ISLAMABAD - The government’s decision to impose regulatory duties on imports in order to control the current account deficit could hit the tax collection of the Federal Board of Revenue (FBR), which is relying on increasing imports for meeting its target.
The government has decided to impose regulatory duties and 100 percent cash payments for opening of letters of credit for non-essential luxury imports to control the soaring current account deficit, which has become major threat for the economy. Luxury items could be automobiles, master baths, and varnishes, stationary, different products of textiles, cosmetics and non-essential food items. However, officials in FBR informed The Nation that decision could affect the tax collection of the FBR, which is currently on track.
Imports are increasing in last couple of months, which helped the FBR in enhancing its tax collection at the import stage. The parliamentary committee has also raised concerns over the massive collection from the imports stage. The FBR has collected Rs850 billion during first two months (July-August) of the current fiscal year (2021-22) against the assigned target of Rs690 billion, reflecting an increase of Rs160 billion. The achievement of the target is 123 percent during the first two months of 2021-22. The FBR’s provisional tax collection stood at Rs850 billion during July-August (2021-22) against Rs603 billion in the same period of 2020-21, showing a growth of 41 percent. The FBR collection from income tax was recorded at Rs254 billion in July-August period of the ongoing financial year as against the target of Rs208 billion. Sales tax collection remained at Rs410 billion in first two months of the year 2021-22 as compared to the target of Rs321 billion. The FED collection was recorded at Rs46 billion and Custom Duty at Rs140 billion in July to August period of the current fiscal year.
However, National Assembly Standing Committee on Finance and Revenue has recently expressed concerns over the increase in tax collection due to the surge in imports, which was not positive indication with regard to broadening of tax net etc.
Finance Minister Shaukat Tarin already announced to impose regulatory duties and 100 percent cash payments for opening of letters of credit for non-essential luxury imports. It will help in controlling the current account deficit. The latest data showed that cumulative current account deficit for the first two months (July and August) of current fiscal year 2021-22 was recorded at $2.29 billion compared to a surplus of $838 million in the same period of last year. The country’s imports are increasing at fast rate as against the exports, which are putting pressure on the current account deficit.
Former Special Assistant to the Prime Minister on Finance and Revenue Dr Waqar Masood had estimated the current account deficit at $12 billion to $17 billion for the current financial year 2021-22. Dr Waqar’s estimates are far higher than the State Bank of Pakistan’s estimates. The SBP has projected current account deficit this year that is 2-3% of the Gross Domestic Product, which is roughly translates to $6.5-9.5 billion.