FBR restructuring: a recipe for disaster–I

While briefing the Senate Committee on Finance, Chairman FBR confirmed that the proposed restructuring of FBR involved parcelling it out into four boards, two separate ones for Customs and Inland Revenue and their two oversight boards. Further, the tax policy function to be withdrawn and given to the Revenue Division, separate from FBR, with a tax policy office therein.

In response to questions in the committee meeting as to the rationale for such massive surgery, the only all-inclusive answer by the Chairman was that Madam Finance Minister wanted it. In other words, the chairman, in a very terse remark indicated that he did not see any rationale or justification for the proposed changes but was constrained to go along as these were relentlessly pursued by the caretaker Minister. In her address at Karachi, a few days ago, the minister had stated that the prime objectives of reforms were to increase tax receipts, raise the number of taxpayers and document the informal economy.

The proposed restructuring reminds one of the Sykes-Picot agreement of 1916 for the dismemberment of the Ottoman Empire. The FBR reforms and restructuring are touted as the much-needed reforms in the tax machinery to improve tax collection. However, concrete evidence in support of stated objectives is missing. Rather, the proposed plan is a vivid recipe for disaster and sure to undo all the achievements that have been affected in the FBR. A humble effort is needed to show how the proposed restructuring will result in debilitating and weakening of the tax collection machinery, instead of improving it.

FBR, over the past few years, has emerged as a prime national institution, responsible for the collection of national revenue. Slowly but surely, it has been given the much-needed strength it had been seeking for decades, and which was persistently denied at the altar of political expediency. Systems like The POS, track and trace, Iris and various other software/applications such as: Strive, WeBOC, National database integration, Digital Invoicing, Digital tax payments etc., to name but a few, have become regular features in the FBR functioning. All this effort has yielded handsome dividends over the past few years, as indicated in the table below:

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                                                      (Rs billion)
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Taxes            2023    2022    2021    2020    2019         2018
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Direct Taxes     3271    2285    1726    1523    1445         1536
Sales Tax        2591    2532    1981    1597    1459         1491
FED               370     321     280     250     238          206
Customs Duties    932    1011     747     626     685          608
Total            7164    6148    4734    3997    3828         3842
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Source: Revenue Division Year Books
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Looking cursorily at the above table, one can see that for the tax years 2018 to 2020 the revenue collection remained static around Rs 3900 billion. However, from 2021 to 2023, it almost doubled with yearly increase of around 1000 to 1200 billion. For this year (2024) the target is Rs 9200 billion, an increase of about Rs 2200 billion year on, which the FBR is on track to achieve. With this level of achievement, this constant mantra for FBR reforms, devoid of empirical evidence to support attainment of stated objective, would only result in fragmentation of the Board that would weaken its effectiveness. Should not the tax machinery have been handled more carefully as per, if nothing else, the importance bestowed on it by the Article 7 of the Constitution of Pakistan, which gives prestige to tax authorities by including them in the definition of the state. Article 7 goes as follows:

“In this Part, unless the context otherwise requires, “the State” means the Federal Government, 1 [Majlis-e-Shoora (Parliament)], a Provincial Government, a Provincial Assembly, and such local or other authorities in Pakistan as are by law empowered to impose any tax or cess.”

The FBR is trying its best to live up to the confidence reposed in it by the Constitution. To honour it, it is engaged day and night in diverse, and multilateral operations. Apart from routine functions under the tax laws, the Board has recently taken up modern initiatives, IT-based solutions, and procedures. A few are indicated below:

•Predictive Analytics, Data Science initiatives

•Customer Relationship Management (CRM)

•Simplified Income Tax Return for Salaried individuals

•Sales Tax Return in Off-Line Mode through Iris-IDX

•Income Tax Return in Off-Line Mode as well as bulk filing Iris-ADX

•Online Active Taxpayers List Income Tax and Sales Tax

•Sales Tax Real time Invoice Verification System (STRIVe)

•Online Registration of Taxpayers

•Provision of ATL Facility to AJK Government

•RIMS – Restaurant Invoice Management System

•Publishing of Tax Directories 1- Tax Payers’ 2- Parliamentarians’

•WebOC (Online Automated Customs Processes)

•Automation of Income Tax Business Processes - Iris Module

•Online Sales Tax Refund Payments

•Online Modification of Registration

•Online Return Filing System

•Online Filing of Exem-ption Certificates

•Online Application for Refunds

•Online Receipt of Noti-ces/Correspondence

•Online Applications for Adjournment etc.

•Online Verification System for Notices/Orders Exemption Certificates

•Online List of Blacklisted Taxpayers (Sales Tax)

•Online Verification of Tax Payments

•Online Verification of Rebate Status (Customs)

•Online Reporting for Import/ Export by Commodity

•Online Verification of Import General Manifest

•Online System for Export General Manifest

All the above activities, initiatives and operations are being performed with the help of about 18-19 different software/IT systems, namely: Iris, e FBR, PaySys, RegSys, ITMS, RCAPS, MPR, STARR, SMART, VOSS, Edox, HRIS, BTB, WeBOC, TAMPS, SAP Modules, CSTRO etc. Many resolute teams and officers are constantly engaged on these systems along with teams of PRAL to keep the massive revenue collection operation going.

However, FBR is cognizant of the need for further improvement in its administrative functions like increasing the tax base, dealing with under-reporting, improvement in tax administration, building capacity of officers and officials for effective audit and enforcement and other improvements in those specialized areas such as the area of judicial representation, internal audit etc. All this is easier said than done and requires dedicated actions and policies. Most of all it needs a unified, powerful Board at the helm of affairs, which at the same time is rigorously accountable for in-build procedures and to the parliament through its committees. However, one fails to make out how the proposed parcelling out of the Board in pieces will be more helpful in broadening the tax base, reducing under-declaration, and documenting the economy. All these objectives are much more complicated and require long term policies and actions by a well-equipped and powerful, unified Board.

Rai Irshad Hussain (FCMA)

Copyright Business Recorder, 2024