The World Bank has squarely laid the blame on 'lack of political will' for non-implementation of Reformed General Sales Tax (RGST) in the Value-Added Tax (VAT) mode. But it can be better explained in words that it was actually an agonising lack of consensus across all political parties which led to postponement of a vote on the bill placed before the Parliament. Imposition of RGST in VAT mode requires an amendment in the constitution since collection of this tax on services falls under the provincial domain while sales tax on goods happens to be a federal subject. The federal government's efforts towards persuading provinces to collect this important tax on behalf of provinces at a single point would at best be temporary and only if the governments at the centre and provinces reach an agreement in the Council of Common Interest (CCI). This at best will be a temporary or ad hoc solution. The constitutional bar should have been addressed in the 18th Amendment in light of the commitment provided to obtain balance of payment (BoP) support from the International Monetary Fund. While one may concede that RGST did lie at the heart of the tax mobilisation effort under the Tax Administration Reform Project which came to an end on December 31, 2011, it does not mean that the country should not endeavour to improve the tax-to-GDP ratio within the existing law. It increasingly appears that the FBR is only pushing forward the recommendations of the TARP programme without properly appreciating the spirit of the reform needed and tailoring it to ground-realities. Creating an autonomous revenue division and separating policy and operations with creation of posts of additional secretaries in policy and members in the operations wing would amount to rearranging the deck-chairs. The envisaged Revenue Division with human resources governed by the Civil Service of Pakistan rules does not provide administrative autonomy. So long as the Establishment Division and Federal Public Service Commission remain responsible for promotion/postings and induction, respectively, the whole concept of autonomy will only remain a concept on paper. In the past, the FBR did create a policy wing under TARP alongwith the Inland Revenue Service. Additional Secretary/Member (Policy) and Member IR were posted from within the FBR. In reality, Additional Secretary (Policy) was completely dependent on the field force devoid of any expertise on research of key issues, ie, impact of tax policy on growth; impact and analysis of the presumptive tax regime on revenues, documentation and investment; correlation between rates on revenue and taxpayer behaviour, etc. Policy formulation requires in-depth research and creative ideas which can only emanate from specialists trained in the requisite disciplines who regularly interact with think tanks and academia and not just with field force. The reform process entails clear-cut goals with timelines in terms of human capital requirement; technology and its use and creating capability for independent analyses of filing, reporting, auditing and legal processes etc. Trained personnel having research and analytical capabilities need to be inducted in the FBR at market rates. As things stand, policy formulation will continue to remain with Finance Division while its implementation with Revenue Division. The FBR has the funding to pay market rate salaries; it can also outsource research and training. However, the country's revenue generation arm needs to create a credible in-house capability for staff training and evolve a system of promotional exams not at administrative staff college but at its own academy. But above all, pay structure and promotion system have to be completely delinked from the federal government. The battle to overcome the tax gap, estimated at Rs 750 billion, based on existing tax rates and laws, needs to be won first. Tackling legal and constitutional hurdles to improve the tax-to-GDP ratio is a long haul that requires political consensus among the federating units. Copyright Business Recorder, 2012
Comments
Comments are closed.