Talking taxes

The talks of forming new tax authority are resurfacing. The idea is in deliberation phase. The options are either to form a new tax authority or to have an independent wing within the FBR to grow organically. The aim is to bring sectors and areas which are not paying their due share of taxes into the tax ambit, and to have an integrated system of GST on goods and services at front end to facilitate the taxpayer as currently multiple filing has increased the cost of compliance for businesses, especially SMEs.

Whatever form the entity may appear, it will have digitally driven focus to capture all the transactions. The process to integrate with or replace FBR will take 2-3 years. The human resource gathering and technology acquisition and implementation will take time. Slowly and gradually, the ambit of new authority will enhance with a clear objective to replace the physical interaction of FBR human resource by automation.

Some of the FBR staff may end up in the new organization as within 20k plus FBR staff only around 20 percent is officers while the rest is support staff. The FBR has large number of employees but the modern skill set is missing. The aim is to fill in the gap by having people from the private sector. Plus, the role of FBR is too broad and conflicting – being the prosecutor, judge, enforcer and policymaker at the same time. The need is to have separation of roles and having requisite skill sets.

The issue of forming a new tax authority is in discussion ever since the PTI government came in power. The buzz is that PM is extremely dissatisfied with the FBR performance and perhaps the stance of his star Chairman is no different. The FBR senior members have apparently shown resentment against the idea of forming new tax authority.

Experts opine that FBR in its current structure is irreparable. However, replacing it at once could be an even worse idea. According to sources close to MoF, the idea is to form a separate entity which may operate in parallel to FBR, with the main objective, in early days is to work on those areas where FBR over the years, has failed to collect its due share of taxes.

The low hanging fruit is taxing retailers and traders. The new entity may initially try to bring traders and retailers in the tax net by using technology. It will have people from private sector, independent of FBR, and may work on the point of sales automation for retailers. The authority members will report directly to the Chairman FBR, bypassing the existing staff of FBR.

And it will slowly expand the ambit to other sectors. The talks are that real estate could be the next sector. Recently, visiting WB team from DC strongly urged on exploring the potential of collecting taxes on land. According to them, the potential is huge and the subject is not that complicated. In federal domain, the tax on real estate is mainly on income such as capital gain tax; but on capital value and other taxes are provincial subject.

A better mechanism could be to further decentralize the tax collection system on land (apart from income) to district and city level while the new authority can keep harmony by having one system of implementation – the rates could be different, but there should be central documentation. This may help explore the actual value of the real estate which would help in unlocking the sector potential.

Another news circulating is of integration of sales tax – on goods and services. The idea is to have a common portal for customer facilitation, by having single return form, on front end. At the back end processes, provinces to collect and make tax policy. That is a much needed step as from business point of view, after the formation of provincial tax authorities, multiple filing and overlapping taxes have increased the cost of compliance. But from the tax collection lens, both Punjab and Sindh services tax collection has increased manifolds after the onus of collection by FBR on behalf of provinces was shifted to provincial own tax authorities. This province should continue to expand their base on services tax collection. On the same token, as mentioned above, the property (or land) tax should be passed on to city and district levels.