Concern at 16.3 percent rise in sales tax refund

ISLAMABAD (June 06 2003) : The Economic Survey (2002-2003) released here on Thursday expressed concern over 16.3 percent increase in the payment of sales tax refund to the business community during the current fiscal despite last year's extraordinary refund payments and suggested a need to examine the reason for higher refund/rebate during the current financial year.

The total refund/rebate on sales tax was 16.3 percent higher than the last year. It said that last year's refund/rebate was exceptionally high as the government had decided to clear backlog.

The 16.3 percent higher refund/rebate on sales tax over the last year's extraordinary refund/rebate is a matter of serious concern.

This is also true for direct taxes where the refund is higher by 35.8 percent over the last year's extraordinary high refund.

The overall performance of tax collection during the first 10 months of the current fiscal year has been quite encouraging.

This is the first time in several years that the Central Board of Revenue (CBR) has over-performed and this performance was not achieved by holding refunds or over-reporting the revenue figures as figures are now reconciled regularly with the offices of the AGPR and the State Bank of Pakistan (SBP).

The improved revenue collection, especially in the areas of domestic sales tax and Customs duties, is a clear indication of the pick-up in domestic economic activity.

The ongoing reform in tax administration is also responsible for better performance of revenue collection.

If the performance of the first 10 months is of any indication it is highly probable that the CBR is going to achieve the target of Rs 460 billion in the current fiscal year.

The CBR sustained the momentum of tax collection generated in the last quarter (April-June 2001-02) and the first quarter (July-September 2002-03) when it grew by 16.1 percent and 16.6 percent, respectively.

Net tax collection during the first 10 months (July-April 2002-03) stood at Rs 352.1 billion against the target of Rs 351 billion, thus, surpassing the target by a small margin.

As against the target growth of 14 percent, the tax revenue grew by 15 percent in the first 10 months of the current fiscal year.

The overall refund stood at Rs 68.3 billion, which is 1.6 percent lower than the unusually higher refund in the same period of the last year (Rs 69.4 billion).

The analysis of individual taxes reveals interesting developments.

While overall tax collection increased by 15 percent, this increase has largely come from sales tax and Customs duty. Direct taxes on net basis stood at Rs 109.5 billion, which is only 1 percent higher than the last year.

The overall sales tax on net basis stood at Rs 154.1 billion, which is 19.9 percent higher as compared to the same period of the previous year. More importantly, sales tax collected from domestic economic activity grew by 29 percent, showing an increased level of economic activity in the country.

The higher level of economic activity is also reflected by increased demand for imported goods, including raw materials for consumer and capital goods.

Sales tax collection at import stage shows an increase of 18 percent.

The net collection of central excise duty stood at Rs 35.5 billion, almost same as of last year.

Stagnation in growth in the central excise duty is mainly owing to the transfer of several major revenue spinners (eg POL products) to Customs duty. Six major revenue spinners (cigarettes, cement, natural gas, POL products, beverages and beverages concentrates) have contributed around 88 percent to the total central excise duty collection during July-April 2002-03.

The collection on account of Customs duty stood at Rs 53 billion on net basis, registering an increase of 59.4 percent.

This impressive growth in the Customs duty collection is realised even when the maximum duty rate was slashed from 30 percent to 25 percent, duty rates on over 2,500 tariff lines were reduced, and the rupee was appreciated by 3.8 percent during the first 10 months of the current fiscal year.

As a result of tariff reforms, the average Customs duty rates on total imports as well as dutiable imports have fallen to as low as 9.1 percent and 15.6 percent, respectively.

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