Taking a serious notice of slow progress of national documentation drive, the Federal Board of Revenue (FBR) has decided to take stern action to check flight of capital outside the country, taking into account investment made by resident Pakistanis aboard.
Sources told Business Recorder here on Saturday that FBR has issued serious warning to the heads of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to implement the new plan of documentation, at any cost. Tax authorities have now decided to give top priority to check flight of capital in any form of investment aboard by resident as well as overseas Pakistanis.
Among 14 new sectors to be brought into the realm of documentation, flight of capital is one of the key areas which could help bringing rich people in documented regime. They prefer to make investment aboard to avoid declaration of huge investment in Pakistan. If the FBR is able to tap flight of capital, the investments made by Pakistanis in different countries would easily be documented as they conceal all kinds of income but are ready to show investment aboard.
The alarming revenue amassing situation could only be improved by having authentic information of 14 areas without further delay, particularly focusing on flight of capital involving billions of rupees. The amount has been used in different kinds of lucrative schemes abroad, giving advantage to owners of black money to avoid any kind of tax proceedings/prosecution in Pakistan.
According to sources, the FBR has directed the Chief Commissioners of the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to immediately focus on 14 new areas in view of deteriorating progress in broadening of the tax base. The 14 new areas for documentation are private construction firms and companies; poorly taxed food business; businesses at highways/motorways; un-taxed commercial and rented properties; un-taxed middlemen; flight of capital: investments abroad; specialist doctors/dental surgeons; private elite educational institutions; franchises; small scale manufacturing; services providers and professionals (lawyers/consultants/advisors/executors).
The FBR instructions to the LTUs/RTOs said that it had been noticed with deep concern that ever since July 1, 2011 the pace of BTB campaign nose-dived to the extent that apparently all good jobs done during March-June 2011 on this account seems to have lost their weight. Field formations and their respective broadening of tax base (BTB) units perhaps took it as a one-time exercise. Therefore, since July 2011 no considerable BTB initiative has been witnessed in any RTO. This alarming situation cannot be ignored any more and some remedial measures are immediately required. This strategic review is aimed at the same issue. Details are as under:
1. Why BTB campaign is not being accorded its due importance? The FBR said that it appears that BTB exercise is not fully owned by the field formations. The officers at RTOs fail to understand that BTB is the top agenda item at all policy for a--Ministry of Finance, FBR and Directorate General Intelligence and Investigation Inland Revenue. Most of the field officers are still obsessed with more lucrative jobs like Audit, Enforcement, etc. Field formations will have to change their priorities in line with the ones set by the said policy makers.
The FBR further warned the Chief Commissioners of the LTUs/RTOs the poor logistic support to BTB units both in terms of physical and human resources contributes towards the dismal performance on this account. The field offices consider BTB campaign as an external intervention, and no ownership has so far been developed by the field offices. This mindset needs to be changed because RTOs are the first and the foremost beneficiaries of this exercise.
The FBR said that the regional data bases were not developed. Helter-skelter & piecemeal collection of information cannot sustain any fruitful BTB exercise. At most of the RTOs, efficient and honest officers/officials have not been posted in BTB units and, for the ones assigned this job, seems to be either too dry or they sold it for peanuts, the FBR categorically conveyed to the field formations.
The IT support from Pakistan Revenue Automation Limited (PRAL) is lacking as despite best efforts no monitoring mechanism could be so far developed. The field offices of I&I-IR could not be fully operationalised due to one reason or the other and thus the whole exercise could not be monitored properly. Due to the aforesaid factors, BTB campaign has been trapped in a vicious circle wherein low input is resulting in low output, the FBR said.
2. How to break the aforesaid vicious circle? The FBR said that the Chief Commissioners will have to shoulder the responsibility for change in the mindset, which does not recognise the real importance of BTB. The clear message communicated by the undersigned at the recent Chief Commissioners Conference and my address to officers at Karachi on October 26, 2011, needs to be conveyed down the line both in letter and spirit,. the FBR Chairman said and added that he himself in his address to officers at Karachi on October 28 had very clearly highlighted the importance and urgency of the BTB.
