The Central Board of Revenue policymakers faced a serious challenge of broadening the tax net since all efforts made to lure the businessmen to pay tax have failed to bear fruits. The CBR tax reforms programme initiated in 2001-02 with the World Bank''s financial assistance was aimed at providing excellent service to the taxpayers through modernisation of tax offices and simplification of tax laws.
Under the reforms the focus of tax collections was also shifted from coercive methods to voluntary compliance to create confidence between the tax collectors and the tax community through introduction of Income Tax Ordinance.
The beginning for a modern and friendly tax paying system was made in 2000 when the Universal Self-Assessment Scheme (USAS) was launched. Under the USAS the draconian methods of assessment by income tax officers (ITOs) with unbridled powers was done away with and all tax returns filed by the taxpayers were accepted without any questioning about the extent of income and expenditures.
At the start of the USAS a provision was made for carrying out audit of 20 percent of the total tax returns selected through random balloting. The exercise was however, discarded later to give a free hand to the taxpayers to declare their income.
The second major step taken under the tax reforms agenda was setting up a modern Large Taxpayer Unit (LTU) in Karachi to deal with big taxpayers and provide them modern tax payment facility for income tax, sales tax and central excise under one cool and cozy roof. Spurred from the success of LTU which showed marked improvement in revenue collection, the Central Board of Revenue (CBR) decided to provide modern tax service to the vast majority of medium taxpayer units (MTU) at Karachi, Lahore, Quetta and Peshawar. The MTU''s experience in Karachi proved to be extremely successful as the revenue collected by the new setup increased by Rs Two billion compared to the last year.
Another move now underway is to abolish the existing tax administration system based on jurisdictions and to introduce a functional based tax system. Accordingly the Regional Commissionerate of Income Tax (RCIT) Southern Region, is being replaced with nine modern regional tax offices (RTOs) in major cities of Sindh and Balochistan. In Karachi the 12-storey RCIT building is being renovated to house a modern RTO for Karachi. The RICT offices would be shifted to State Life building on Zaibunnisa Street in Saddar till the renovation is complete.
The idea to set up modern regional tax offices in Sindh and Balochistan is to provide taxpayers a friendly tax service in a cozy environment. The tax authorities hope that the taxpayers would experience a different feeling while visiting the RTO compared to existing tax offices which were known for meting out harsh and coercive treatment to the taxpayers.
The ITOs offices in the said building were known for corrupt deals with the taxpayers.
There is no doubt that the modernisation of tax offices to provide efficient tax service to the public would result in increasing the revenue but it is not yet known whether these measures taken with huge investment would also broaden the tax net.
According to a cautious estimate only 1.1 million people pay tax in a population of over 16 million in the country where the tax GDP ratio is lowest in the region. The CBR has directed all tax officials to launch a vigorous campaign to tap new taxpayers through information collected from utility organisations, car manufacturers, expensive schools and travel agents. It has been planned to bring all businessmen under the tax net who pay Rs 25000 as electricity charges annually, purchase new luxury cars, travel frequently and pay high education fees for their children.
The government is also considering a move to levy tax on agriculture and estate business, which experienced a boom in recent months. The problem is that both these sectors are provincial subjects. The new CBR policy is not to burden the existing taxpayers and instead expand the tax net to meet the revenue targets. The businessmen and industrialist frequently complained about the agricultural landlords who despite huge income are scotched free without paying the tax. Income tax officials have publicly complained that response of the business community towards all facilitation measures is very poor and the number of new taxpayers filing tax returns is not according to the expectations of the department. The tax department set up a series of tax facilitation centres at big commercial markets and trade bodies offices to provide them guidance in filing tax returns. They went to the extent to issue National Tax Nos. (NTN) at the doorsteps of the businessmen but to no avail.
The CBR has so far restrained its officers to make field visits to spot new taxpayers or to issue notices to the non-compilers under its policy of keeping a friendly reproach with the taxpayers persuading them through indirect methods for voluntary compliance.