The Federal Board of Revenue (FBR) has met International Monetary Fund (IMF) condition as stated in Pakistan''s letter of intent (LoI) of November 20 2008 to merge income and sales tax administration through co-location of income and sales tax under one roof at Regional Tax Office (RTO) and Large Taxpayer Unit (LTU), well-placed official sources revealed to Business Recorder on Monday.
At present, sales tax and income tax related issues are being processed at one place. Both the sales tax and income tax officials now report to a single Director General of the LTU/RTO. The co-location of taxes has been carried out through the creation of Regional Tax Offices (RTOs) where all taxes, except for customs, are being handled at one place.
According to sources, the FBR intends to merge income tax, sales tax and Federal excise groups into one group to be known as Inland Revenue Service with an objective to provide state of the art services under one roof. Customs would be renamed as Pakistan Customs Services.
Previously, taxpayers were required to go to two different locations for the payment of sales tax and income tax. This co-location of taxes has shown that the functional merger of income tax and sales tax groups has been achieved. Duplication of functions, inconsistencies in treatment to taxpayers and costlier compliance of stakeholders have been done away with sssthrough this move. It is also said to be in line with the international best practices as majority of the countries have integrated tax administrations.
However, work is under progress to integrate income tax and sales tax systems through the development of an integrated computer system for electronic exchange of data. Changes in the service structure groups related to the merger would necessitate the role of other government departments, including the Establishment Division. Work in this regard is under progress and the objective is likely to be achieved by the end of the reform programme, ie December 2009.
The most significant change would be effected at the top FBR management level under the revamped structure on functional basis. Inland Revenue Service would handle the revenue collection operations pertaining to sales tax, income tax and excise. While Customs Group would be renamed as Pakistan Customs Services to exclusively deal with or cover matters relating to customs.
Under the revamped organisational structure, the number of FBR members directly reporting to the Chairman would be reduced. Ultimately, this will come down to two members of Grade-22 on completion of reform process. They will be Member, International Taxes (Customs), and Member, Revenue Services (member sales tax and member income tax).
The members of Grade-21 would be converted into Director Generals, who would report to the Grade-22 members under the reform process. Under the reform process, the FBR has also constituted evaluation committees for the appointment of the Director General, Information Management Services (IMS), and Member, Human Resource Management (HMR).
The committees would be responsible for short-listing and evaluating the eligibility of those appointed for the slots of Director Generals of IMS and HRM. The committee is headed by Member, Direct Taxes, Irfan Nadeem and comprises Member, Tax Policy and Reforms; Member, IMS; Member, Customs, and Chief of HRM as members.
According to the LoI, the government had agreed that an integrated tax administration organisation on a functional basis would be established at the FBR (integrating both the income tax and sales tax administration). As part of this process, the government plans to harmonise the income tax and GST laws, including tax administration purposes, and minimise exemptions for both taxes.
To that end, it will submit legislative amendments to parliament by end of June 2009. Following this change, the taxpayers have been facilitated in dealing with all taxes by using one system instead of moving from income tax officials to sales tax officials for day-to-day operations.
Sources said that the integration of income tax and sales tax would not affect the seniority and promotion prospects of the FBR officials. The promotion policy would continue to remain the same for sales tax and excise officials without disturbing the existing system.
If the promotion of a sales tax official was due, he would not suffer adversely on account of presence of income tax officials within the same group. Similarly, the powers and functions of the sales tax and excise officials will remain the same under the Inland Revenue Service, according to sources.