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Budget 2021: Taxes, Inflation, Growth & IMF  

Huzaima Bukhari & Dr. Ikramul Haq

The biggest challenge on tax mobilisation front faced by Federal Board of Revenue (FBR) is bridging monstrous tax gap through automation and introduction of tax intelligence system and not levying more taxes or enhancing the rates of the existing onesRationalising tax system, Business Recorder, July 19, 2020.

 “If we were to construe Entry 52 of the Legislative List keeping in view the above meanings of the expression “in lieu of”, it becomes evident that the Legislature has the option instead of invoking Entry 47 for imposing taxes on income, it can impose the same under Entry 52 on the basis of capacity to earn in lieu of Entry 47, but it cannot adopt both the methods in respect of one particular tax. Since under sections 80-C and 80-CC the imposition of presumptive tax is in substitution of the normal method of levy and recovery of the income-tax, the same is in consonance with Entry 52”—Supreme Court of Pakistan in Messers Elahi Cotton Mills & others v Federation of Pakistan & others [ PLD 1997 Supreme Court 582].

The COVID-19 pandemic is expected to not only increase poverty, but also worsen the depth and severity of poverty among the already poor, as indirectly demonstrated by the increase in the share of the severely food insecure population, which stood at 10 percent during the lockdown phase, compared to 3 percent at the baseline.

Public debt (including guaranteed debt) reached 87.9 percent of GDP at the end of December 2020, an increase from 86.7 percent in December 2019.Economic growth is expected to recover slowly, given heightened uncertainty surrounding the COVID-19 pandemic, including the emergence of new strains and the availability of mass vaccinations. At the same time, economic activity is projected to be dampened in the short-term by fiscal consolidation measures associated with the resumption of the IMF stabilization program. The outlook entails a gradual post-COVID recovery during which economic growth is expected to remain below potential, reaching 1.3 percent in FY21 and strengthening to 3.4 percent in FY23….”PAKISTAN DEVELOPMENT UPDATE: Navigating in Uncertain Times(April 2021), World Bank.

The World Bank’s views about adverse impacts of the IMF programme are also shared by some Pakistani cabinet ministers, who in private told The Express Tribune that the IMF programme could not go till the end unless the harsh, already accepted conditions for electricity prices and taxes were softened.IMF plan to dampen economy, The Express Tribune, April 7, 2021.

“The Supreme Court of Pakistan has admitted a petition for hearing that seeks enforcement of a law that binds the government to limit public debt to below 60% size of the economy and declare appointments of governor and a deputy governor of central bank illegal”—SC admits petition on debt burden,The Express Tribune, April 25, 2021.

Budget for fiscal year 2020-21 is in the making amidst very difficult times when the country is faced with economic meltdown due to Covid-19 endemic, especially after the third and deadly wave that is playing havoc. There are lockdowns, complete and partial in many cities since the last 13 months. The protection of human lives and mitigating extreme financial hardships faced by weaker segments of society needs to be given the top most priority in the coming budget. The traditional approach adopted for decades in Pakistan for balancing the books, levying more taxes, containing fiscal deficit and other number games needs to be reconsidered.

The bold initiatives and innovative measures are requires to rethink our growth strategy in totality under the prevalent exceptional circumstances, while remaining in the programme of International Monetary Fund (IMF). The gloomy predictions of rate of growth by all from our State Bank to IMF, World Bank and others can be proved wrong through fundamental structural reforms and taking concrete steps for higher and sustainable growth. In his op-ed of April 25, 2021, Ali Khizer mentioned: “Prime minister Imran Khan has started the second innings of his 5-year term with a new zest. A clear message has been sent to the new economic team in the first meeting of Economic Advisory Council (EAC). Only out of the box solutions are warranted. PM’s message is clear and loud – he has had enough of the stabilization measures, now is the time to focus not only on growth but sustainable growth”.

