FBR launches 'Electronic Monitoring of Production Volume' tracking system

The Federal Board of Revenue (FBR) has launched 'Electronic Monitoring of Production Volume' tracking system and a pilot project volunteered by Lucky Cement has already been initiated to monitor production and sales. This was stated by FBR in a recent presentation on tax reforms to the Senate Standing Committee on Finance.
According to the FBR, at manufacturing stage, under-reporting of production and suppression of sales constitutes a major threat to sales tax revenue. As the system works on self-assessment basis, production processes cannot be supervised manually. Even otherwise, manual supervision is not an effective tool of ensuring accurate production figures. In this regard, system of electronic monitoring of production and supplies is being introduced. This has the potential of quantum leap in sales tax collection by reducing the tax gap. FBR's approved equipment has been installed at manufacturing places. FBR will issue license to companies for installation operation of the equipment. A pilot project volunteered by Lucky Cement has already been launched. Pakistan revenue Automation Limited (PRAL) will assist in this regard.
The FBR said Pakistan's taxation system suffers from serious structural problems manifested in a Tax to GDP ratio that is amongst the lowest in the region. The poor revenue generation effort is due to multifarious ailments in the economy and systemic weaknesses of the system. The economy is largely non-documented where most economic transactions disappear without leaving a trace. Tax culture is non-existent and tax evasion and tax avoidance are not considered to be a stigma but is a societal norm. The tax laws are riddled with exemptions and aberrations in the form of special procedures and presumptive modes of taxation that distort the system, make it inequitable and difficult to administer. The following reforms have been undertaken in FBR.
FBR has devised a comprehensive reforms programme and strategy to enhance resource mobilization efforts in the country and increase tax - GDP ratio to 10-15 percent in the next few years. FBR has taken the following initiatives for overall improvement in the tax system:
1. Broadening of Tax Base: The tax base in Pakistan is quite narrow. The government for broadening of tax base has taken several initiatives including use of third party data. Initially, the objective is to incorporate 300,000 new taxpayers. In this regard more than 200,000 notices have been issued by June, 2015 and more notices will be issued in FY 2015-16.
2. Rationalization of SROs and tariff rationalization: In order to remove distortions and discrimination in tax structure and to abolish unnecessary concessions, FBR has devised a plan for rationalization of concessionary regime and withdrawal of exemptions. Majority exemptions/concessions have already been withdrawn in the Budget 2014-15 and 2015-16, while remaining will be withdrawn next year. There were seven tariff slabs during 2013-14 which were reduced to six in 2014-15 and further reduced to five in 2015-16. Tariff peaks have also been reduced to 20 percent.
3. Withdrawal of Power of Issuing SROs: The power to issue concessionary SROs by FBR has been withdrawn by the Act of Parliament. Economic Coordination Committee (ECC) has the power to issue the SROs but only under limited circumstances.
4. Increasing Cost of Business for Non-Filers: In order to increase compliance and enhance revenues, the concept of filers and non-filers has been introduced. The cost of business for non-filers has been significantly increased in the recent years.
5. Addressing inadmissible input adjustment and illegal refunds in sales tax: Since VAT is primarily a tax based on value addition at source and exports are zero-rated, there is an inbuilt need for the documentation of transactions involved in entire supply chain. While textiles cater for major exports of Pakistan, various intermediary manufacturing and processing activities are largely carried out in the unorganized and undocumented sector. This gap is filled by fake invoicing to inflate refunds and suppress local supplies, the refund issue consequently assumed staggering dimensions posing challenges for the VAT administration in Pakistan. In order to resolve these issues FBR has successfully prepared and implemented Computerized Risk Based Evaluation of Sales Tax (CREST).
6. Taxpayers Facilitation: Introduction of an e-filing process accessible to taxpayers for income tax, sales tax and excise at e-FBR portal has been ensured. Automation of systems has helped in minimizing the contact between taxpayer and tax officers and, as a consequence, the complaints of harassment have been reduced accordingly.
7. Strengthening Tax Audit: An audit plan has been reintroduced to accompany the self-assessment scheme and to overcome weak tax compliance. Substantial progress has been made in infrastructure up-gradation and development with the introduction of the integrated tax management system (ITMS), which is available to all the field formations.
8. Customs Modernization and control: Customs modernization reforms are being introduced, aiming at simplifying, standardizing and automating customs clearance procedures supported with strong post-clearance audit controls. Online connectivity of Customs posts has been developed. Risk management principles have been adopted and a Vehicle and Container Tracking System for monitoring transit trade is now in place. The Afghan Pakistan Transit Trade Agreement (APTTA) 2010 has replaced the 1965 agreement, with better controls and enhanced facilitation.
An integrated, risk-based automated customs clearance system (WEBOC) has been indigenously developed and launched which minimizes interaction between taxpayers and tax collectors, thereby minimizing malpractices.
9. Queue Management System in Refunds: Abusive system of processing and payment of refunds has been improved with the following features: Firstly, queue management for refund claims (first in first out) both at field formation and FBR headquarters, secondly, transmission of refund cheques into claimant's bank account (Work in progress).
10. Risk Based Registration System: In order to tackle wrongful adjustment of input tax and inadmissible refunds, risk based registration system has been introduced which perform the following: Physical verification through GPS in case of manufacturers; system asks applicants to declare HS Codes of the commodity; accurate forecasting for revenue and budget analysis and elimination of invoice misuse.