Contact:

Nisar Muhammad

Member, Strategic Planning and Reforms & Statistics

e-mail:

Phone: (051)-9219665

Fax:(051)-9206802

April, 2013

The FBR Quarterly Review, October-December, 2012 has been prepared by the Research Team of Strategic Planning and Reforms & Statistics Wing.

Research Team

  1. Nisar Muhammad

Member (SPR&S)

:

  1. Muhammad Imtiaz Khan

Secretary (SPR&S)

  1. Mir Ahmad Khan

Second Secretary (SPR&S)

()

  1. Naeem Ahmed

Second Secretary (SPR&S)

()

  1. Umar Wahid

Director (Directorate of Research & Statistics)

()

Contents

Pages

Foreword

  1. FBR Tax Collection: An Analysis of July-December, 2012-13 1
  • Detailed Analysis of Individual Taxes3
  • Direct Taxes3
  • Sales Tax5
  • Customs duty 9
  • Federal Excise Duties 11
  • Concluding Observations 13
  1. Industry Profile: Wholesale and Retail Trade Sector in Pakistan 14
  2. Statistical Appendix 34

Abbreviations

AOPs / Association of Persons
BPR / Business Process Reengineering
CD / Customs Duties
CFY / Current Fiscal Year
CoD / Collection on Demand
DT / Direct Taxes
FBR / Federal Board of Revenue
FED / Federal Excise Duties
FY / Fiscal Year
GST
H1
H2 / General Sales Tax
Half Year 1
Half Year 2
LTU / Large Tax Payers’ Unit
MCC / Model Customs Collectorate
NTN / National Tax Number
PCT / Pakistan Customs Tariff
PAYE / Pay As you Earn
Q1CFY / Quarter 1 Current Fiscal Year
Q1CFY / Quarter 1 Current Fiscal Year
STD / Sales Tax Domestic
STM / Sales Tax Import
TARP / Tax Administration Reform Project
USAS / Universal Self-Assessment Scheme
VP / Voluntary Payments
VAT / Value Added Tax
WHT
WRT / Withholding Taxes
Wholesale & Retail Trade

Foreword

It is encouraging thatFBR, despite persistent economic slowdown has been able to collect Rs. 889 billion during July-December 2012-13 as compared to Rs 841 billion collected in the corresponding period last year. Thus, an additional amount of Rs. 48 billion has been added over the net collection of last year. However, more concerted efforts would be required to meet the revenue target.

The current issue of FBR Quarterly Review presents a detailed analysis of revenue collection and sectoral performance. The publication also includes research article on “Wholesale and Retail Trade Sector in Pakistan”.

I appreciate the invaluable efforts put in by the research team of Strategic Planning, Reforms Statistics Wing in bringing out this issue of FBR Quarterly Review. We look forward to receiving valuable comments and suggestions for improving the research efforts.

(Ansar Javed)

Chairman, FBR

1

I

FBR Tax Collection:

Pakistan economy has been going through its difficult and tough times for few years. Major challenges faced by economy were power outages, low growth, falling investment, huge fiscal deficits, inflation, unprecedented floods and law & order situation. Amid these challenges government tax revenues could not grow adequately in current fiscal year, particularly because imports did not show a healthy growth. The double digit growth pattern in tax revenues maintained during last 10 years, therefore,could not be continued. The lower than expected revenue performance during first half of CFY reflects the impacts of persistent economic slowdown.

Revenue Collection vis-à-vis Target

FBR revenue target for the FY: 2012-13was fixed at Rs. 2,381 billion at the time of announcement of Federal Budget. Keeping in view unfavorable condition of the economy, the target has been revised to Rs. 2,193 billion. FBR has collected Rs. 889 billion net revenue during July-December 2012-13, despite unfavorable macroeconomic situation and power & gas outages. The collection has registered a growth of around 6% over the collection of corresponding period last year (Table 1).