The Prime Minister needs to be told that “out of the box solutions” and the way forward is already provided by the Pakistan Institute of Development studies (PIDE) in PIDE Reform Agenda for Accelerated and Sustained Growth, (April 2021), launched on April 22, 2021. The launching ceremony was chaired by Mr. Asad Umar, Federal Minister for Planning, Development, Reforms and Special Initiatives. He was the first Finance Minister of the coalition government of Pakistan Tehreek-i-Insaf (PTI) from August 20, 2018 to April 18, 2019, announced even before the victory in elections by Imran Khan. Later, he was replaced with Dr. Abdul Hafeez Shaikh, first appointed as Adviser to Prime Minister and then Finance & Revenue Minister but failed to win the seat of Senate from Islamabad against former Prime Minister, Yousaf Raza Gilani, who was disqualified by the Supreme Court of Pakistan on June 19, 2012. After Hafeez Shaikh, Hammad Azhar, Minister of Industries, was given the portfolio of Finance & Revenue for 18 days [March 29 to April 16 2021] and then made Minister for Energy.

The fourth appointment by Premier Imran Khan made on April 16, 2021 of yet another unelected Finance Minister, Shaukat Fayaz Ahmad Tarin,whoheld the same portfolio from 2008 to 2010 in the Cabinet of Yousaf Raza Gillani. He took oath of his office on April 17, 2021, subject to become member of National Assembly or Senate within 60 days! The challenges faced by him are grim and daunting, especially when he criticised the economic policies of the PTI Government just a few days before his appointment and his main target was high interest rate by Governor of State Bank of Pakistan and his two predecessors, who according to him, entered and revived  the IMF programme “unprepared” and “without any plan”.

Shaukat Tarinfurther quoted: “If the Federal Board of Revenue (FBR) does not increase its revenue to 15%, then the country will run out of money to spend. The FBR will have to bring revenue to 20% in 5-7 years […] otherwise the country will not be able to achieve an economic growth rate of 7-8%“.  

In the petition filed by Dr. Muhammad Zubair Khan, former official of the International Monetary Fund (IMF) and ex-commerce minister (1996-97), under Article 183 of the Constitution of Islamic Republic of Pakistan [“the Constitution”], admitted for hearing, after overruling objections raised by Registrar of Supreme Court of Pakistan, according to a press report, contends:

“…..Shaikh was appointed as finance adviser on April 18, 2019. At the time, he was a partner in the New Silk Route (NSR) Growth Fund led by CEO and Founder Parag Saxena together with two other Indian partners. As advisor to the prime minister of Pakistan, Shaikh was not authorised under the constitution of Pakistan, to make or take decisions which adversely affect, compromise and violate the fundamental rights of the citizens of Pakistan…..Similarly, the present SBP governor took office on May 5, 2019, who was at the time a career staff member of the IMF serving as the IMF’s senior resident representative in Egypt. “His appointment was made in haste and has been made without following the legal procedures and the mandate as per law and the enunciations by this Court for appointments to public offices in Pakistan….”.


The coalition government of PTI before the release of tranche of US$ 500 million by the IMF on March 24, 2021 agreed to make amendments in the Income Tax Ordinance, 2001 to withdraw tax exemptions or curtail them through tax credit involving complicated procedure and unreasonable condition. Resultantly, the President of Pakistan in exercise of the powers conferred by Article 89(1) of the the Constitution promulgated Ordinance VII of 2021 on March 22, 2021, with immediate effect. The notification says that this Ordinance “shall be called the Tax Laws (Second Amendment) Ordinance, 2021” that is termed unconstitutional by Opposition and many experts also said this is a mini-budget and should not have not been presented in the manner the PTI Government did (see details in IMF-imposed ordinance and IT exports, TNS, [Political Economy] The News, April 11, 2021). But we all know the beggars cannot be choosers.

According to a report, the PTI Government for the revival of programme, “finally conceded to slap Rs. 140 billion in taxes” that “was a prior condition by the IMF”. It says: “The government also increased electricity prices by 16% in February and a commitment to further increase tariffs by 36% in six months (April-October 2021)”. The Federal Cabinet on March 16, 2021 “approved the promulgation of an Ordinance aimed at preparing a legal path to increase power tariff by a minimum of Rs5.65 per unit from now till October to collect a whopping Rs884 billion from consumers”. 

Our rulers since 1960s have developed addiction for intake of foreign loans, especially IMF bailouts—many call these death-blows. With every loan comes a host of conditions—ostensibly meant for economic revival and reforms but every time leaving us in deeper economic quagmire and miseries for the common citizens. Musharraf-Shaukat duo hoodwinked the nation by claiming that they were not borrowing from IMF, whereas in reality loans were taken even for reforming (sic) the tax, banking and justice systems—just to mention a few.

