The Auditor General of Pakistan (AGP) has observed that the Tax Administration Reform Project (TARP) of the Federal Board of Revenue (FBR) could not achieve the laid down objectives such as improving effectiveness, integrity and fairness of tax administration; promoting compliance of tax laws, broadening the tax base and promoting trade facilitation.
It is learnt on Tuesday that the AGP has issued performance audit report of the FBR's TARP. The AGP has strongly recommended that the declining trend of the tax-to-GDP ratio be justified by the FBR. Similarly, the non-improvement in voluntary compliance despite huge expenditure needs justification. Referring to unfruitful expenditure on foreign training, the AGP said that the violation of guidelines given in the HRM policy and expenditure incurred on training be justified besides, taking remedial measures in future.
One of the objectives of TARP was to bring more taxpayers in the tax net by introducing effective self-assessment. The audit desire that suspension of audit activities and expenditure incurred on audit function from TARP funds be justified. The expeditious recovery system of government dues, detected by audit domain may be introduced in line with expeditious refund system.
According to the report, TARP remained unable to achieve the development objectives as agreed in 2005 in the Project's Development Credit Agreement. Awareness level of TARP initiatives remained very low among various stakeholders. Real potential of taxes in Pakistan especially in the area of direct taxes was not realised. Most of the project's funds were used in civil works, refurbishment of offices, purchase of vehicles and computer hardware. TARP management remained excessively engaged in the progress of the project only in physical terms. Funds remained under-utilised in the components like technical assistance, software customisation, training etc whereas these components were directly or indirectly linked with the development objectives of TARP. Lack of conviction and ownership was observed among FBR's decision making authorities. Non-existence of monitoring and evaluation mechanism in most of TARP activities was observed. Full spectrum of tax management system for direct & indirect taxes and customs activities is not covered by the IT systems developed so far under TARP such as legal (adjudication, appeals, court cases in apex courts), recovery of arrears, tax accounting and reporting, auction of detained & confiscated goods etc. Change management was not properly addressed in terms of Key Performance Indicators to assess the impact of TARP on revenue administration of FBR. In view of above, it is stated that the objectives of TARP like improving effectiveness, responsiveness, integrity and fairness of tax administration; promoting compliance with tax laws and broadening the tax base; and promoting trade facilitation, have not been achieved in true spirit.
According to concept paper, the establishment of an effective collection and enforcement function is a critical element of any tax administration reform. Accordingly, FBR was to establish a Collections and Enforcement Function at the head office which would be responsible for providing direction, developing policies and procedures and providing support to regional operations. The Function would be responsible for identifying non-filers and taking appropriate action. It would also assist in updating registration records. As an integral part of the function, there was need to develop a computer system and tax database that would facilitate the collection of taxes. This would issue notices, calculate interest and penalties, and identify non-filers.
Scrutiny of record available with field formations and on-spot visits of some RTOs/LTUs revealed that the enforcement Function was not thoroughly reviewed for making improvement and bringing automation.
Secondly, exemption and zero rate schemes were still going on which might have adverse impact as regards enhancing of tax base and increasing the revenues. Thirdly, taxpayer ledger is the heart of revenue administration without which the enforcement mechanism can not work effectively, but it was still pending with FBR's management.
Fourthly, function of appeals/dispute process had much reliance upon paper based system which might create hindrance in the way of its integration with enforcement function. Fifthly, rules for sending e-notifications to non-filers had still not been included in IT systems. Sixthly, rules for application of fines/penalties for non-compliance had still not been incorporated in IT systems.
Seventh, determining the taxpayer gap stands critical for measuring the effectiveness of FBR. A study in this regard only for sales tax was earlier conducted in 2006-07 but in the following years the subject was dropped. World Bank in its various quarterly review reports also highlighted the weak enforcement function; some instances are enumerated below:
Instead of reduction, stock of arrears from taxpayers increased by 15.6 percent during the year 2011. The percentage increase in registered active taxpayers during 2010 was 7.4 percent; and during 2011 it remained at 5.1 percent against annual target of 10 percent. Against monthly growth target of ATL of 0.5 percent, actual achievement remained below 0.3 percent during financial year 2010-11.
Non-compliance with advance payment in respect of companies was very high. The AGP requires that all the pending tasks in the area of enforcement may be completed immediately in the light of initial commitments and pledges with the donor agency. The report said that as provided in PC-I, under the component of vehicles, 194 vehicles were procured at a cost of Rs 175.90 million. These were declared operational by TARP management and accordingly SOPs for use of these vehicles were also devised. The objective was to smoothly run the project activities and also to improve the day to day efficiency of revenue administration in FBR and its field formations.
After enforcement of Transport Monetization Policy effective from 1st January 2012, it is the responsibility of Principal Accounting Officer (PAO) of each department to furnish a certificate to Cabinet Division to the effect that neither any project vehicle has been allotted to any entitled officer nor is being used by him in official capacity. It has also been made mandatory that the departments needing operational/general duty vehicles shall also get their authorised strength re-fixed/revised from the Cabinet Division and the vehicles becoming surplus shall be surrendered to Cabinet Division.
Information relating to vehicles of TARP disclosed that 169 vehicles were distributed to RTOs/LTUs etc retaining 25 vehicles at FBR (HQ), Islamabad for use in PMU unit of the project. After closure of project on December 31, 2011, all these vehicles were found still under personal use of various officers either in FBR (HQ) or in RTOs/LTUs. Audit is of the view that after completion of project and especially after enforcement of transport Monetization policy from January, 2012, retention of these vehicles by FBR and its held formations stands illegal in the light of provisions of said policy. As regards the use of TARP vehicles for operational duty, it was clearly provided in the above policy that the needs/requirements were to be re-determined obtaining its authorisation from Cabinet Division. Hence, FBR had once to surrender these vehicles to Cabinet Division which is the ultimate authority to assess the revised authorised strength of operational/general duty vehicles for FBR and its field formations.
The department replied these vehicles were approved in the TARP, PC1 for operational duties in the FBR (HQ) and field offices and these vehicles were procured and distributed accordingly. Audit is of the view that Cabinet Division is the ultimate authority to assess the revised authorised strength of operational/general duty vehicles for FBR and its field formations, hence, the reply to said letter from the Cabinet Division may be obtained and produced to Audit.
The AGP recommended implementation of transport Monetization policy of 2012, in its true spirit by the surrendering of TARP vehicles to Cabinet Division which will eventually decide about the authorised strength for general or operational duty vehicles in FBR and its other field formations.
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