Table 1: Net Collection Vis-à-Vis Targets for H1: 2012-13

(Rs. Billion)

Tax Heads / Target / Collection / Growth (%) / Target Achieved
H1:2012-13 / H1: 2011-12 / (%)
Direct Taxes / 369.1 / 337.5 / 312.6 / 8.0 / 91.4
Sales Tax / 428.4 / 392.2 / 381 / 2.9 / 91.5
FED / 49.7 / 51.9 / 53.4 / -2.8 / 104.4
Customs / 111.1 / 107.4 / 93.7 / 14.6 / 96.7
Half Year / 958.3 / 889.0 / 840.7 / 5.7 / 92.8

The collection under direct taxes has been Rs. 337.5 billion which is higher by 8% as compared to the corresponding period of last year. The revised target has been achieved to the extent of around 91%. Similarly, an amount of Rs. 381 billion has been collected from sales tax during July-December, 2012-13 indicating a growth of just 2.9% over the collection of Rs. 392.2 billion in the comparable period of last year. The target of Rs. 428 billion has been achieved to the extent of 92%.

As far as customs is concerned, an amount of Rs. 107.4 billion has been collected during the first six months of CFY as against the target of Rs. 111.1 billion. The target has been achieved to the extent of 97%.The collection of customs duty has recorded a growth of 14.6% over the collection of Rs.93.7 billion in the corresponding period of last year.The collection under the head of FED has been Rs 51.9 billion during the first six months of FY 2012-13 against the target of Rs.49.7 billion fixed for the same period.

Reasons for lower growth in collection have been recession in the economy, impact of energy crisis on manufacturing sector, slump in dutiable and taxable imports. Month-wise details of collection have been depicted in Table 2.

Table 2: Month-wise Comparative Net Collection

(Rs. Million)

Months / FY 12-13 / FY 11-12 / Difference
Absolute / Percentage
July / 106,876 / 112,275 / -5,399 / -4.8
August / 123,359 / 120,506 / 2,853 / 2.4
September / 180,774 / 148,023 / 32,751 / 22.1
October / 135,134 / 126,408 / 8,726 / 6.9
November / 139,709 / 131,849 / 7,860 / 6.0
December / 203,125 / 201,676 / 1,449 / 0.7
July-December / 888,977 / 840,737 / 48,240 / 5.7

A look on the monthly collection indicates that apart from the month of September the growth has not been impressive in rest of the months. It started with a negative growth in July and a nominal growth of 2.4% in August, 6-7% in October and November and then a big dip in December. Graph 1 indicates the monthly trend.

Detailed Analysis of Individual Taxes

Direct Taxes: The net collection of direct taxes during H1:12-13 has been Rs. 337.5 billion indicating growth of 8%.The net collection is Rs. 25 billion higher as compared to H1: PFY.

Components of Income & Corporate Taxes

Collection on Demand (CoD):Not only the share of CoD has reduced in total income tax collection but also the growth in this segment during H1: 12-13 has been negative by 40.4%(Table 3). The share of CoD, in total income tax collection remained 8% against 13% in corresponding period last year. The collection from current demand stood at Rs. 23.2 billion in H1:12-13 against Rs. 43 billion in H1:11-12, whereas under the head of arrear demand, Rs. 4.9 billion were collected against Rs.4.1 billion during H1: PFY. The reason for negative growth in CoD was the stay given by Lahore High Court in respect of selection criteria due to which audit process remained stalled. Selection of cases for audit was sent for Denvo Consideration to FBR by Lahore High Court. Nonetheless, FBR have framed revised audit criteria, cases were selected for audit through computer balloting. Hopefully, with start of audit, the loss will be compensated in next quarters.