Fresh loans were negotiated with renewed enthusiasm by all the successive governments. This undesirable trend continued unabated with repeated vigour during the Decade of Democracy [2008-18] under the regimes of Pakistan Peoples Party [PPP] and Pakistan Muslim League-Nawaz [PML-N] and one was negotiated by the incumbent Finance Minister, Mr. Shaukat Tarin.

Pakistan signed $11.3 billion Stand-by Arrangement (SBA) with IMF in 2008 and got disbursements of about $7.6 billion. It failed to get the remaining $3.7 billion due to lapses in performance criteria, leading to suspension of the programme in May 2010, culminating in an unsuccessful ending on September 30, 2011. The main responsibility of failure was attributed to then Economic Minister of PPP, Dr. Abdul Hafeez Shaikh, who served first as Adviser to Prime Minister Imran Khan from   from April 18, 2019 to December 10, 2020 and then became un-elected Finance Minister of the PTI coalition Government and later forced to resign on March 9, 2021 after failure to win the seat of senator.

It is a fact that even after three programmes of IMF, availed by PPP, PMLN and PTI, our economic woes are continuing, rather becoming sever with every passing day. The situation on fiscal front deteriorated despite taking US$ 100 million loan from World Bank for six-year-long Tax Administration Reforms Programme (TARP). At the end of TARP in 2012, our tax system was more dysfunctional than before. The critics of IMF blame foreign experts for this fiasco. Their main objection is that the IMF and World Bank suggest prescriptions without understanding the mundane realities of Pakistan. The IMF, World Bank and others donors are least pushed about the inequitable character of our tax system, under which the burden of taxes is less on the rich and more on the poor.

The government of PMLN [2013-18] set new records of borrowing, internal and external, though before coming to power contrary claims were made. On September 4, 2013, the PML-N signed fresh loan agreement of $6.7 billion with IMF and its economic wizard, Ishaq Dar, now fugitive, said: “It will put the country on the path of sustainable growth and was going to open lending avenues with other international lenders”. Jubilation on further indebtedness by the PML-N received a jolt when IMF decided to disburse only $547 million as first tranche, much lower than what Dar was expecting. For the release of the remaining amount, tough conditions were imposed and accepted. These were never debated in Parliament as was the case in 2008 under PPP. Now strangely, both PPP and PMLN are criticising PTI Government for availing IMF’s bailouts without any debate in Parliament, the IMF’s bailout package, as in the past, entails conditions that are bound to be not only politically unpopular but detrimental to the economic growth of the country, adding further miseries to masses already facing economic toll of Covid-19 endemic.

According to a news report, the target of FBR for next fiscal year 2021-22 “is projected by IMF to be Rs. 5.9 trillion that the government “will try to achieve by increasing rates of income and sales tax and withdrawing exemptions, as per new report of IMF”.

The news report  gives main features of  IMF’s Country Report No. 2021/073 of April 8, 2021 as agreed by the PTI Government as under:

  • “The tax burden of salaried class will mount and the cost of consumer goods will also go up due to withdrawal of sales tax exemptions with effect from July 2021.
  • FBR’s tax collection target at Rs. 5.963 trillion—higher by Rs. 1.3 trillion or 27% over current year’s downward revised tax collection target.
  • The target of petroleum levy is shown at Rs. 607 billion for fiscal year 2021-22, that the global lender released two weeks after its board revived Pakistan’s $6 billion loan programme. For this fiscal year, the petroleum levy target is Rs. 450 billion, but the IMF report has projected the collection at Rs. 511 billion on the back of higher petroleum product prices.
  • We remain committed to broadening the tax base and gradually increasing the tax-to-GDP ratio by more than 3% of GDP through FY 2023, with a cumulative fiscal primary adjustment of 3.3% of GDP,” states the Memorandum of Economic and Financial Policies (MEFP).
  • MEFP underlined that in the next step, the government would change both general sales tax (GST) and personal income tax rates with the fiscal year 2021-22 budget, yielding an estimated 1.1% of GDP or Rs. 570 billion.
  • The tax measures on account of federal excise duty and customs duties are expected to be over and above these measures, which will bring the total burden of additional taxes to around Rs. 700 billion, according to the FBR sources.
  • The government has informed the IMF that it “will eliminate all zero-rated goods, currently protected under fifth schedule, except on export and capital machinery goods and move them to the standard sales tax rate. It will remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate”.
  • Similarly, it will “eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e., basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate” of 17%.
  • The government will also “remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate” of 17%. These changes in the GST law are expected to yield an estimated 0.7% of GDP or Rs390 billion on an annualised basis.
  • There will also be significant changes in the income tax rates by reducing the number of tax slabs, confirms the report. In line with IMF recommendations, we will seek to change the existing tax rate structure by reducing the number of rates and income tax brackets from eleven to five and decreasing the size of the income slabs,” according to the MEFP.
  • Pakistani authorities told the IMF that this will simplify the system and increase progressivity; reduce tax credits and allowances by 50% (except for Zakat and those provided for disabled and senior citizens).
  • The income tax rates and slabs changes will yield additional revenue equal to 0.4% of GDP or Rs208 billion, according to the report.
  • The government will also introduce a special tax procedures for very small taxpayers aimed at preventing further tax base erosion and facilitating the formalisation of the economy; and adopt a long-term strategy to reduce labour informality and to bring additional taxpayers into the personal income tax net.
  • The IMF report noted that Pakistan has to increase its revenues and ensure fiscal consolidation to contain the public debt that it projected at colossal 93% of GDP by June this year”.

