Integrated Tax Management System

Procedural simplification and prompt access to integrated data on taxpayers of all categories is the hallmark of an efficient taxation system, though we in Pakistan still lag considerably behind in this sector.
The World Bank's advice to the Central Board of Revenue (CBR) to expedite development of an Integrated Tax Management System (ITMS) to ensure prompt availability of sales tax, income tax and Federal excise data of taxpayers is, therefore, a step in the right direction.
It will help the CBR in its current drive to restructure the taxation system along scientific lines. According to a Recorder Report, quoting official sources, the World Bank has set May 30 as the deadline for CBR to furnish the ITMS details.
The tax authorities are believed to be encountering problems in consolidating business requirements for income tax and sales tax, as the two departments, at present, lack the requisite level of co-ordination. If the two wings are merged in such a way as to facilitate integration of data, it will surely facilitate prompt access to the relevant information on taxpayers.
In its communication to CBR, the World Bank has also desired appointment of an international tax administration expert to assist it in developing a consumer-friendly ITMS. Meanwhile, a CBR team is scheduled to visit institutions where ITMS is already in operation, to gain knowledge of its operational intricacies.
The CBR also plans to purchase a software out of 100 million-dollar World Bank funding that will help it to integrate all taxes' data of taxpayers, to ensure its availability at one place.
All data on importers/exporters, National Tax Numbers (NTNs), sales tax and customs would be available to tax officials at one place for obtaining an updated status of the taxpayers, whenever so desired. The consolidation of data, proposed by the World Bank, can thus help ease out many of the loopholes that have stymied the system.
The present tax data collection and collating mechanism is not based on an integrated approach, as the World Bank's advice also implies. This has generated a host of problems. For instance, the pace of disposal of sales tax refund cases has been painfully slow, which in turn is threatening to generate an acute liquidity crunch in the market.
The CBR authorities apprehend that if the current outflow of funds in the shape of refunds/rebates continues, the final figure by the end of the current fiscal year would be much higher than what is currently projected. Further, delays in refund of genuine cases can block working capital, which in turn can result in irreparable damage to the exporters' business interests.
The build-up of the sales tax refund backlog had prompted the CBR recently to order an inquiry into its causes so that remedial measures could be initiated. The government had declared five export industries as zero-rated in the 2005-06 Budget, and abolished sales tax that was being collected at the rate of 15 percent, but was later refunded.
However, this facility tempted some unscrupulous exporters to resort to the filing of fake invoices to claim huge amounts in refund. Had the Integrated Tax Management System (ITMS) been in place, it would have forestalled the malpractice. Further, the tax-to-GDP ratio in Pakistan at present stands at only 9 percent, which is one of the lowest in the world.
The ratio had declined during the 2003-04 and 2004-05 financial years when the country had achieved higher growth after a re-basing exercise. According to one estimate, tax evasion and "under-filing" of tax returns is causing loss of about Rs 180 billion per annum while tax evasion amounting to Rs 100 billion is taking place with the help of tax machinery.
When installed, the ITMS will make it almost impossible for unscrupulous elements to resort to tax evasion, at least on the scale on which it is said to be going on. It will also help the government to broaden the tax base.
Despite numerous constraints, the government has achieved impressive results by removing flaws in the taxation system, through its drastic restructuring. A vibrant and foolproof tax system is the backbone of any economy. Let the tax reforms initiated by the present government be taken to their logical conclusion.