Table 3: Collection on Demand (CoD): A Comparison

(Rs. Million)

Heads / H1: 12-13 / H1: 11-12 / Growth (%)
Arrear / 4,898 / 4,059 / 20.7
Current / 23,200 / 43,081 / -46.1
Total CoD / 28,098 / 47,140 / -40.4

Voluntary Payments (VP): This component includes payments with return and advances. An amount of Rs. 130.9 billion has been generated under the head of voluntary payments during H1: 12-13 as compared to Rs. 114.1 billion in the corresponding period last year (Table 4). A growth of 14.7% has been recorded in voluntary compliance. Details of collection from voluntary payments have been given in Table 4.

Table4: Voluntary Payments (VP): A Comparison

(Rs. Million)

Heads / H1: 12-13 / H1: 11-12 / Growth (%)
With Return / 13,089 / 11,508 / 13.7
Advance Tax / 117,842 / 102,620 / 14.8
Total VP / 130,931 / 114,128 / 14.7

Withholding Taxes (WHT): Withholding tax is the third important component of income tax. During H1: 12-13, tax receipts worth Rs. 190 billion have been collected against Rs. 186 billion collected in the corresponding period of last year entailing a growth of just 2% (Table 5). The share of WHT in gross income tax collection remained 55% during the period under review.

The major revenue spinners of WHT are: contracts/supplies, imports, salary, telephone, exports, bank interest, electricity, cash withdrawals and dividends. The major heads depicted in Table 5 contribute 91.4% of total WHT collection. The share of contracts was 26.1% followed by imports (23.4%), salary (11.3%), bank interest (8.4%) telephone bills (4.9%) and exports (5.7%).

Thedecline witnessed in WHT on salary is due to the reason that basic exemption limit was enhanced from Rs.350,000 to Rs.400,000 and the rate for each slab was reduced in the Budget FY: 2012-13. The shifting of major services, including telecom, from federal to provinces also affected the collection adversely. Furthermore, advances taken in PFY were accounted for in the CFY. The growth in the collection from dividends was very low due to less declaration of dividends by the companies forrecession in the economy.

Table 5: Half-Yearly Collection from Major Revenue Spinners

of Withholding Taxes

(Rs. Million)

Collection Heads / H1: 12-13 / H1: 11-12 / Difference (Absolute) / Growth (%) / Share in WHT HI:12-13
Contracts / 49488 / 44313 / 5175 / 11.7 / 26.1%
Imports / 44488 / 41422 / 3066 / 7.4 / 23.4%
Salary / 21451 / 23723 / -2272 / -9.6 / 11.3%
Bank Interest / 16003 / 14164 / 1839 / 13.0 / 8.4%
Telephone Bills / 9205 / 15166 / -5961 / -39.3 / 4.9%
Export / 10806 / 11216 / -410 / -3.7 / 5.7%
Dividends / 8680 / 8650 / 30 / 0.3 / 4.6%
Electricity / 7651 / 6173 / 1478 / 23.9 / 4.0%
Cash Withdrawals / 5619 / 5726 / -107 / -1.9 / 3.0%
Sub-Total (9 major items) / 173391 / 170553 / 2838 / 1.7
Share in Total WHT / 91.4 / 91.7
Other WHT / 8.6 / 8.3
Total WHT / 189723 / 185993 / 3854 / 2.0
Share in Gross I. Tax / 54.0 / 50.6

Sales Tax:

Sales tax is the leading source of federal tax revenues. It contributedaround 44% of total tax revenues. The gross and net collection of sales tax has been Rs. 410.1

billion and Rs. 392.2 billion respectively during July-December 2012-13. The gross and net tax revenues grew by1.7% and 2.9% respectively. The refund payments have declined by around 19% in the sales tax during the same period. The collection of sales tax on imports dropped by 0.9%, whereas, sales tax (domestic) has registered a growth of 7.6%.The share of sales tax on imports in total sales tax stood at 53% during July-December, 2012-13.The detail of collection of two components is presented in Table 6.