In view of conditions contained in  IMF’s Country Report No. 2021/073 of April 8, 2021, the Government of PTI in the coming days, many say, will have to say goodbye to the IMF if it is to ensure survival and revival of businesses adversely affected by Covid-19 pandemic that employ millions having no other source of income. Overwhelming majority of businesses in the wake of lockdown necessitated due to third wave of Covid-19 epidemic is on the verge of closure. These were already suffering due to sluggish economic activities, high utility bills and markup rate.

Big to small and medium enterprises (SMEs) have been demanding a comprehensive bailout, including tax reliefs. They are complaining of facing difficulties in securing loan facility announced by SBP to pay salaries/wages. Those on rent are demanding remission/deferment/loan to pay the same. Their demand is of interest-free loan and/or grant to employees to avoid lay-offs as after opening of businesses, they argue, it will require many months to recoup losses and achieve break-even position. Amid this bleak scenario, they claim that markup would be an additional burden.

Contrary to prescriptions of IMF and World Bank, there is demand of massive tax reduction, deferment of old and forthcoming liabilities, zero taxation for employees earning up to Rs. 100,000 per month, waiver of advance income tax and over 75 withholding tax provisions contained in the Income Tax Ordinance, 2001, Sales Tax Act, 1990 and all provincial laws relating to sales tax on services.

On the contrary, the PTI Government as usual is toeing the line of IMF as it has been giving tax amnesties to the rich and mighty and taxing the poor—detail discussion in Unconstitutional asset-whitening schemes & amnesties, Surkhyian, January 7, 2021

Unfortunately, nobody is talking about raising revenues by suggesting and taking some out-of-box measures. Somebody needs to tell the Prime Minister that the iniquitous prescription of erratic and oppressive taxes in the forthcoming federal budget will not solve our problems especially in the prevalent circumstances. The federal and provincial governments need to generate and spend more money for infrastructure improvement to create more employments and ensure higher growth, engaging private sector to take part in public projects. This would kick-start the economy. Simultaneously, the governments need to reduce wasteful expenditure, right-size the monstrous size of their machinery, monetize all the perquisites of civil servants and make taxes simple and low-rate. State lands, lying unproductive owned by the federation and provinces, should be leased out for industrial, business and commercial ventures. It will generate substantial funds, revenue (through public auction 5% as full and final tax can be collected amounting to billions) and facilitate rapid economic growth.

While the rich remain outside the tax net, the poor are paying exorbitant GST on items of daily use. We need to overhaul theincompetent, inefficient, fragmented and corrupt tax machinery. The untapped income/wealth in Pakistan is monstrous at federal and provincial levels. If we manage to collect tax of Rs. 8 trillion in the coming two years at federal and Rs. 2 trillion at provincial level, the federation and the federating units with total revenues of Rs. 10 trillion in the kitty will not be require fresh domestic and foreign loans.

Devising a rational policy and revenue mobilisation strategy is the biggest challenge before Shaukat Tarin. All agree that we need to adopt economic policies aimed at rapid growth and investment. On taking charge, Shaukat Tarin rightly highlighted that his top most priority would be sustainable growth and prosperity for all the citizens. Taxes will increase with growth and not by high taxes and withholding provisions. The contrary prescription by IMF of higher taxes and costly energy will lead to unemployment and dismal growth.

