KARACHI: The International Monetary Fund (IMF) has projected a shortfall of Rs29 billion in revenue collection by the Federal Board of Revenue (FBR) against the target of Rs1,952 billion for fiscal year 2011-12 (FY12).

According to baseline projections of the IMF, the FBR collection would stay around Rs1,923 billion. After any further improvement in tax collection, the tally may settle at Rs1,934 billion for the current fiscal year, the IMF said in a report released recently.

In the last fiscal year, the FBR missed the target of Rs1,588 billion and collected Rs1,558 billion, showing a deficit of Rs30 billion.

The IMF projection of tax-to-GDP (gross domestic product) ratio is also behind the government target of 9.3 percent. The tax-to-GDP ratio is estimated at 9.2 percent for the current fiscal year, which was 8.9 percent in the last fiscal year.

The international agency attributed low tax revenue to weak fiscal structure, which resulted in a poor tax-to-GDP ratio, which is one of the lowest in the world. “There is a general unwillingness to pay taxes, due to poor public service delivery and because of perceived unfairness in the tax system,” the IMF said.

It said that agriculture is mostly outside the tax net; besides the number of taxpayer filing income tax returns is very small about one percent of the population.

Against dismal revenue collection, the IMF report said that there are large demands for government spending. “Most notably, subsidies (mostly electricity subsidies) and interest payments consume almost half of government revenue while security spending uses up another quarter,” it added.

As a result, there are large budget deficits that are difficult to finance, especially when foreign assistance is limited. Therefore, budgetary management relies too much on the containment of investment spending and borrowing from the banking system, the report said.

The IMF commended the government to keep spending under control, scale back borrowing from the State Bank of Pakistan and implemented some tax and administrative reforms. Nevertheless, it cautioned that the deficit target of 4.7 percent of GDP in FY12 appeared out of reach.

The fiscal deficit for first quarter of FY12 was at 1.2 percent, lower than 1.5 percent of GDP recorded in the same quarter 2010/2011. “Both low expenditure growth and a brisk increase in tax revenue contributed to the lower deficit,” IMF said.

However, strong tax revenue partly reflects one-time factors; revenue collection could weaken in the period ahead, particularly if the government succumbs to pressures to reverse the removal of tax exemptions and zero ratings, it added.

The FBR has collected a provisional figure of Rs964 billion in first seven months of current fiscal year and required further Rs988 billion in remaining months with an average collection of Rs197.6 billion per month.

For a sustainable reduction in deficit, the IMF stressed upon a consistent growth in tax revenue collection. Besides, IMF suggested another attempt should be made at implementing the reformed General Sales Tax (GST), which can generate revenue up to three percent of GDP in additional revenue.