The government’s projected revenue collection for the current fiscal year is over 10% higher than the previous year. If the projected value actually materializes in reality, it could be a great boost for the post-pandemic economy.
That is clearly what the government is hoping will happen, relying on the ongoing and the proposed reform plans undertaken so far to boost the domestic revenue. But revenue collection needs to grow at a rate of 21.0% on average from the actual collection in fiscal 2020-21 for achieving the revenue target in fiscal 2021-22.
It is indeed encouraging to see that despite the significant impact of the pandemic on the economy, the total revenue collection saw respectable growth of 8.6% July-December period of FY21, resulting from an incredible 40.2% growth in non-tax revenue earnings. For the projected collection, income and profit taxes, customs duties, and VAT and supplementary duties will have to grow by 9.4%, 2%, and 11.4% respectively, on an average, from the revised collection in fiscal 2020-21 to achieve revenue targets in fiscal 2021-22.
While the undertaken plans might come to fruition, these are very high percentages to bank on, especially because the lack of a comprehensive ecosystem makes it hard to gauge collection.
The National Board of Revenue’s (NBR) plan to formulate a "perspective plan" to strengthen its VAT collection drive may be a useful tool. But that still needs reform in the VAT management structure, expansion of VAT net and conducting a feasibility study on achieving the VAT collection growth.
While VAT has a significant share in the total revenue, it is still less than 40%. Ultimately, the policymakers will have to invest in creating a supportive ecosystem that will make revenue collection more automated, making it more efficient.