Pakistan kicks off promised tax reforms
The federal cabinet of Pakistan has decided to separate revenue collection administration from tax policy formation to promote equity and transparency in the tax machinery.
The decision was taken at a special briefing meeting headed by Prime Minister Imran Khan, who directed all economic divisions to keep the executive body in the loop on the progress of ongoing reforms.
Following the decision to take way policy formation powers from the revenue body, the Federal Board of Revenue (FBR)’s role will be limited to tax administration and collection.
A separate committee will be constituted to formulate tax policy, and will include tax experts.
The reforms are in line with ruling Pakistan Tehreek-e-Insaf (PTI)’s manifesto, which promised to turn the FBR into an autonomous body independent of any government influence.
Prime Minister Khan in his first televised speech as prime minister, stressed upon the urgent need to reform the tax body.
“I will start with the FBR,” he promised in his address while sharing his plans to streamline the government machinery.
Many attempts have been made to reform the tax body during the last four decades, starting from the Qamarul Islam report in the 1980s to Shahid Husain Task Force in the 1990s, in addition to the decade-long Tax Administration Reform Project (TARP) and miscellaneous changes made as per the agreement with the International Monetary Fund.
The efforts, however, failed to bring about the desired change in the tax bureaucracy, which remains stubbornly wedded to its way of doing things.
FBR chairman Jehanzeb Khan, who was also present at the meeting, briefed the cabinet on initiatives taken in the last two months to strengthen revenue collection and make the tax system more transparent and just for everyone.
The official said that the immediate short-term priority in the introduced reforms is to identify tax evaders who remain absent from the tax rolls.
He told the committee that the FBR has sent notices to 3,100 individuals in the last two months to widen the tax base.
“As part of the drive, we have also identified thousands of potential taxpayers,” a source privy to cabinet meeting said.
The cabinet was informed that over 3,000 e-notices were
sent to individuals who did not pay taxes and who were not on the tax rolls.
“We are waiting for the response from these people,” the official said.
The FBR has also approached various public sector entities, especially from the provincial vehicles and land registration
authorities, to identify potential taxpayers who continue to evade the authorities.
Observers have high expectations of the government to bring about structural changes in the tax structure.
Despite multiple attempts in past, the results have been dismal so far, considering the extremely small tax base and present tax-to-GDP ratio of 9%.
The cabinet was informed that the FBR has taken several steps, including a currency declaration system at 24 major entry and exit points, to stop currency smuggling.
As per State Bank of Pakistan regulations, a passenger can carry a maximum of $10,000 in cash.
Earlier, the passenger used multiple exit points to bypass the limit.
However, all of these units have been connected electronically to detect such individuals evading the prescribing limit.
The cabinet was also taken into confidence on the memorandum of understanding (MoU) signed between Chinese authorities and Prime Minister Khan in China, which will help eliminate undervaluation leading to tax evasion of goods at Pakistani ports.
The FBR chairman also informed the cabinet that since September, a monthly system of performance management has been put in place.
Similarly, an integrity management unit for internal control has also been established.