It is explained in Shaukat Tarin’s challenge, TNS, [Political Economy] The News, April 25, 2021 as under:

“Every political party promises rapid growth and welfare as its main agenda on paper, but when in power fails to do so as proved by the PTI Government. The PTI Government since August 2018 has failed to dismantle the elitist structures that fleece the poor and benefit the rich. The culture of VIPs/plots/perks/benefits needs to end along with all tax waivers, concessions, exemptions, amnesties and immunities for the rich and mighty. Without it Mr. Shaukat Tarin will not be able to achieve what he is claiming. 

Only through sustainable growth rate of above 7% for at least a decade we can generate required employments of two million per year. Without this growth rate we cannot overcome our fiscal deficit, debt retirement and tax-to-GDP ratio. We need radical changes like lower tax rates on broad base, reduction in the exorbitant sales tax rate (it should be 5% across the board), bringing corporate tax rate to 20%, and simpler compliance procedures as elaborated in ‘Towards Flat, Low-rate, Broad and Predictable Taxes’ (PRIME Institute, Islamabad, revised and enlarged version (December 2020) is available free at: https://primeinstitute.org/towards-flat-low-rate-broad-and-predictable-taxes/).

In the wake of Constitution (Eighteenth Amendment) Act, 2010, [commonly called “18th Amendment”], the federal and provincial governments have shown a lukewarm attitude in restructuring the country’s tax system to achieve efficiency and to promote economic growth. Complex tax codes, complicated procedures, reliance on easily-collectable withholding and indirect taxes, weak enforcement, inefficiencies, incompetence and corruption are main factors for huge gap in tax collection.

Instead of broadening the tax base and simplifying tax laws, federal and provincial governments offer amnesties, immunities, tax-free perks and perquisites to powerful segments of society. As a result of this policy mindset, ordinary businesses and citizens suffer. Shaukat Tarin must take immediate steps for revamping and restructuring of the entire tax system without which, it is not possible to reduce debt servicing and further borrowing and attain growth of 7% and above.

Tax reforms undertaken to date, have mainly been patchwork, and proven to be an exercise in futility. The reform committees and commission, including World Bank-funded six-year-long Tax Administration Reforms Project (TARP), miserably failed to achieve voluntary tax compliance. In 2020, the Federal Government obtained loan of US$400 million for Pakistan Raises Revenue (PRR) Project. The total cost of PRRProject is estimated at US $1.6 billion, of which counterpart contribution is $1.2 billion and IDA financing is US$400 million.

Following in the footsteps of the Federal Government, the Punjab Government also borrowed US$304 million from the World Bank named, Pakistan: ‘Punjab Resource Improvement and Digital Effective Program’. Like earlier programmes, these are also bound to fail. The only viable option for meaningful change is to replace the existing tax systems—federal and provincial—with lower, flat and predictable rates that are simple, pragmatic, growth-oriented, and broad-based. With such a country-wide system in place, those who are not into the tax net or who avoid true disclosures would be incentivised to pay their due taxes. This should be coupled with transparent and quality spending of taxpayers’ money for welfare of society as a whole, inclusive of growth and economic well-being of every citizen.

The provinces must participate in devising national tax policy and collection apparatus as their share under 7th National Finance (NFC) Award is larger than the federal government. Article 156(2) of the Constitution of the Islamic Republic of Pakistan after 18th Amendment requires federalised and not centralised economic planning. There is a dire need for a new tax model entailing harmonised sales tax on goods and services, uniform rates for agricultural and non-agricultural income and its collection through a single national agency, though distribution be strictly as per NFC Award under Article 160 of the Constitution—all governments must participate in retiring debts and eliminating fiscal deficit.

Tax reforms without a fair and efficient tax administration can never be enforceable. For this purpose National Tax Agency (NTA), is needed not only to collect taxes for federal, provincial and local governments but also to administer various social and economic benefits and incentive programmes, otherwise tax compliance will remain a distant dream. People must get free education, quality healthcare, decent housing/transport plus social security schemes, such as, disability allowance, old age benefits,  income support, child support, pension, just to mention a few, in lieu of paying  taxes.

The existing four-tier tax appellate system has also failed to deliver. It needs to be restructured as suggested in Tax Reforms in Pakistan: Historic & Critical Review (PIDE, 2020).

