The Central Board of Revenue has taken the bold initiative of reforming the Tax Administration, through introducing a multifaceted strategy approved by the President of Pakistan on 17th November, 2001.
Mr M. Abdullah Yusuf, Secretary General, Revenue Division / Chairman, Central Board of Revenue, has accepted the challenge to lead the institutional change of tax administration aiming at three major objectives, namely, voluntary tax compliance, taxpayers satisfaction and a motivated, efficient and reliable revenue service.
The road map for the achievement envisioned for a progressive CBR developed by the Reform Task Force and international consultants, is being pursued with zeal through change management of information technology, human resource management, process re-engineering, tax-payers education and facilitation, audit, impact evaluation and infrastructure development.
Today, the whole tax culture reflects a conscious change of the mind-set and behaviour of tax officials. CBR is committed to gain the confidence of the taxpayers by facilitating them with simplified tax laws and effective dispute resolution mechanism, thereby develop a tax-payers friendly environment.
2. The tax Administration Reforms is considered a cornerstone of the macro economic reform agenda, as it aims at increasing the CBR's effectiveness and taxpayers confidence through organisational restructuring, self assessment, elimination of personal contacts between taxpayers and the tax collectors, simplified processes, taxpayer's facilitation and improved terms and conditions of employment for the CBR officials.
An improved IT management through creation of data base for management reporting, statistical analysis and automation in CBR and its field formations is progressing at a dynamic speed.
3. A five years Pakistan Tax Administration Reform Project of $149 million jointly funded by Government of Pakistan, World Bank and DFID was launched in April 2005. The Project is designed around a comprehensive reform strategy and includes the following seven components: (i) Institutional change in tax / revenue administration (ii) Improving Revenue Operations; (iii) Strengthening Revenue Services; (iv) Creating a Voluntary Tax Compliance Culture; (v) Adopting Responsive IT Systems; (vi) Infrastructure Up-gradation and Development; and (vii) Project Management and Implementation.
4. The CBR, in line with its reform agenda of providing an efficient, convenient and facilitative environment has already established Large Taxpayers Units (LTUs) at Karachi and Lahore, where the collection of three domestic taxes, Sales tax, Federal Excise and Income Tax has been co-located. Another LTU at Islamabad will be established by June 2007. The co-location of three domestic taxes alone has led to remarkable progress in the field of automation, operational efficiency and increase in revenue collections.
5. Three RTOs at Rawalpindi, Peshawar and Abbottabad, Faisalabad have become functional. Further RTOs at Hyderabad, Sukkur, Multan, Lahore, Gujranwala, Sialkot, Karachi and Quetta will be functional during 2007.
As a first step towards electronic compliance mechanism, the filing of the statements of withholding taxes has been routed through electronic media at LTU Karachi. Similarly, electronic filing of import and export goods declaration is successfully in practice. The CBR is now well poised for paperless environment both in domestic and external tax revenue streams.
6. To modernise the system of customs clearance and to reduce the cost of doing business, a pilot project (CARE) was launched in April 2005 by the Honourable Prime Minister of Pakistan at Customs House Karachi. With a view to further facilitate international trade Pakistan Automated Customs Clearance System (PACCS) has been developed. The system is successfully running at the Model Customs Collectorate, KICT Terminal Karachi.
Two more similar projects QICT and KICT is under progress. The average customs clearance time of 41/2 - five days has been brought down to four hours without compromising the risk management. In view of the success of the pilot project, the PACCS will be rolled out to ten Model Customs Collectorates throughout the country under the Project. Similarly, Sales Tax Automated Refund Repository (STARR) software has been developed which has streamlined the process of issuance of sales tax refunds within a timeframe of one week. The adjudication of Customs, Federal Excise, Sales Tax and Income Tax is now taking less than 90 days as compared to several years in the past.
The Legal Wing of CBR has developed a software AMAPS with the help of PRAL, that has increased the efficiency of income tax appellate system and ensures an efficient and expedient adjudication process. This computerised system is already effective since 1st July 2006 at the office of CIT (Appeals), Rawalpindi, which was the pilot project and is being rolled out to all the Commissionerates of Appeals in Pakistan.
7. The government efforts to bring about change in the tax system, through its reform process has started showing positive results, the effects can be simply judged from the tremendous increase in its revenue collection, reduction of corruption and taxpayers satisfaction. The history of tax collection shows that the budget estimate prior to reforms in 1990-91 was Rs 123.3 billion and even after downward revision the percentage achieved of the revised budget was only 91.6% the tax to GDP ratio was very low.
Protectionism through tariffs and wide ranging exemptions and cylindrical instead of functional tax administrative structure as well as heavy reliance on indirect taxes led to regressive tax system. The situation was alarming for a developing economy and thus reforms were need of the hour. With the introduction of the reform process, a marked difference in the trend of collection has been witnessed the tax revenue target for 2002-03 was Rs 458.9 billion and collection was 100.3% of the target.
This trend set for the first time in 2003 has continued through 2004-05 and 2005-06 when collection was Rs 712 billion against the target of Rs 690 which exceeded the target by 103%. The outcome of reform in terms of change in tax-mix also reflects a positive change. In 1990-91 the percentage of direct tax was 18% and indirect tax was 82%, but after the introduction of the reforms measures in 2005-06 the percentage of direct taxes is 31% and of indirect taxes is 69%. This trend will continue for the better in the years to come.
