Dr. Ikramul Haq & Abdul Rauf Shakoori
This column has consistently argued for a single tax authority across all levels of government. The announcement of setting up the Pakistan Revenue Authority (PRA) should, therefore, have been an occasion to commend the government. However, it seems that before announcing any reform, the government does not do proper homework on the content of reform. Nor is any serious attention paid to preparing an implementation strategy—Giving FBR a decent burial,Dr. Pervez Tahir
The ongoing row over the decision of restructuring of Federal Board of Revenue (FBR), is highly disturbing, rather shocking. The officers of the Inland Revenue Service (IRS) are opposed to bifurcation of FBR into two wings, Customs and IRS, as well as establishment of an independent Policy Board. They have been using various media platforms to create furor and confusion over the plan approved for restructuring. The real cause of concern is not their protest or use of media against the restructuring, but non-disclosure of information by the official quarters in utter violation of Article 19A of the Constitution of Islamic Republic of Pakistan.
According to a Press report, Large Tax Office in Karachi went on a strike on January 13, 2024 “against the interim government’s decision to abolish” FBR and “set up two new boards comprising two separate services of Customs and Inland Revenue”. According to another Press report, IRS officials were “threatening to approach the higher judiciary if the caretaker finance minister rushes the approval of the summary through the federal cabinet”.
The various news reports confirm animosity between FBR high-ups and caretaker finance minister, Dr. Shamshad Akhtar. According to a news item, the FBR officials have also been “warning the government about the potential risks to the financial independence of the federation if further fragmentation of administration and taxes occurs without a well-thought-out strategy”.
A number of media reports published during the last few days confirmed the decision by the Special Investment Facilitation Council (SIFC) to separate Pakistan Customs and Inland Revenue Services (IRS) into two separate boards.
A media report published on January 11, 2024 claims: “Under the restructuring plan, there will be a Federal Tax Policy Board, an Oversight Board, a Federal Board of Customs, and a Federal Board of Inland Revenue. However, the current structure of the FBR will be retained without clear guidance on implementation”. However, till today, the Ministry of Finance has not issued any communiqué of implementation meeting(s) or disclosed the details of restructuring plan at its website.
In the absence of any official documents, it is not appropriate to comment on the merits of ongoing restructuring scheme of FBR. However, there is a consensus that comprehensive tax administration reforms, much-needed and long-overdue, must be through a democratic process, public debate involving all stakeholders, rather than discussing and implementing the same behind the close bureaucratic doors.
Pakistan needs to increase revenue collection at all levels to improve tax-to-GDP ratio to a respectable level of 20-25 percent—presently it is only 9.2 percent. This is not possible unless an elected Federal Government after consultation with provinces introduces harmonised sales tax on goods and services and establishes National Tax Agency (NTA). All existing tax authorities at federal and provincial levels should merge in NTA. The NTA should be modern, automated and efficient, manned by competent personnel and run by an independent Board of Management comprising officials of federal/ provincial governments, and independent professionals. For establishing NTA no amendment is required in the Constitution as discussed below.
The autonomous status of the NTA can be ensured like that of Canadian Revenue Authority (CRA)—its Board of Management is directly accountable to Parliament through Canadian Minister of National Revenue. The NTA, unlike FBR, will not have any role in framing tax policy and/or undertaking any legislative work. For this a permanent Tax Policy Board should be established in terms of Article 156(2) of the Constitution as economic and financial planning is no more a federal subject. The Policy Board should have a permanent secretariat and its role should be that of a think tank [it can be housed in Pakistan Institute of Developmental Economics (PIDE)] to recommend to the federal and provincial governments and assemblies the tax policies for growth and meeting the financial needs of the country.
It is strange that with the devolution of a large number of subjects to the provinces since April 19, 2010 when the Constitutional (18th Amendment) Act, 2010 [commonly called “18th Amendment”] became effective, Unfortunately and against the Constitution, Planning Commission is still working as an arm of Federal Government without taking into account the command of Article 156(2) which says:
“The National Economic Council shall review the overall economic condition of the country and shall, for advising the Federal Government and the Provincial Governments, formulate plans in respect of financial, commercial, social and economic policies; and in formulating such plans, it shall, amongst other factors, ensure balanced development and regional equity and shall also be guided by the Principles of Policy set-out in Chapter 2 of Part II”.
The deletion of the subject of national planning from the exclusive domain of the Federal Government, and the placing of the National Economic Council (NEC)—recently reconstituted—in the list of subjects mandated to be the joint responsibility of the Federal Government and the Provincial Governments [Article 154(1)] remains unnoticed by our parliamentarians and constitutional experts. Strangely, the provinces have not raised this issue till today.
