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Government revenue took a nosedive in 2020, recording a decline of 27.7% to Rs. 1.36 trillion from Rs. 1.89 trillion with tax earnings also dropping 29.9% to Rs. 1.2 trillion from Rs. 1.7 trillion the previous year, the Central Bank said yesterday.
The Annual Report said revenue declined both in nominal terms and as a percentage of GDP, reflecting the combined impact of subdued economic performance due to the COVID-19 pandemic, the tax revisions implemented from late 2019, and the tax concessions granted to businesses and individuals affected by the pandemic.
Accordingly, total revenue declined by 27.7% to Rs. 1,368 billion in 2020 from Rs. 1,890.9 billion in 2019. Tax revenue declined by 29.9% to Rs. 1,216.5 billion in 2020 from Rs. 1,734.9 billion in 2019, mainly due to low revenue from income tax, VAT, NBT, CESS and excise duties. The relative share of revenue from direct taxes declined to 22.1% in 2020 from 24.7% in the previous year, mainly reflecting the impact of subdued incomes of businesses and individuals amidst the pandemic, the Report added.
“The share of revenue from indirect taxes accounted for 77.9% of total tax revenue in 2020. Non-tax revenue declined marginally by 2.9% to Rs. 151.4 billion, reflecting the reduction in revenue collection from fees and charges and profit transfers of SOBEs. As a percentage of GDP, total revenue declined to 9.1% in 2020 from 12.6% in 2019, reflecting the reduction in tax revenue to 8.1% in 2020 from 11.6% in 2019, while non-tax revenue collection remained unchanged at 1% in 2020.”
Revenue from income tax declined, both in nominal terms and as a percentage of GDP, reflecting the reduction of revenue from all the categories of income tax in 2020. In nominal terms, revenue from income tax declined by 37.3% to Rs. 268.2 billion in 2020 from Rs. 427.7 billion in 2019, and as a percentage of GDP, it declined to 1.8% in 2020 from 2.8% in 2019. The decline in income tax revenue was mainly attributable to the abolition of PAYE tax and ESC, along with the revisions to WHT and corporate and non-corporate income tax with effect from January 2020.
“Revenue from PAYE tax collected for the financial year 2019 and remitted in 2020, together with the revenue on account of APIT, which was introduced in lieu of PAYE tax since 01 April 2020, recorded at Rs. 15 billion in 2020, compared to PAYE tax revenue of Rs. 49.4 billion in 2019. Revenue from ESC was recorded at Rs. 15 billion in 2020, compared to Rs. 55.3 billion in 2019 due to the arrears collected for 2019. Revenue collection from WHT declined notably to Rs. 10 billion in 2020 from Rs. 50.4 billion recorded in 2019, mainly due to the amendments to WHT.”
Revenue from corporate and non-corporate income tax declined by 16.2% to Rs. 228.3 billion in 2020 from Rs. 272.6 billion in 2019, mainly reflecting the revisions to personal income tax rates and corporate income tax rates, with effect from 1 January 2020.
Revenue from VAT and excise duties declined amidst the slowdown in economic activity and the reduction of the VAT rate from 15% to 8% effective from 1 December 2019. As a percentage of GDP, revenue from VAT declined to 1.6% in 2020 from 3% in 2019, while in nominal terms, VAT revenue declined significantly by 47.3% to Rs. 233.8 billion in 2020 from Rs. 443.9 billion in 2019. The revenue from VAT on domestic economic activities declined by 46% to Rs. 148.1 billion in 2020 from Rs. 274 billion in 2019 while the revenue from VAT on imports declined by 49.5% to Rs. 85.7 billion in 2020 from Rs. 169.9 billion in 2019.
Revenue from excise duties, as a percentage of GDP, declined to 2.2% in 2020, compared to 2.7% in 2019, mainly on account of lower revenue collection from excise duty on motor vehicles and petroleum products. Revenue collection from excise duty on motor vehicles declined to Rs. 48.8 billion in 2020 from Rs. 130.4 billion in 2019, due to the contraction of motor vehicle imports amidst the restrictions imposed to curtail non-essential imports during 2020.
Revenue from excise duty on petroleum products declined to Rs. 53.1 billion in 2020 from Rs. 61.7 billion in 2019, reflecting the relatively low volume of imports of petroleum products. Nevertheless, revenue from excise duty on cigarettes and tobacco and liquor increased during the year, reflecting the upward revisions to excise duty on cigarettes and liquor in December 2019.
Accordingly, revenue from excise duty on cigarettes and tobacco, and liquor increased by 8% and 4.8% to Rs. 94.3 billion and Rs. 121 billion, respectively, in 2020 over the previous year. Meanwhile, the arrears collected on the NBT amounted to Rs. 2.4 billion in 2020, following the abolition of NBT in December 2019.
