ISLAMABAD: The Ministry of Finance has agreed with the proposal of the Tax Reform Co-ordination Group (TRCG) to create a Fiscal Policy Board to be headed by the Finance Minister under the reform plan to exclusively deal with the fiscal policy and taxation issues under the umbrella of the proposed fiscal board.
It is learnt here on Tuesday that the recommendations of the sub-groups of the income tax, sales tax and customs were discussed threadbare during the third meeting of the TRCG chaired by Dr Abdul Hafeez Shaikh, Minister for Finance, Revenue and Economic Affairs.
Sources said the proposal is to constitute a high-powered Fiscal Policy Board headed by the Finance Minister having members from the private sector. Under the proposal, the FBR has to amend the Federal Board of Revenue Act 2007 to obtain legal backing for setting up of the Fiscal Policy Board. The concept of including private sector in the Fiscal Policy Board is in line with the best international practices of Public-Private Partnership.
One of the key objectives of the Fiscal Policy Board is to implement the government policies. Secondly, it should be assigned the task of framing fiscal polices of the country and proper functioning of the taxation system with input from the private sector.
Through amendment in the Federal Board of Revenue Act 2007, the government can set up the Fiscal Policy Board for dealing with the taxation policy issues by a specialised board having members from privates sector. The Fiscal Policy Board may also have to authority to devise polices to ensure equity in tax system to check mismatching of the sectoral contribution in the taxes.
The FBR has also informed the TRCG about some major changes made in the Expeditious Refund System to expedite clearance of sales tax refunds of manufacturers-cum-exporters. Under the newly introduced features of the ERS, the FBR will automatically execute the ERS on weekly/fortnightly basis and process the any leftover amount in the sales tax claims.
Instead of out rightly rejection of claim due to non-verification of data, now the ERS system would inform the exporters about the discrepancies in the claims. The cross matching of information would be done on weekly/fortnightly basis taking into account the latest data. The refund would be paid to the extent of removal of discrepancies on the basis of weekly/fortnightly running of the system.
Previously, whenever data of cross matching is not available with the ERS, the same claim disqualifies due to non-availability of data. Now the system would be run on regular basis to ensure payment of refund on cross matching of data. The cross matching of data would now be a regular process through running of the system to ensure speedy payment of refunds.
Sources said that the meeting also discussed another important issue of problems faced by the FBR during enforcement in the field formations. The Ministry of Finance has directed the FBR to take enforcement measures against the non-compliant taxpayers. Finance Ministry has shown full support to the FBR for pursuing the enforcement plan for recovery of arrears, audit and improving compliance at the level of the field formations.
The FBR will give top priority to the enforcement without political pressure from any quarter. Tax authorities informed the Finance Ministry about the practical problems being faced during enforcement actions against the violators of tax laws. Sources said that the Fiscal Policy Board would be an independent policy board like Cabinet Committee on Fiscal Reforms (CCFR) to monitor implementation of on going reform projects and deal with the tax policy issues.
In the past the CCFR was required to reconvene meetings on quarterly or six monthly basis to maintain the momentum of the reform and provide support to the project as it enters new challenges over the coming year. The Fiscal Policy Board would also work on the same pattern of the CCFR to maintain the existing momentum of reforms.
During the meeting, the Finance Minister reinforced the creation of a Fiscal Policy Board and directed Chairman FBR to formalise the same for approval. He also assured the house that fiscal policy issues will be deliberated upon in detail.
The Income Tax Sub-group (Vakil Ahmad Khan, Chaudhry Muhammad Arshad and Syed Mohammad Shabbar Zaidi) emphasised on creating a Fiscal Policy Board to be headed by the Finance Minister in an effort to separate tax policy from tax administration. The Sub-group also recommended focus on fiscal policy issues and creation of a data warehouse. Chairman FBR informed the Group that FBR was in the process of broadening its tax base by identifying potential taxpayers utilising data available with Nadra.
Sources said that it was also decided that the FBR would co-ordinate with Nadra to obtain information for broadening the tax-base. In this regard, the FBR will seek help of NADRA to facilitate the tax authorities in expanding the tax net. It was also decided that the concept of the data warehouse would be materialised as it would operate as a key measure to broadening the tax-base using information from external sources.
One of the key recommendations of Sub-Group on Income Tax was the need for establishment of a Fiscal Policy Board, which the Finance Minister had already agreed. The Sub-group suggested that the existing functional setup may be reviewed to ensure it is consistent with the reform framework identified. The sub-group acknowledged the need for functional specialisation and the continuation of functional distribution (separation of functions of audit, enforcement and legal).
However, it was proposed that said functional distribution be restricted upto the Additional Commissioner level and not taken to the Commissioner level. The concept of a Member Inland Revenue (IR) should be revived after the merger of taxes, and appointed in place of Member Policy. The group was of the view that posts of Members Operation were redundant and the Chief Commissioners should work under Member IR, sub-group recommended.
On the issue of the reformed general sales tax (RGST), sources said that the meeting was informed that the implementation of the RGST is on hold and it would be implemented after developing consensus with all the stakeholders.
About the Expeditious Refund System, the authorities directed the FBR to correct the system to ensure payment of speedy refunds to the manufacturers-cum-exporters in a hassle free environment.
The Sales Tax and Federal Excise Sub-group comprising Abdullah Yusuf, Ali Jameel and Arshad Zuberi) recommended improving the systems and procedures for implementing an automated tax management system, creation of a data warehouse, and reducing the tax gap. It was clarified that the tax gap is the difference between the tax potential and the tax being collected. It is a misconceived notion that the tax gap is the corruption in the FBR.
When contacted, sources said that the meeting also referred to a report of World Bank to check the tax gaps in different sectors as per huge revenue potential. The FBR presented key achievements in terms of sales tax refunds. The tax authorities have informed the meeting that the Expeditious Refund System (ERS) has been further refined to clear portion of the claim for which Goods Declarations (GDs) have been cross-matched.
Moreover, the system will be re-run periodically to clear any remaining process of the claim. FBR also informed the house that since the centralised cheque issuance from September 22, 2010, 22734 cheques amounting to Rs 14.2 billion have been issued compared to 6172 cheques amounting to Rs 4.4 billion in the same period last year. Chairman FBR also stated that focused efforts on reducing the refund pendency are being undertaken. The TRCG highly appreciated the efforts by the FBR.
The Customs Sub-group comprising Ahmed Waqar, Muhammad Sulaiman, Abid Hassan and Shahid Abdullah presented recommendations relating to administrative issues, certain infrastructure measures and human capacity building. It was decided that a Valuation Committee will be constituted which would include, inter alia, FBR, Governor SBP, the Ministry of Commerce and stakeholders from the private sector to come up with measures to deal with misdeclaration and under-invoicing including availability of reliable valuation data. The TRC Group also decided that Chairman FBR would look into improving equipment support for preventing smuggling such as scanners, weighbridges and tracking systems as well as developing integrity and human capacity.
Sources further said that the meeting discussed different proposals to check under-invoicing. One of the proposals is to out-source the system to effectively check the menace of under under-invoicing keeping in view the best international practices.
The meeting was attended by the Members of RCG, Minister of State for Finance and Revenue, Deputy Chairman Planning Commission, Secretary Finance, Chairman FBR, FBR officers and the Ministry of Finance officers. The three sub-groups of TRCG, namely Customs, Sales Tax and Federal Excise and Income tax presented their recommendations for approval by the Finance Minister.