income taxes, reducing the country’s reliance on regressive and inflationary indirect taxation.

During the period from July to March of the current fiscal year, the Federal Board of Revenue (FBR) not only met its target but also significantly increased the share of income taxes to nearly half of the total revenue generated. The FBR also achieved the monthly target of Rs879 billion for the first time in the past two months.

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For March, the government had set the tax target at Rs879 billion, while the nine-month (July-March) goal was Rs6.707 trillion. Provisional figures indicate that the FBR collected Rs6.71 trillion during the nine months of this fiscal year, marking a 30% increase of Rs1.55 trillion compared to the same period last fiscal year. The decision to attach the bank accounts of the Civil Aviation Authority (CAA) to recover taxes worth Rs12.7 billion has contributed to crossing the nine-month threshold.

Reports emerged that the government had granted Rs50 billion in annual income tax exemption to two government departments, violating the International Monetary Fund (IMF) program and domestic taxation law. However, the FBR did not accept the exemption and proceeded with its plan to recover the amount, in line with the agreement with the IMF not to grant any income tax exemption.

Efforts toward economic stabilization are underway, but intensive measures are required to deepen this stability through critical taxation, expenditure, and external sector reforms. Weak tax collection areas include wholesale, retail, construction, and agriculture sectors. It is anticipated that the IMF will address these areas in the next bailout program, given resistance to further taxes on the salaried class and corporate sector.

Prime Minister Shehbaz Sharif instructed the FBR not to withhold tax refunds to inflate revenues, resulting in a significant increase in refund payments in March. The FBR released Rs369 billion in tax refunds in nine months, 45% more than the corresponding period last fiscal year. In March alone, refunds amounted to Rs67 billion, compared to just Rs21 billion in the same month last year.

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Income tax collection reached Rs3.27 trillion in the nine months, exceeding the target by Rs568 billion, with a growth rate of 41% over the same period last fiscal year. The share of income tax in overall taxation is now nearly 50%, indicating a shift away from dependency on indirect taxes.

Sales tax collection stood at Rs2.24 trillion, higher by Rs335 billion or 18% compared to the same period last fiscal year, albeit lower than the prevailing inflation rate, suggesting leakages in collection. The FBR missed the sales tax target by Rs393 billion and needs to enhance capacity in this area.

Federal excise duty (FED) collection amounted to Rs402 billion, higher by 62% over the same period last fiscal year, driven by increased FED rates, particularly on tobacco and cement. However, the FBR missed the nine-month target by Rs19 billion.

Customs duties collection reached Rs809 billion in the nine months, 16% higher than the corresponding period last year, but missed the target by Rs153 billion. This shortfall is attributed to lower-than-expected imports due to external sector problems and economic slowdown.