THE GROWING TREND OF TAX REFORMS AND RATIONALIZATION OF TAX MIX IS ILLUSTRATED BY THE FOLLOWING TABLES:
TAX - GDP RATIOS: CBR REVENUE
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Year CBR Direct Federal
Revenue Taxes Sales Tax Customs Excise
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1999-00 9.2 3.0 3.1 1.6 1.5
2000-01 9.4 3.0 3.7 1.6 1.2
2001-02 9.2 3.2 3.8 1.1 1.1
2002-03 9.6 3.1 4.1 1.4 0.9
2003-04 9.4 3.0 4.0 1.6 0.8
2004-05 9.0 2.8 3.6 1.8 0.8
2005-06 9.2 2.9 3.8 1.8 0.7
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OUTCOME OF REFORM MEASURES IN TERMS OF CHANGE IN TAX MIX:
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Years Direct Taxes Indirect Taxes
(Percent) Sales Tax Customs Excise (Percent)
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1990-91 18.0 15.4 45.7 20.9 82.0
1995-96 29.2 18.6 33.2 19.1 70.8
1997-98 35.1 18.4 25.4 21.1 64.9
99-2000 2.5 33.6 27.8 16.1 67.5
2000-01 31.8 39.1 16.6 12.5 68.2
2001-02 35.3 41.2 11.8 11.7 64.7
2002-03 32.9 42.3 15.0 9.8 67.1
2003-04 31.7 42.1 17.5 8.7 68.3
2004-05 30.9 40.6 19.5 8.9 69.0
2005-06 31.0 41.0 19.5 8.5 69.0
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8.The reform process can also be viewed from the historical data reflected below and its subsequent graphic presentation. The outcome of the reforms is showing is results and this is just the beginning as the process is continuing till optimum desired results are achieved.
OUTCOME OF REFORMS IN REVENUE COLLECTION:
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Rs in Billion
Years Budget Revised Downward Achievement
Estimates Estimates Collection Revision (%)
B.E. R.E
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1990-91 123.3 120.6 110.5 -2.19 89.6 91.6
1991-92 149.5 145.0 139.8 -4.35 93.5 97.8
1992-93 174.8 160.0 153.2 -8.47 87.6 95.8
1993-94 190.7 180.3 172.6 -5.45 90.5 95.7
1994-95 259.9 225.0 226.6 -13.43 87.2 100.7
1995-96 270.5 264.8 268.0 -2.11 99.1 101.2
1996-97 328.0 286.0 282.1 -12.8 86.0 98.6
1997-98 324.0 297.6 293.6 -8.15 90.6 98.7
1998-99 354.0 308.0 308.5 -12.99 87.1 100.2
1999-00 362.5 351.7 347.1 -2.98 95.8 98.7
2000-01 430.0 406.5 392.3 -5.47 91.2 96.5
2001-02 457.7 414.2 404.1 -9.5 88.3 97.6
2002-03 458.9 No Revision 460.2 NA 100.3 NA
2003-04 510.0 No Revision 518.00 NA 101.7 NA
2004-05 580.0 590.0 591.085 NA 100.2 NA
2005-06 690.0 690.0 713.4 NA 103.4 NA
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NA MEANS NOT APPLICABLE:
9. The whole idea behind the Reforms is to institutionalise an enabling environment for economic development, sustained growth in domestic and foreign investment, competitive market and an incentive driven simplified and credible taxation structure. The CBR is making an all out effort to promote efficiency, equity and transparency through its reforms process and within a very short period of time, the image of the Tax Department has shown tremendous improvement and the revenue collection has exceeded the budgetary targets as is evident from the data given above.
The tax base has been widened from 1.52 (m) to 2.10 (m), the laws, rules and forms have been simplified, similarly, the share of total revenue collection has increased from 31.85 in 2001 to 42% in 2006. A major project of computerisation and capturing the data of the taxpayers and integrating the tax management system of the Central Board of Revenue is in process, which will be completed by 2009.
The tax reforms process has a long way to go and the impact of tax reforms will be more visible in the years to come as the CBR is determined to ensure that success of tax reforms is in the interest of the country. The CBR is for the first time analysing its revenue performance and making projections in an informed and professional manner through quarterly reports by its fiscal research wing to keep the policy makers, researchers and economists well informed and thereby assisting in policy formulations.
A national audit plan is being made for selectivity and risk management with focus on documentation of the economy using modern audit techniques. Tax/trade facilitation centers are being established for tax payers. Central help lines, call centers, web sites, user friendly tax declaration forms with toll free numbers are available for assistance of the taxpayers.
THE REFORMS PROCESS IS UNDER PROGRESS, AND CBR INTENDS TO CARRY FORWARD ITS VISION OF:
-- Continuing to be a critical institution of the State for smooth economic management and promoting economic growth;
-- To generate sufficient resources to fund the operational and development expenditures of the country plan to raise CBR tax/GDP ratio by 4.3 percentage points by 2016-17 and be among competitive countries; and
-- Contribute towards improved economic well being and prosperity of population, and sovereignty of the nation
10. THIS WILL BE ACHIEVED BY OUR STRATEGY OF 4 CS:
-- Convenience for the Taxations;
-- Simplified laws and procedures; An Array of Automation; Modern, well equipped offices, and Taxpayers' education
-- Capability of the Tax Administration;
-- Professionally qualified staff; Better motivated workforce, and More transparent and efficient operations;
-- Coverage of Sectors;
-- Broadening of tax base; Reduction in the scope of exemptions; and Bringing services into tax net
-- Compliance of Laws by All;
-- Double entry accounting; Matching inter-tax information; Utilising third party information, and Creating deterrence through audit.
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