Till establishment of NTA, FBR should be insulated from external political, financial and administrative pressures and must collect taxes efficiently. The government should devise, through a democratic process, a rational and consensual tax policy after taking input from all stakeholders and experts and implement it after securing consensus in the Parliament and provincial assemblies. This alone can help in raising the much-needed revenues of at least Rs. 8 trillion at the federal and Rs. 2 trillion at provincial levels, presented through a concrete roadmap in Towards Flat, Low-rate, Broad and Predictable Taxes(PRIME 2020) and Tax Reforms in Pakistan: Historic & Critical Review (PIDE, 2020)”.

The collection of taxes to the level of Rs, 10 trillion along with higher growth can eliminate budget deficits and Pakistan will be in a position to retire debts. For this, we need to establish a new national tax agency, and Federal Board of Revenue (FBR) and provincial tax authorities should be merged into one agency.

The national tax agency needs to be insulated from all kinds of political, financial and administrative pressures. At the same time, it should not assume the role of legislature and policymaker which, under the Constitution is the sole prerogative of the people of Pakistan through their elected representatives. The appointment of Chairman and members of FBR should be through a public hearing by joint Select Committee of National Assembly and Senate and not on the wishes and dictates of the ruling political party headquarters.

On March 12, 2020, according to Press release of Ministry of Finance, the National Tax Council [NTC] was established and its terms of reference (ToRs) approved. According to a Press report, “The harmonisation of GST is part of the World Bank’s budgetary support loan of US$750 to US$900 million”. It is mentioned in the report that as “suggested by IMF, the centre and provinces have finally agreed to establish NTC “to resolve all tax-related issues, especially for the harmonisation of general sales tax (GST) across the country”. It confirms that our governments do nothing unless lenders/donors force them to do and also give more loans.

It was decided that NTC would have technical level representations from the federation and federating units to resolve tax-related issues without amending the constitution. The NTC has an executive committee, comprising federal finance secretary, Chairman of FBR, provincial finance secretaries and heads of the provincial revenue authorities, namely, Punjab Revenue Authority (PRA), Sindh Revenue Board (SRB), Khyber Pakhtunkhwa Revenue Authority (KPRA) and Balochistan Revenue Authority (BRA). The executive committee of NTC is to forward its suggestions/proposals for approval by the NTC. The NTC recommendations will be finalised in terms of majority to be presented before Monitoring Committee of the National Finance Commission (NFC).

The path given to NTC is faulty. It confirms that the IMF/World Bank and even our own officers do not have knowledge how to move towards harmonisation of taxes and consolidation of fragmented tax administration. It was explained in Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms, Business Recorder, August 31, 2018, as under:

Now that the PTI-led government is in power with a singular vision which may better be termed as “New Pakistan”, it is high time to address the administrative issues of tax collection necessary for optimizing revenue collection as per the country’s potential. In this regard, the formation of All Pakistan Unified Tax Service (APUTS) is the first major step towards harmonizing the tax system and integration of taxes in Pakistan.

The proposed APUTS will function similar to All Pakistan Unified Group (APUG) services such as Pakistan Administrative Service (PAS) and Police Service of Pakistan (PSP). The proposed APUTS will initially harmonize three main tax agencies: (1) FBR, (2) provincial tax authorities such as SRB & PRA, and (3) provincial Excise and Taxation departments. At a later stage, after the successful formation of APUTS, all other tax agencies such as Pakistan Customs Service and BOR may also be given an option to join APUTS. A similar option may also be extended to Military Lands and Cantonment Group (ML&CG) who are currently the custodians of tax collection in cantonment areas.  It may be highlighted that there is no intention or scope of any kind of inter-occupational service groups’ rivalry here; it is a win-win situation for everyone. The officers will be posted anywhere in Pakistan, both at federal and provincial levels, directly from the FBR Headquarters. An officer of the rank of Joint Secretary from Establishment Division may also be posted in FBR who would keep liaison with FBR over administrative issues of posting and transfers of officers. The officers performing better may be given station of their choice while the corrupt and inefficient may be posted outside the province as punishment. The provinces will continue to enjoy the benefits and powers under the 18th Amendment as is the case of working of the PAS and PSP officers.

