The shortfall could “force” FBR to also tax bank profits

ISLAMABAD: The Federal Board of Revenue (FBR) may propose new tax measures, including the possibility of taxing bank profits in case it is unable to meet the target of collecting assigned revenues of 536.53 billion rupees in November 2022.

Sources said company registrar here on Sunday that the government has no plans to take any new tax measures in the near future. However, some proposals have been drafted by the FBR which still need to be approved by the Minister of Finance. If the shortfall continues into November 2022, then there is a strong possibility of further tax measures, including a gradual increase in the sales tax on petroleum products.

The FBR does not require a presidential order to impose a sales tax on petroleum products. The phasing of the sales tax on POL products would be done through the notification of the FBR. This measure alone could generate Rs 60 to 70 billion during the remaining period of 2022-23.

Asked about the estimated impact of the new measures on revenue, sources said the figure has not yet been finalized but would be above Rs 60 billion according to the November 2022 revenue collection position. Under the draft presidential order, the new tax measures could be equal to the amount of shortfall expected in the second quarter of 2022-2023.

Broadening of the tax base: Two departments made functional: FBR

The FBR has drafted a first draft of the proposal to tax bank profits from government securities and foreign exchange earnings. However, sources have said that this is only an internal proposal and nothing is final in this regard. There is very little chance of finalizing the said RBF-drafted proposal, sources said.

Another proposal is to further increase the excise duty on cigarettes through the presidential order, but this depends on the revenue collection position in November 2022.

The government has committed to the International Monetary Fund (IMF) to take emergency measures at the first signs of underperformance of the fiscal program, including: (i) an immediate increase in the General Sales Tax (GST ) on fuel, as a prelude to reaching the standard rate of 17%; (ii) further rationalization of GST exemptions including sugary drinks (60 billion rupees) and other unwarranted exemptions such as those enjoyed by exporters; and/or (iii) increase federal excise duty on Tier I and Tier II cigarettes by at least Rs 2 per stick with immediate effect to generate at least an additional Rs 120 billion in revenue.

The breakdown of the Rs 536.53 billion target for November 2022 revealed that the income tax target was projected at Rs 184.91 billion; sales tax of 221.52 billion rupees; the Federal Excise Duty (FED) of Rs 34.6 billion, and the Customs Duty target was projected at Rs 95.5 billion.

The RBF tax collection stood at nearly 513 billion rupees in October 2022 against the target of 534 billion rupees, representing a massive shortfall of 21 billion rupees.

Tax collection from July to October (2022-23) amounted to 2,148 billion rupees against the target of 2,143 billion rupees, reflecting an increase of 5 billion rupees.

Tax collection stood at Rs 513 billion in October 2022 against Rs 446.5 billion collected in October 2021, reflecting an increase of Rs 65.5 billion.

The fiscal projection for the second quarter (October-December) 2022-23 has been estimated at Rs 2,036.087 billion. In the first quarter of 2022-2023, the FBR collected 1,635 billion rupees.

FBR Chairman Asim Ahmad has already directed the Chief Tax Commissioners to intensify enforcement efforts to ensure the achievement of the assigned target of Rs 536.53 billion in November 2022. In this regard, the tax authorities have directed formations in the field to apply tax and enforcement measures. taken by the 2022 finance law to make up for the shortfall in November 2022.

Copyright Business Recorder, 2022