Table6: Collection of Sales Tax during H1:12-13

(Rs.Million)

Tax-Head / Net Collection / Growth
H1:12-13 / H1:11-12 / Absolute / %
Sales Tax Imports / 209,745 / 211,552 / -1,807 / -0.9
Sales Tax Domestic / 182,411 / 169,454 / 12,957 / 7.6
Sales Tax (Total) / 392,156 / 381,006 / 11,150 / 2.9

Sales Tax (Domestic) Collection and Major Revenue Spinners:

The major 10 revenue spinners contributed 80%of sales tax domestic inH1: 2012-13.A detail of the collection from these spinners is depicted in Table7.

8

Table7: Net Collection of GST (Domestic) from Major Revenue Spinners

(Rs. Million)

Commodities/Items / Net Collection / Share (%)
H1:12-13 / H1:11-12 / Growth (%) / H1:12-13 / H1:11-12
POL Products / 83,107 / 73,692 / 12.8 / 45.6 / 43.5
Natural Gas / 18,323 / 11,680 / 56.9 / 10.0 / 6.9
Telecom Services / 11,378 / 20,952 / -45.7 / 6.2 / 12.4
Fertilizer / 7,614 / 10,098 / -24.6 / 4.2 / 6.0
Cigarettes / 5,565 / 5,311 / 4.8 / 3.1 / 3.1
Beverages / 5,236 / 4,609 / 13.6 / 2.9 / 2.7
Sugar / 5,208 / 5,638 / -7.6 / 2.9 / 3.3
Cement / 3,785 / 2,602 / 45.5 / 2.1 / 1.5
Electrical Energy / 2,646 / 2,026 / 30.6 / 1.5 / 1.2
Tea / 2,316 / 3,098 / -25.2 / 1.3 / 1.8
Major Ten Commodities / 145,178 / 141,304 / 2.7 / 79.6 / 83.4
Other / 37,233 / 28,150 / 32.3 / 20.4 / 16.6
All Commodities / 182,411 / 169,454 / 7.6 / 100 / 100

The overall collection of sales tax domestic depends on the collection of petroleum products as it contributedaround 46% of the sales tax domestic.During H1: CFY around 13% growth has been recorded in the collection from POL products due to growth in taxable sales by 12.7%. The refund payments to the POL sector have witnessed a significant growth i.e. Rs.1.7 billion against only Rs. 48 million in the corresponding period of last year. The collection from natural gas, the second major contributor,has increased by 56.9% during July-December 2012-13, as compared to July-December 2011-12.

The collection from telecom,a major source of sales tax domestic has registered a negative growth of about 46% as the telecom services have been shifted to the provinces.The reduction in collection from fertilizers is attributable to the reduction in production of fertilizer due to lesser availability of gas & electricity. The collection of sugar declined by 7.6% mainly due to 4% lower taxable sales in H1: CFY. The collection of cigarettes exhibited 4.8% growth during July-December, 2011-12 as compared to corresponding period last year. This growth seems low as compared to increase in the taxable sales by more than 7% during the same period. The collection from beverages has improved by 13.6%. The reason for this growth can be attributable to increased taxable sales by 18%. The collection from tea has declined by 25.2% due to reduction in the rates from 16% to 5%. An increase of 30.6% has been manifested in electrical energy against 17% increase in taxable sales during the period under review.

Sales Tax Collection on Imports

The imports of the country contribute significantly to the exchequer in the form of sales tax. Sales tax imports contributed around 53% of the total sales tax. Due to modest growth in value of import and abolition of higher rates of sales tax , the collection at import stage declined by 1%.

Major Revenue Spinners of Sales Tax on Imports

Ten major revenue spinners contributed around 76% of the sales tax import collection during July-December 2012-13 (Table8). Petroleum sector is the top revenue generation source of sales tax on imports by contributing more than 38% of the collection of sales tax on imports. Edible oil (Ch:15) is the second major source of revenue with around 8% share in total sales tax imports. The collection from edible oil has recorded a decline of 11.7% due to 11.4% decline in the value of imports. The auto sector (Ch: 87) has also exhibited 7.7% growth in the collection due to increase in imports by around 2%. The collection of sales tax from plastic manifested a negative growth of 32%, partly due to decline in the value of imports by 4.3%. Moreover, the higher rate of sales tax was also abolished during the Budget 2012-13 which has also affected the collection of sales tax adversely.