As an immediate measure, the Directorate General of Training and Research Inland Revenue (DOT) in Allama Iqbal Town Lahore can be transformed into National Tax Academy (NTA) on the lines of National Police Academy in Islamabad. At a later stage, a state of the art NTA may be established in Islamabad, for achieving the long run strategic objectives of APUTS, where all federal and provincial taxes such as income tax, sales tax, federal excise, customs, taxes administered by cantonment boards, property tax, agricultural tax, land revenue, capital value tax, registration fees, professional tax, infrastructure cess, registration fee and all other miscellaneous taxes could be taught in a strategically conceived national tax framework. Such a framework can be devised, for example, by expanding Kenny and Winer’s above mentioned research in Pakistan’s context, though it is not the only option. Methodologically, the entire project needs to be treated as a megaproject where the break-fix model approach has the scope to be applied. It is because of multiple legal, administrative and constitutional issues among the federal and provincial governments, states and regions. This model suggests initiating a project, breaking it, identifying the shortcomings, fixing them and continuing.

It is also important to highlight some administrative misunderstandings that the PTI-led government may face in forming APUTS. The PAS and provincial services may raise objections on the formation of APUTS because they are predominantly dealing with the provincial E&T, BOR and other revenue collection departments. Similar objections may be raised by the cantonment boards. The provincial revenue authorities formed after the 18th Amendment are also functioning under the respective Chief Secretaries and Chairmen who mainly belong to PAS. However, such misunderstandings may easily be overcome by highlighting the fact that the purpose APUTS is to discipline and harmonize tax collection in the country and it is not targeted at grabbing the powers of provincial governments or cantonment boards. Its working will be just like the working of PAS and PSP where the services of federal officers can be placed at the disposal of provincial governments, other departments and institutions. Furthermore, the officers from provincial services may also be posted in the tax agencies of the provinces. In this regard, the Establishment Division may issue an Office Memorandum (O.M) in terms of Civil Servants (Appointment, Promotion and Transfer) Rules, 1973. A similar O.M. was issued by the Establishment Division when the erstwhile Income Tax Group was successfully transformed into IRS back in 2010.

The formation of APUTS will usher in a new era of reformed taxation in Pakistan. It will be a beginning of an end to the British era scattered tax system that was meant to subjugate the masses. It will be a first serious step towards eliminating multiple tax authorities, and integrating taxes thus paving way for one window tax operations in Pakistan. As a strong and accountable service, the APUTS will have the courage to say no to illegal orders and political interference as envisioned by the Premier Imran Khan. Through better data coordination among federal and provincial tax authorities, the APUTS will not only be better equipped with information for broadening the tax base but also a step forward towards integrating taxes through national level long term strategic planning.

In the light of above, the draft roadmap for harmonisation of fragmented taxes and consolidations of national tax agency is as under for public debate and NTC as well as for the national and provincial legislators as well as senators:

  1. In NTC, the very first step should be establishing All Pakistan Tax Services (APTS) and once consensus is reached all the tax agencies should be merged through amendment in the Federal Board of Revenue Act, 2007 as amended, renaming it as National Revenue Board [NRB] Act, 2021 after consultation and approval from National Economic Council in terms of Article 156(2). The mode and working of NRB can be discussed and finalised under Council of Common Interest [Article 153 of the Constitution] and its control can be placed under National Economic Council [Article 156 of the Constitution].
  2. All serving CSS officers of FBR, PRA, KPRA and BRA will become part of APTS working under National Revenue Board [NRB] Act, 2021. They will have their seniority and other terms of condition as before. Those joined through provincial public service commissions or recruited or transferred/promoted by some other means will only be made part of APTS as done recently by Pakistan Administrative Service (PAS) through a mechanism absorbing the Provincial Civil Services (PCS) and Provincial Management Service (PMS) Officers into the PAS through a competitive examination taken by the FPSC for which advertisement has already been given in the newspaper. If PAS can do it, Inland Revenue Service (IRS) within FBR should adopt the same mechanism.  
  3. For collection of harmonised sales tax on goods and services, new law will have to be passed in federal budget 2021, after resolutions by provincial assemblies under Article 144 of the Constitution. In the same manner, right to enact a uniform law for agricultural income tax (AIT) for all provinces and its collection by NRB. In the Income Tax Rules, 2002, one page for declaration of AIT will be added in the income tax return and all the provisions of Income Tax Ordinance, 2001 relating to assuagement, recovery, appeals etc can apply Mutatis mutandis.   
  4. The collection of AIT will be by NRB but shares will be transferred to provinces directly. As regards, sales tax on goods and services, the transfer of sales tax on services will be directly to provinces to which it belongs and distribution of sales tax on goods will be strictly under NFC Award. Alternately, if and when agreement is reached by all political parties, harmonised sales tax (HST) on goods and services can be given to provinces and agricultural income tax should be with the under Article 142(a) of the Constitution by  amending Entry 47 and omitting Entry 49, from Part I of the Fourth Schedule to the Constitution.
  5. For each tax payment, there will be distinct number so transfer and distribution, as the case may be, will be transparent.
  6. At a later stage, after successful merger of FBR, PRA, SRB, KPRA and BAR, those serving in provincial boards of revenue, provincial departments of excise and taxation and Military Lands and Cantonment Group (ML&CG) can also be made part of National Revenue Board [NRB] Act, 2021 andcan join NRB. The principle of CSS and non-CSS cadre will remain the same as explained in Sr. No. 2 above.   
  7. Fresh batches, if come through CSS exams having posts for All Pakistan Tax Service instead of IRS.