Now onwards, BTB and monitoring of withholding taxes are the two key areas of our performance. While the former would address the crucial-most issue of low Tax-GDP ratio, the latter guarantees the achievement of yearly budgetary targets. Our best officers/officials need to be utilised in these two areas. Senior most and experienced officers and the staff are required to be posted in these vital functional areas. No deviation shall be tolerated unless it is backed by solid/explainable reasons, the FBR instruction said.
The FBR pointed out that the physical and human resources currently available with RTOs need to be analysed properly. Each functional area of regional performance needs to be focused with special reference to its contribution towards assigned regional revenue targets. Allocation of all resources must be linked with the said contribution or the untapped potential thereof. This analysis may be conducted on the format attached and duly filled in sheet be dispatched to Directorate General I&I-I& on or before 11.11.2011 positively.
The FBR said that keeping in view the massive BTB targets for the FY 2011-12, existing BTB units are insufficient. Therefore, separate and exclusive BTB Zones are being raised at RTOs Karachi, Lahore, Faisalabad and Islamabad. At other RTOs, dedicated BTB Ranges shall perform the said job. These dedicated Zones and Ranges shall exercise composite territorial jurisdiction over BTB cases. Present BTB units shall constitute the integral part of the said Zones/Ranges. Each BTB Zone will have minimum two Ranges with four units in each Range. The number of Ranges and units can be increased with the enhanced workload.
The FBR directed that the tax offices in Muffasal areas shall be responsible for BTB function in their respective areas. Jurisdiction of Muffasal areas can be assigned by the Chief Commissioner concerned either to the Regional BTB Range/Zone or to some other normal Zone, but in the latter case, for BTB function they shall report to the aforesaid said BTB formation.
The FBR said that Regional BTB targets are assigned herewith. These targets have been worked out by keeping in view the following facts and factors: Existing number of live cases; BTB results during March-June 2011; BTB potential of the respective Region; commercial activities and the territorial jurisdiction.
3. How to achieve the targets? The FBR said that though RTOs are free to explore their Region-specific BTB avenues, yet following areas are recommended for action: Withholding Tax Regime as a BTB Tool; formation of Regional Withholding Cells; complete lists of withholding/Collection Agents; proper enforcement of withholding Statements; withholding audits of different tax segments; analysis of withholding statements would strengthen BTB and Regional collection as well; inter-Region Sharing of best practices taxpayers Mapping; ownership Mapping with the help of concerned Government Departments/Authorities; tax status verification proceedings; cross matching with the existing lax records; booking of new taxpayers; special focus on Property Income cases and Commercial Areas within posh localities
In the area of Field Survey, the field formations should convene meetings with all stakeholders; formation of survey teams; prioritise identification of commercial areas; drafting of simplified verification form; verification forms to be delivered on all business premises; NTN and proof of filing of latest tax returns for existing taxpayers and minimum details from non existing taxpayers. The specimen survey form, (utilised during similar exercise at RTO RWP last year) Basic strategy, SOP approved by FBR, and monitoring pattern (Daily Visit Report, Weekly Visit Report, Guidelines in respect of BTB-Sales Tax/FED) have also been communicated the field formations.
4. How to maximise the benefits of BTB campaign? This could be done by comprehensively expanding tax base, covering all tax streams ie Income Tax, Sales Tax and FED. One effort with multiple aspects is better than separate/solo flights in each stream, FBR said.
According to the FBR, the proper IT trail of all BTB efforts would help in development of a reliable data bank, data analysis and its optimal utilisation. By giving each BTB unit/Team specific and deliverable targets, followed by proper monitoring, is necessary under the new plan. The quarterly BTB Review and performance evaluation is also important under the exercise.
The BTB performance of different RTOs shall be reviewed on quarterly basis. Keeping in view the results of preceding quarter Regional BTB strategy shall be reviewed as well. Chief Commissioners shall furnish Quarterly Review Reports in the first weeks of January, April, and July 2011 for the respective three quarters. Performance evaluation of Chief Commissioners shall mainly be based on Regional BTB performance. "Please remember: our existence depends upon broadening of tax base", the FBR instruction added.