Ministry of Finance has directed the Federal Board of Revenue (FBR) to establish a national Data Warehouse, containing external data of sources of income/earnings, for cross verification of third party information to bring rich classes into the tax net under the exercise to broaden the tax-base.
It is learnt that the proposal to establish Data Warehouse was discussed during a day-long meeting of the Tax Reform Co-ordination Group (RCG) chaired by Dr Abdul Hafeez Shaikh, Minister for Finance, Revenue and Economic Affairs here on Sunday. Finance Minister agreed with the proposal of the RCG to establish a Data Warehouse to expand the tax net. The meeting was attended by the Members of RCG, Deputy Chairman Planning Commission, Governor State Bank of Pakistan and Secretary Finance.
Besides Chairman FBR Sohail Ahmad, the meeting was also attended by top FBR officials including FBR Member Direct Tax Policy and official spokesman of the FBR Israr Rauf.
Finance Minister appreciated the efforts of the three Sub-groups of the RCG and assured them of giving their recommendations highest consideration. He further stated that a fair, equitable and corruption-free tax system was a primary objective of the government. He instructed FBR to formalise the recommendations for their early approval by the government.
During presentation of the RCG on Income Tax, it was informed that prime recommendation of the Shahid Hussain Committee regarding separation of policy formulation and execution of the policy had not been implemented. The Committee had recommended formation of Fiscal Policy Board, to be established outside FBR. The said Board was to act as a body entrusted with the job of formulating fiscal tax policy with long-term perspective and vision.
The RCG said that the recommendation of Reform Committee be implemented forthwith. The formation of the Fiscal Policy Board may be in the following manner: The Federal Finance Minister may make it convenient to head the said Policy Board. The Chairman of FBR to be ex-officio member for creating a linkage between Policy Board and the FBR. The Board should comprise members who should be drawn from renowned economists, with crucial stakeholders like FPCCI, APTAMA, ICAP etc to be included as its members. The Board may consist of seven members excluding the Federal Finance Minister. The Group said that the proposed tax reform was aimed to have two pronged implementation strategy, namely improving the business atmosphere, and enhancing the capacity in FBR for fax collection. Industrial growth was always considered as the foremost objective as its growth was essential for enhancing tax collection. However, it was observed that since 2002 Fiscal Policies were leaning towards promoting the trading business in the country, directly or indirectly adversely affecting the promotion and growth of industrial sector, which is essential for a country like Pakistan.
The Sub-Group considered that time has come for redesigning the Fiscal Policy and diverting the same towards industrial growth, enhancement in foreign exchange earning and export. In order to achieve these objectives, the following measures have been recommended to be adopted: Firstly, all industrial investments should be declared to be immune from probe about source of investment. Secondly, the investment allowances should be rationalised and allowed for all engaged in industrial activities.
For broadening of the tax base, the RCG recommended that there should be a dedicated wing in the FBR which should concentrate on collection of information from various sources like Wapda, Nadra, gas companies, PTCL, expensive educational institutions, motor registration authorities, local car manufacturers, etc. For collection of such information, the FBR should place some of its officers in the field who should only be involved in collecting information and forwarding the same to the dedicated wing in the FBR. That Wing should disseminate information to the Chief Commissioners and also monitor the utilisation of the said information for broadening of the tax base.
The Sales Tax and Federal Excise Sub-group (Abdullah Yusuf, Ali Jameel and Arshad Zubari) presented their recommendations on the Reformed GST (RGST). The Subgroup also questioned FBR''s preparedness in implementing RGST. During the meeting, emphasis was placed on reducing the pendency of refund claims, creating a data warehouse of third party data to broaden tax base, reducing the tax gap as well as implementing a seamless cycle of the entire transaction from the time of submission of returns to the automatic transfer of refund to the tax payers in their bank account.
The Customs Sub-group (Ahmed Waqar, Muhammad Sulaiman, Abid Hassan and Shahid Abdullah) highlighted that Pakistan Customs needs a multi-faceted approach for its reforms programme. It requires skilled manpower, robust automation system and sustained commitment from political leadership and senior management. The report stressed upon administrative issues of the Post Clearance Audit, internal audit and certain infrastructure measures. The Sub-group also presented recommendations on improving unauthorised trade, countering smuggling, Customs integrity and human capacity.
The recommendations of the Income Tax Sub-group (Vakil Ahmad Khan, Chaudhry Muhammad Arshad and Syed Mohammad Shabbar Zaidi) included establishment of a Fiscal Policy Board to be headed by the Finance Minister. The Board may consist of Chairman FBR, renowned economists, and stakeholders like FPCCI, APTAMA, ICAP. The focus of this Fiscal Policy Board will be on industrial growth, enhancement in foreign exchange earning and export. The formation of this Board will help in separating the issues of policy formation and execution of the policy. The report recommended a review of the functional organisational set up of FBR.
The RCG was formed by the Finance Minister in July 2010 to assist on matters related to adoption of modern tax administration, formulation of tax policies and facilitation of taxpayers. The RCG includes former FBR chairmen and members as well as representatives of the trade and industry.
The RCG was divided into three sub-groups namely Sales Tax and Federal Excise, Income tax and Customs. The three Sub-groups presented their reports on proposed reforms in their respective areas.
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