Revenue targets: After misleading nation, heads to roll at FBR

By Shahbaz Rana

Published: July 23, 2011

FINAL FIGURE: 1,174b rupees was the budget deficit for fiscal year 2011, after the revised tax collection figures were revealed. DESIGN: MOHSIN ALAM

ISLAMABAD:  After initial claims of meeting the revised revenue collection target were found to be inaccurate, the government is likely to hold several senior Federal Board of Revenue officials responsible for an embarrassing admission that may well cause the International Monetary Fund to cut off the last few tranches of its $11.3 billion bailout package.

On June 30, at a hastily-called press conference, FBR chairman Salman Siddiqui stunned the nation by proudly declaring that the government had achieved its revised tax collection target of Rs1,588 billion – something that was absolutely unexpected.
On Friday, however, Siddiqui admitted to The Express Tribune that the real figure was Rs1,550 billion, short of the target by Rs38 billion.
With the new figures, the revised fiscal deficit for the year that ended June 30, 2011 comes to Rs1,174 billion, or about 6.5% of the total size of the economy, a finance ministry source told The Express Tribune. This number includes Rs120 billion in payments to the energy sector to resolve the inter-corporate circular debt.
The original target agreed with the IMF was a budget deficit of Rs722 billion, or about 4% of gross domestic product. The FBR had originally targeted collecting Rs1,667 billion, but had revised the figure downwards after the country was hit by the worst floods in over 70 years during the summer of 2010.
The government missed even the revised target, despite having levied Rs53 billion in new taxes in April, which in turn has caused the budget deficit figure to go up by 0.2% of GDP.
Sources familiar with the matter said that the government had taken advance taxes of about Rs45 billion from commercial banks to meet its revenue targets. On June 29, The Express Tribune had reported that the FBR had planned to use this manoeuvre to artificially ‘achieve’ its target.
Sources inside the finance ministry confirmed that the advance taxes were returned to the banks in early July, which will likely lower net tax collection figures for the first month of fiscal year 2012.
The finance ministry had a strong indication that the budget deficit was likely to exceed 6% of GDP, admitted one finance ministry official, but chose to mislead Parliament on the eve of the budget presentation on June 3. The ministry had also contested the accuracy of a story published in The Express Tribune on June 9 that reported that the deficit may go beyond 6.3% of the GDP.
That such a glaring blunder took place on the watch of the finance ministry’s “best manager” – Finance Secretary Waqar Masood – is likely to embarrass the government further, though sources say that Masood was appointed despite opposition from Finance Minister Abdul Hafeez Shaikh.
While the senior-most economic managers in the country are likely to keep their jobs, there is expected to be a major reshuffle within the FBR, said sources familiar with the situation.
Members of parliament appear to be outraged at having been deceived by the finance ministry.
“The false claim of the FBR will hurt the confidence of international financial institutions [in Pakistan], and now they might ask Pakistan probing questions,” said former Foreign Minister Shah Mahmood Qureshi on the floor of the National Assembly. “This has put the credibility of the country at stake.”
Officials within the finance ministry agreed with Qureshi’s sentiments.
“Had these false figures been reported to the IMF, it would have led to imposition of penalties on Pakistan,” said a senior finance ministry official. He added that the country may have lost any chance of reviving the current bailout programme.
“The only option left is to obtain a new [bailout] programme and that will come wrapped in the toughest conditions,” said another government official who deals with the IMF.
The FBR chairman tried to defend his institution by saying that the difference between the figures announced on June 30 and the final figures was due to a ‘misunderstanding’ about the difference between gross and net sales tax collection. Siddiqui claimed that gross sales tax collection of Rs675 billion had been ‘assumed’ to be net tax collection.

Published in The Express Tribune, July 23^rd, 2011.