Centralised planning was one of the factors in the dismemberment of the country in 1971. The planning, in the post-18th Amendment period should have to be federalised rather than centralised. But nobody has raised this issue. The 18th Amendment has redefined NEC on the pattern of Council of Economic Interests (CCI). The NEC forms part of the Chapter 3 of the Constitution entitled ‘Special Provisions’.
Before the 18th Amendment, Article 156 related to the NEC had two clauses. Clause (1) described the composition and clause (2) its functions. These clauses have undergone important changes after the 18th Amendment. The pre-amendment clause (1) read as follows:
“The President shall constitute a National Economic Council consisting of the Prime Minister, who shall be its Chairman, and such other members as the President may determine:
Provided that the President shall nominate one member from each Province on the recommendation of the Government of that Province”.
While the apex planning body, the NEC, has been federalised, Planning Commission continues to be centralised. The spirit of the Constitution can be satisfied by (1) making Planning Commission, in place of the Cabinet Division, the Secretariat of the NEC and (2) by reducing the number of its members to five, one each from the Provinces and the Federal Government. Prime Minister chairs the NEC and there is no need for him to Chair the Planning Commission. The Chairman should be appointed by the CCI to represent the Federation.
At present, only Punjab has a Planning and Development Board, with members in charge of the main sectors. Other provinces have their respective Planning and Development Departments. An important reason why the centralised role of planning by the Planning Commission continues is the weak capacity of the provincial planning mechanisms.
After the 18th Amendment, the Planning Commission could no more be a centralised body. Federal Legislative List, Part I, contains subjects which vest in the exclusive jurisdiction of the Federal Government. Before the 18th Amendment, its item 32 related to planning: “National planning and national economic coordination including planning and coordination of scientific and technological research”. After the 18th Amendment, the subject was included in Part II of the Federal Legislative List. The last-mentioned list of subjects is neither exclusively federal nor provincial; it is an area of joint responsibility. In the Constitution, a special institution, the CCI, has been created to supervise the affairs of the Federation listed in Part II of the Federal Legislative List.
By abolishing the Concurrent List and deleting certain items from the Federal Legislative List Part-I, the 18th Amendment has substantially increased the quantum of provincial autonomy. Second, the role of provinces in decision making of the federation has been substantially enhanced by the enlargement of the Federal Legislative List Part-II.
In view of Article 167(4), the role of NEC has become very important though it has yet not been realised by the centre and provinces. In this perspective, we should also discuss the idea of NTA. The FBR has been persistently failing to meet budgetary targets for the last many years what to speak of realising the real revenue potential. FBR was not able to collect even Rs. 7400 billion—the original target for fiscal year 2022-23 was Rs. 7460 billion, later revised to Rs. 7640 billion after mini- budget levying additional taxes of Rs. 170 billion through Finance (Supplementary) Act, 2023. FBR is dysfunctional to the extent that the system is not taxing the ultra-rich, thus income/wealth distribution disparities are rapidly widening. There is an urgent need to dismantle and reconstruct FBR for which details are available in Towards Flat, Low-rate, Broad and Predictable Taxes(PRIME Institute) and in Tax Reforms in Pakistan: Historic & Critical Review (PIDE).
Pakistan needs a paradigm shift in tax policy and revamping of entire tax administration. Establishment of NTA, capable of generating sufficient resources for the federal and provincial governments must be the top priority. Through consensus and democratic process resorting to Article 144 of the Constitution, all the provincial parliaments after elections on February 8, 2024 can agree for establishing autonomous NTA, comprising specialists and professionals that would facilitate people to deal with single body rather than multiple agencies at national, provincial and local levels. The mode and working of NTA can be discussed and finalised under CCI [Article 153] and its control can be placed under NEC [Article 156], very aptly suggested as well by great thinker and economist late Dr. Pervez Tahir.
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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. 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. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
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).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers 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.
Twitter: DrIkramulHaq
Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan.Pakistan’s economy – Chicanery of numbers.Pakistan: Reclaiming its space on FATF whitelist.Sacred Games: Kulbhushan Jadhav Case.National FATF secretariat and Financial Monitoring Unit. The FATF challenge.Pakistan: Crucial FATF hearing.Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
Twitter: Adbul Rauf Shakoori
The recent publication, coauthored by these writes, is Pakistan Tackling FATF: Challenges & Solutions, available at:
https://www.amazon.com/dp/B08RXH8W46 and