ISLAMABAD (July 28 2010): Senate Standing Committee on Finance and Revenue on Tuesday directed the Federal Board of Revenue to explain the reasons for revenue shortfall during 2009-10 and strategy to achieve the revenue target of Rs 1.667 billion in 2010-11. Sources told Business Recorder here on Tuesday that the Senate Standing Committee on Finance has written a letter to FBR Chairman Sohail Ahmed to explain the reasons of revenue shortfall in a meeting expected to be convened on July 30, 2010.

The letter of the Senate Standing Committee on Finance received in the FBR Chairman Secretariat revealed that the committee wanted a comprehensive briefing on the pros and cons of revenue shortfall in 2009-10. In this regard, the FBR is preparing a comprehensive presentation for the Senate committee to explain the factors responsible for not meeting the revenue target of Rs 1.380 billion by the end of 2009-10.

Sources said the FBR has been able to collect Rs 1,330 billion during 2009-10 against the target of Rs 1,380 billion. The basis for fixing annual revenue collection target of Rs 1,380 changed a lot during the outgoing fiscal as the FBR suffered loss of Rs 22 billion due to decrease in sales tax on sugar. The tax relief package announced for Khyber Pukhtunkhuwa caused a revenue loss of Rs 15 billion and cut in Public Sector Development Programme (PSDP) resulted in revenue loss of around Rs 5 billion due to decrease in withholding tax collection on contracts and supplies of the PSDP.

The revenue collection target was fixed at Rs 1.380 trillion for 2009-10 based on certain assumptions. The Public Sector Development Programme was set at Rs 480 billion for last fiscal, however, actual spending are likely to be recorded at Rs 215 billion. The FBR receives 6 percent withholding tax on contracts awarded for these mega projects as well as revenue also comes on the purchase of construction materials such as steel, cement and other items. Due to lower spending on PSDP, the FBR has suffered revenue loss of Rs 15 billion during current fiscal year. The FBR had forwarded a summary to the ECC and subsequently to the Cabinet for raising GST on sugar but the government did not approve of this proposal that caused Rs 2 billion loss on monthly basis. The FBR reduced its sales tax rate on sugar in August 2009 so it caused revenue loss of around Rs 22 billion.

Sources said that the FBR did not take basis of Rs 1,380 billion for fixing the target of Rs 1,667 billion. It has been assumed that the FBR will collect Rs 1,330 billion for outgoing fiscal and after taking into account the nominal growth as well as taxation measures of Rs 130 billion will enable the government to collect Rs 1,667 billion for 2010-11.The revenue collection target of Rs 1.667 trillion was fixed keeping in view the base of Rs 1.330 trillion of 2009-10 and was not set on the basis of Rs 1.380 trillion.

Sources added that FBR collection target of Rs 1.667 trillion was set keeping in view inflation at the rate of 12 percent and GDP growth at 3 percent these assumptions are supposed to take the revenue to over Rs 1.525 trillion. The remaining revenue is supposed to come from budgetary and administrative measures that include Rs 50 billion through administrative measures and Rs 83 billion collection through revenue measures announced in the budget 2010-11.

Copyright Business Recorder, 2010