The collection from mechanical machinery and electrical machinery dropped by 27.5% and 19% respectively. The main reason behind the decline has been the impact of SROs 575(I)/2006 & 727(I)/2011 where exempted sales tax grew substantially by around 47%. Moreover, due to abolition of higher rate of sales tax on iron & steel (CH:72), its collection has come down by 13.6%. The import of fertilizer has come down drastically by 40.3% which has affected the collection of fertilizer by 42%. The collection from organic chemicals (CH:29) recorded a decline of 7.6%. On the other hand, inorganic chemicals (CH:28) have exhibited 4.1% growth in the collection against 8.1% growth in the import value.

Table8: Sales Tax Imports from Ten Major Chapters during H1:2012-13

(Rs. Million)
PCT Head / Commodity / H1: 12-13 / H1: 11-12 / Growth / Share
(%) / (%)
27 / POL Products / 80,974 / 75,337 / 7.5 / 38.6
15 / Edible oil / 16,084 / 18,215 / -11.7 / 7.7
87 / Vehicles / 13,689 / 12,715 / 7.7 / 6.5
39 / Plastic / 9,375 / 13,761 / -31.9 / 4.5
84 / Mechanical Machinery / 9,290 / 12,818 / -27.5 / 4.4
72 / Iron and Steel / 9,027 / 10,444 / -13.6 / 4.3
31 / Fertilizers / 6,763 / 11,636 / -41.9 / 3.2
85 / Electrical Machinery / 6,160 / 7,608 / -19.0 / 2.9
29 / Organic Chemicals / 4,158 / 4,500 / -7.6 / 2.0
28 / Organic/Inorganic Chemicals / 3,725 / 3,579 / 4.1 / 1.8
Sub Total / 159,245 / 170,613 / -6.7 / 75.9
Others / 50,504 / 40,943 / 23.4 / 24.1
Gross / 209,749 / 211,556 / -0.9 / 100
Refund/Rebate / 5 / 4
Net / 209,744 / 211,552 / 0.9

Customs Duties: Despite large scale tariff rationalization, customs duty is still one of the significant sources of collection of federal taxes. It constitutes 19.4% and 12% of the indirect taxes and all taxes respectively. The gross and net collection from CD during July-December, 2012-13 has been Rs 112.7 billion and Rs 107.4 billion respectively entailing growths of 13.5% and 14.6% respectively. The payments of refunds/rebates have recorded a decline of 5.2% during H1:CFY.

Customs Duty from Major Revenue Spinners During July-December 2012-13

It is evident from Table 9 that around 56% of the customs duty has been emanated from 10 major commodities grouped in PCT ChaptersAutomobile, the leading revenue spinner, has contributed 19.1% in the customs duty during H1:12-13 and exhibited a robust growth of 15.4% in the collection against 7.8% growth in the dutiable imports. The collection of customs from edible oil (Ch: 15) has shown negative growth of 1.3% due to negative growth of 11.4% in dutiable imports. Edible oils are mainly subject to specific rate of customs duty; therefore, value of import of edible oils does not affect customs duty. However, the imported quantity of crude palm oil has dropped enormously which has resulted in overall negative growth in edible oils.

The collection from petroleum products has declined by 1.3% during H1:12-13 while dutiable imports increased by 2%. HSD is the major revenue generator of customs duties in the petroleum products. The collection from HSD has declined by 1% while dutiable imports grew by around 1%. Most of the imports of petroleum products is exempted from customs duty like furnace, motor spirit etc. As far as mechanical machinery (Ch:84) is concerned, revenue collection from this source has dropped by 5.2% mainly due to decline in the dutiable imports. The collection from electrical energy grew marginally against 13.4% growth in dutiable imports. The collection from plastic (Ch: 39) has decreased by 9.3% against decline of 8.2% in the dutiable imports.

