The IMF’s refusal to reduce the annual tax collection target for the ongoing fiscal year must be worrying for the government — and the people too. As confirmed by FBR Chairman Shabbar Zaidi, the government last month asked the Fund to allow a Rs300 billion cut in the tax collection target for FY20 — to Rs5.2 trillion from an ambitious Rs5.5 trillion. While the IMF has refused the requested downward revision, the FBR chairman has told the Senate’s Standing Committee on Finance and Revenue during a recent appearance that he is optimistic the government will be able to bring around the global lender.
The FBR is doing a good job under Shabbar Zaidi, but not good enough to meet what is perceived by experts as an unrealistic target. The ongoing economic slowdown, done mainly through import compression, makes the target even more difficult to achieve, as cut in imports means cut in duties and a shortfall in overall revenue collection. According to provisional estimates, the FBR has collected Rs1.28 trillion in taxes in the July-October period of the ongoing fiscal year as against the target of Rs1.447 trillion, thus falling short of its four-month target by Rs167 billion. Going by this rate, the shortfall for the full fiscal year comes to something around Rs668 billion.
And the question that looms ahead of the IMF’s executive board meeting next month to decide the release of the second tranche of the Rs6.6 billion package is how the government is going to bridge up the revenue shortfall. While there is all the likelihood that the second tranche, worth $450 million, will be pocketed by the government, there are apprehensions that it is not going to happen without a caution from the Fund. We wish Zaidi good luck as regards his optimism to convince the IMF to reduce the tax collection target. But what if this optimism proves misplaced and the government is forced to take steps, like bringing in a minibudget, to plug the financial hole? In such an event, what the government can do the least is to bolster the social safety net so as to protect the poorest of the poor, at least.
Published in The Express Tribune, November 21st, 2019.