Mini-budget on horizon as FBR misses back-to-back revenue targets

ISLAMABAD  -  In a concerning trend, the Federal Board of Revenue (FBR) has not met its revenue collection goals for the second consecutive month, leading to speculation about the govern­ment’s potential recourse to emergency fiscal strategies. This persistent underperfor­mance necessitates the gen­eration of an additional Rs18 billion monthly throughout the fiscal year 2023-24 to mitigate the shortfall.

The situation is dire enough that a deviation exceeding 1 percent from the target could trigger the activation of a sup­plementary budget, as stipu­lated by an agreement with the International Monetary Fund (IMF). Official reports reveal that the FBR’s revenue collec­tion fell short by 1.3 percent and 4.6 percent in January and February 2024, respectively.

Insider sources have dis­closed that February’s col­lections amounted to Rs681 billion, significantly below the targeted Rs714 billion, resulting in a Rs33 billion deficit. January witnessed a shortfall of Rs9 billion, cumu­latively amounting to a Rs42 billion loss over two months. This financial discrepancy has been attributed to FBR’s resistance against the finance minister’s proposed reforms aimed at enhancing the ef­ficiency of the tax apparatus.

Allegedly, this resistance has escalated to the point of calls for a strike by senior manage­ment of the FBR, undermining the institution’s operational integrity. There is speculation within the FBR that revenue metrics will improve with the appointment of a new finance minister, suggesting that the current downturn is a strategic maneuver to assert dominance and negotiate favourable condi­tions with the upcoming fiscal leadership to avoid reforms at FBR. This internal strife hints at a deeper malaise, with the po­tential introduction of a mini-budget as a corrective measure, in line with IMF agreements. Such a move, however, would likely place additional financial burdens on the public.

To counteract the revenue shortfall, the government has outlined eight provisional measures projected to bol­ster monthly revenue by Rs18 billion during the 2023-24 fiscal year. These include ad­justments to sales tax rates on textiles and leathers, the introduction of a Federal Ex­cise Duty (FED) on sugar, and incremental increases in ad­vance income and withholding taxes on various sectors.

Each measure is carefully calibrated to address the rev­enue gap without imposing undue strain on the economy. However, the efficacy of these strategies and their impact on the broader economic land­scape remains to be seen, as stakeholders closely monitor the FBR’s next moves in this financial chess game.

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