A decline of 15.7% was manifested by customs duty in iron & steel (Ch; 72) but there is slight growth of 1.2% in dutiable imports. On other hand, duty free imports have increased substantially by 37.3%. The collection of CD from paper & paper board and organic chemicals recorded declines of 31.5% and 1.8% mainly due to decline in their dutiable imports by 19.4% and 2.9%respectively. The collection from tea has grown by 4.6% due to 6.8% growth in the dutiable imports.

Table 9: Major Revenue Spinners of Customs Duties During H1:12-13

(Rs. Million)
PCT Chapter / Description / Collection of Customs Duties / Contribution in Customs Duties (%)
H1:12-13 / H1:11-12 / Growth (%) / H1:12-13 / H1:11-12
87 / Automobile / 21,534 / 18,666 / 15.4 / 19.1 / 18.8
15 / Edible oil / 9,385 / 9,508 / -1.3 / 8.3 / 9.6
27 / POL Products / 7,891 / 7,996 / -1.3 / 7 / 8.4
84 / Mechanical Machinery / 5,611 / 5,919 / -5.2 / 5 / 6
85 / Electrical Machinery / 5,078 / 5,073 / 0.1 / 4.5 / 5.1
39 / Plastic / 4,083 / 4,504 / -9.3 / 3.6 / 4.5
72 / Iron and Steel / 3,348 / 3,973 / -15.7 / 3 / 4
48 / Paper and Paperboard / 2,218 / 3,240 / -31.5 / 2 / 3.3
29 / Organic Chemicals / 1,875 / 1,909 / -1.8 / 1.7 / 1.9
9 / Tea & Coffee / 1,804 / 1,724 / 4.6 / 1.6 / 2.6
Sub-total / 62,827 / 62,512 / 0.5 / 55.7 / 64.1
Others / 49,906 / 36,852 / 35.4 / 44.3 / 35.9
Gross / 112,733 / 99,364 / 13.5 / 100 / 100
Refund/Rebate / 5,355 / 5,651 / -5.2
Net / 107,378 / 93,713 / 14.6

Federal Excise: The collection from federal excise duties has registered a negative growth of 2.9% during H1: 2012-13. The net revenue stood at Rs.51.9 billion against Rs.53.5 billion during the corresponding period last year.The major reason for negative growth is the fact that FED is a fading tax as the base has been shrinking continuously for the last many years. In the Budget, FY: 2012-13 and 2011-12 the rates of cement was reduced andduty was abolished on most of the petroleum products and perfumery & cosmetics. The overall share of FED collection in federal taxes has also declined from 6.4% to 5.8% during H1:12-13.

The commodity-wise collection of major revenue spinners provides a comparison between H1: 12-13 against H1: 11-12(Table 10). The share of five major items has been around 86% during this period. The collection from cigarettes exhibited a growth of 18.7%, beverages 6.3% and natural gas by 0.1% during first six months of CFY. On the other hand, collection from cement and services declined by 12.9% and 10.8% respectively during the same period. The decline in collection of cement is attributable to the reduction of FED rate from Rs. 500 P/MT to Rs. 400 P/ MT in Budget FY: 2012-13. The reason for decline in collection from services is the downward rationalization of rates on international travel. The FED rates on international travel have been rationalized downwardly for economy and economy plus class from Rs.4240 to Rs. 3840 for USA and European countries. Other major decline in collection has been noted in POL products i.e. from Rs.3,824 million in July-December 2011 to Rs.115 million in July-December 2012. This large decline is due to the abolition of FED on lubricating oil (in different packing) and base lube oil. Similarly, due to the abolition of FED on perfumery & cosmetics the collection declined by nearly 88% i.e. Rs. 1,260 million to 150 million during H1: CFY.