In what appears to be a lukewarm response to the tax collectors’ concern, the central bank on Monday alerted the banks to a “considerable fall” in their deductions of the withholding tax on exports. Seeing the achievement of its Rs 1.952 trillion fiscal tax collection target in jeopardy, the Federal Board of Revenue (FBR) had requested the State Bank on the 12th of last month to ask the banks to ensure timely deduction and deposit of the amount withheld on exports and indenting commission. Also, the central bank was requested to issue necessary instructions to the banks that they send month-wise figures of their deductions under the heads of export proceeds realizations and indenting commission to the office of the chief commissioner Inland Revenue, Regional Tax Office. The required figures were to be reconciled with the FBR’s data and the total collection accounted for.
“Considerable fall is noticed in the amount of deduction as compared to last year… what is worrisome is that tax shortfall in collection is more than the anticipated corresponding impact and requires immediate attention of the concerned quarters,” reads an FBR letter sent to Qasim Nawaz, managing director State Bank of Pakistan, BSC on April 12.
However, whereas the tax collectors might be in hurry on the eve of fast approaching federal budget, the central bank could find some free time to notify the same after the lapse of 46 long days.
In the letter, Chief Commissioner Khwaja Tanveer Ahmed told the State Bank that the FBR and its field formations were are making all out efforts to achieve the assigned revenue targets for the current fiscal year. Acknowledging that to an extent the shortfall in deductions might be for reasons such as fall in exports in some areas, the chief commissioner recalled that last year too such a situation had arisen.
“It is hoped that issuance of such instruction this year too would definitely lead to achieving the assigned targets of overall collection not only of this office but also by the FBR,” Ahmed said. Monday eventually saw the State Bank issuing a circular to the head and principal offices of all authorized dealers in foreign exchange sharing with them the FBR’s concern. “(The) authorized dealers are advised to bring the above to the notice of all their constituents,” says the SBP circular issued by additional director Muhammad Akmal. Under the relevant tax laws, the banks or authorized dealers deduct withholding tax on the realization of export proceeds and on the realization of foreign exchange receipts on account of indenting commission.
Now while the next financial budget is days ahead, the FBR authorities are striving hard to meet the fiscal tax collection target which, some analysts believe, would be a daunting task owing to massive tax evasions and a 9% tax-to-gdp ratio, one of the lowest in the country.
