In tax-free budget, Sindh govt jacks up revenue targets by Rs106 billion

The Sindh government Tuesday presented the annual budget for the fiscal year 2022-23 without introducing any new tax — hence technically a tax-free budget. But it has increased provincial revenue collection targets by Rs106 billion for the next fiscal year and that too by increasing indirect taxes.

Budget documents indicate that the government could not achieve revenue collection targets for the outgoing fiscal year 2021-22, failing especially on direct taxes, which it seeks to lower in the next year.

The provincial tax collection target was set at Rs304.9 billion but only Rs267.9 billion could be collected. However, the target for provincial tax collection for the next financial year has been increased to Rs347.5 billion — Rs106.9 billion higher than the current financial year.

According to the budget documents, the target for direct taxes was set at Rs11.31 billion for the current financial year and the authorities could collect only Rs4.96 billion, but the government has lowered the target for the next fiscal year to Rs5 billion.

Direct taxes include income tax, property tax, land revenue, professional tax, capital value tax, and property tax. The government has abolished the professional tax.

In the current fiscal year, authorities collected Rs810 million in agricultural income tax against the target of Rs3 billion.

The property tax target has been set at only Rs900 million against the original estimate of Rs4.8 billion for the current financial year. The target for capital value tax on properties was set at Rs2 billion this year but only Rs50 million could be collected. This target has been raised to Rs100 million for next year.

Indirect tax targets increased

The target for indirect taxes was set at Rs198.29 billion for the current financial year but the government could raise only Rs176.8 billion. For the next financial year, it has pushed up the target to Rs237 billion.

The goal for General Sales Tax on Services has been increased by Rs 30 billion to Rs 180 billion. Similarly, the target of provincial excise has also been increased by Rs10 billion.

Stamp Duty collection target has been extended from Rs25 billion to Rs31 billion and the target of motor vehicle registration has been increased from Rs12.2 billion to Rs14.3 billion.

The government has slashed the recreation tax to zero. Similarly, the collection target in the case of the cotton fees has been scrapped even though Rs150 million has been collected this year.

The target for Infrastructure development Cess has been increased from Rs100 billion.

Difference between direct and indirect taxes

Direct tax refers to the tax that is levied on the income of a person or company. They cannot pass this tax on to anyone else, whereas indirect tax refers to the tax levied on a product or service.

It is to be noted that the direct tax is levied in proportion to the income earned, which limits its effect to the same taxpayer whereas the burden of indirect taxes is shouldered by the common man.

Economists consider direct taxes to be more important but governments find it more convenient to increase the tax burden on ordinary citizens than on the powerful classes.