Tax plans san debate!  

Dr. Ikramul Haq

According to a Press report, Chairman Federal Board of Revenue (FBR), Shabbar Zaidi, has shown flexibility over establishment of Pakistan Revenue Authority (PRA) after strong resistance from the personnel he is presently heading. He ensured them that the new body would not be formed without “taking input from all stakeholders”.  The important question is why the wizards of the present government announce and approve plans without proper debate in Parliament and in public. Why do they not take input of experts and all the stakeholders?

Shabbar Zaidi before getting approval of PRA from the Prime Minister did not bother to secure support from existing machinery as evident from recently-concluded two-day conference of Chief Commissioners of Inland Revenue. The revenue officers strongly opposed PRA calling it an “arbitrary decision”. Their main objection is that “the government made the plan to abolish FBR and set up PRA by not acknowledging the harsh ground realities”. Their view was that the government should have first fully automated the system, digitised the economy and then assess the human resource and organisational structure of the tax machinery.

Prime Minister approved an ambitious three-year plan on October 3, 2019 to conduct nationwide surveys for tax assessment, evaluating wealth parked in real estate,  implementing a new value added tax system and establishing PRA by June next year as well as restructuring the FBR in interim period. The salient features of the three-year long tax planning programme are:

• “Nation-wide tax assessment and documentation drive from Nov 30, 2019. The drive has been planned to be completed within two years and detailed proposals will be submitted later on. It will aim at ascertaining untapped segments including businesses, real estate and industries.
• Tax reforms must not create a choking effect for economy and correct taxation measures be taken with prompt implementation instead of entanglement in extended impasses.
• Launching a nation-wide survey of immovable property, starting from Islamabad industrial area this month. The nation-wide survey of immovable properties should be undertaken and completed over the next two years. It has been decided to involve Ministry of Interior and Ministry of Defence for completing the immovable property survey.
• Considering a proposal from a Chinese company for a digital land survey. In order to assess the wealth parked in the real estate sector a nationwide survey along with geo-tagging was imperative. A Chinese firm has offered to conduct the digital land survey but its proposal remains pending for the last two years.
• FBR’s broadening of tax base (BTB) zones have completed mapping of major shopping malls and plazas in the main cities but it was not clear whether the authorities used this information to enhance revenue collection.
• Prime Minister asked to fully implement the value-added tax (VAT) regime for all business segments over next three years. The deadline for the full VAT implementation is June 2022 for the FBR. The VAT will be progressively implemented across various segments commencing with Third Schedule products and gradually absorbing the complex value chain products. During the last stint of Dr Abdul Hafeez Shaikh as Finance Minister (2010-2012), the then government had tried to implement a VAT system under an IMF programme. But the Pakistan Peoples Party (PPP) government had to retreat after opposition from the business community.
• PM approved to enact VAT related legislation and formulate rules on need basis. The FBR will undertake surveys to assess particular business and industrial sectors to know the revenue potential of VAT of particular industrial sectors.
• Adopting the computerized national Identity card (CNIC) as common identifier by June 2020 –a thing that the FBR is trying to implement for the last many years without any success.
• Formulation of comprehensive proposal for establishing the Pakistan Revenue Authority (PRA) by June next year.
• The Ministry was also directed to make plans for centralised collection of General Sales Tax (GST) on goods and services by the PRA—that cannot be implemented without the support of the provinces.
• Restructuring of the FBR including appointing a Deputy Chairman for Inland Revenue and Deputy Chairman Customs. The restructuring and new appointments will be made before end of November, 2019. In the interim period, the FBR headquarters will be restructured on functional lines by segregating Inland Revenue and Custom Operations into North and South Zones.
• On the customs side, there will be two members for customs north and south operations, member transit trade and export and member legal and accounting.
• There will be four director generals in grade-21 looking after exports and transit trade, strategic planning, investigation and prosecution, valuations, input-output coefficients.
• On the Inland Revenue side, there will be member IR operations north and south, member taxpayers’ audit and member legal and accounting.
• There will be six director generals looking after investigations, strategic business analysis, international tax compliance, reforms & automation, VAT and broadening of the tax base and amnesty regime.
• The approved restructuring includes a Tax Policy Board that will be assisted by member human resource management and administration, member strategic planning, chief management information system, and member facilitation and taxpayers’ education.
• There will be six director generals in addition to four members. The PM approved the post of chief management officer and also to initiate the process of total automation of the income tax architecture of the FBR.
• In the Revenue Division, there will be secretary revenue, additional secretary customs policy, additional secretary income tax policy, additional secretary sales tax and federal excise and additional secretary international conventions.
• The prime minister also approved to restructure the existing regional tax offices, large taxpayers units, customs collectorates and district tax facilitation centres on fast track basis.

It is strange that in the three-year plan nothing is available about simplification of taxes. Whenever there is a demand or debate about simplification of tax codes, ease of compliance, facilitation of taxpayers and improvement in tax administration, the worst resistance comes from top notches of FBR, who think they are the ultimate masterminds and nobody else has a right to talk about tax reforms aimed at accelerating economic growth, promoting investment, boosting up savings and ensure fiscal consolidation.

Pakistan needs a paradigm shift in tax policy and revamping of entire tax administration—establishment of a single tax authority that is capable of generating sufficient resources for the federal and provincial governments. It should be done through democratic process and not the way Prime Minister and Chairman FBR want to do it.

FBR’s officials must also realise that taxpayers should be facilitated rather than forced to comply at multiple levels and that too at very heavy costs. The present three-year plan lacks proper perspective. We need low-rate taxes on the broadest possible tax base. It alone can bridge the monstrous tax gap of over 80%. This is not possible unless federal government, after consultation with provinces, introduces harmonised sales tax on goods and services and establishes a single agency to monitor all inflows and outflows and document all the transactions relating to acquiring of assets.

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The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)