The above can be further fine-tuned after input from all stakeholders, experts. However, it is imperative that before establishing NRB as an efficient and integrated tax administration, major information technology and human resource improvements in tax collection methods as well as effective audit techniques should be developed along with development-oriented tax policy. Tax reforms are meaningless without an effective tax administration and rational tax policy that can ultimately provide funds for social services to all citizens at grass root level as envisaged under Article 140A of the Constitution. Without wasting further time all the provincial governments must concentrate on devolution of political, administrative, financial responsibility and authority to the elected representatives of the local governments, after training candidates (preferably fresh graduates) with millions near home getting jobs for secretarial support of local governments, achieving the Prime Minister’s target for employment.

Apart from fixing the fragmented tax laws and tax agencies, the federal and provincial governments must earmark revenues for specific purposes placing the same in funds created for debt retirement, training of youth in various vocational disciplines, especially in Information and communications technology (ICT) and Artificial intelligence (AI), innovations, creation of employment zones and provision of social services, such as free education and health, affordable housing, transport, all civic amenities, like clean drinking water,  sewerage, waste, roads, designate areas for small/street vendors, modern mosques with qualified teachers to have primary schooling there as between fajar and zuhar prayers space can be utilised without any commuting by children as every community has more than one mosques, street lights, entrainment, sport and community hall facilities etc. This will inspire the people to contribute to the national exchequer. This is the only way that revenues can be generated through voluntary compliance and at the lowest possible cost. Simultaneously, the federal and provincial governments must drastically reduce the wasteful expenses, right-sizing the governmental machinery to bring efficiency and monetize all the perquisites of government servants.  

The root cause of our many problems is inefficient and corrupt government apparatus and huge spending on luxuries enjoyed by the elites. The elitist control over State apparatus needs to be dismantled through empowerment of masses at grass root level by implementing Article 140A in letter and spirit. Once this is done, the process of true democratization of society and economic prosperity for all will begin.

The above may be considered while remain in the programme of IMF and after undertaking fundamental structural reforms, we can even exceed the targets required by the lender of last resort with higher and accelerated growth. The growth path as suggested in PIDE Reform Agenda for Accelerated and Sustained Growth, (April 2021) will induce investment and revenue mobilisation to achieve fiscal consolidation, inclusive development and prosperity for all the citizens. The prerequisites are administrative reforms, drastic cutting of wasteful expenses on monstrous state machinery that is costly as well as inefficient and corrupt—see detail in Reflection on 81st Pakistan Day, Surkhyian, March 23, 2021, Civil governments, ‘Ordinance’ factories, Surkhyian, March 15, 2021 and Welfare laws and role of State, Surkhyian, December 11, 2020.


Ms. Huzaima Bukhari, Advocate High Court and Visiting Faculty at Lahore University of Management Sciences (LUMS), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram, a leading law firm of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals. She has to her credit over 1500 articles on issues of public importance, printed in various journals, magazines and newspapers at home and abroad.

She has coauthored with Dr. Ikramul Haq many books that include  Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Dr. Ikramul Haq, is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

She regularly writes columns for Pakistani newspapers and has contributed over 1500 articles on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.


Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate and tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation andVisiting Faculty at Lahore University of Management Sciences (LUMS).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.


The joint and individual books and articles of the writers can be seen at:




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