The World Bank review mission has expressed concern over poor performance of audit authorities due to weak audit functions and under-utilisation of IT-related systems in the absence of poor integration of the new systems at the Federal Board of Revenue (FBR). Sources told Business Recorder here on Saturday that the WB review mission has submitted a report on the progress of the FBR under the Tax Administration Reform Project (TARP).
According to the report, the FBR''s lower than expected overall performance by end of fiscal tear 2010-11 was associated with two major shortcomings previously discussed at length with FBR authorities during past supervision missions: (a) Under-utilisation of IT-related systems due to poor integration of the new systems into re-engineered business processes, weak management follow-up on implementation of systems, and opposition of FBR staff to adopt new business processes based on newly deployed systems at field formations; and (b) Continued weakness of the audit function, associated with lower than expected performance by the audit program delivered by private accounting firms during the outsourcing program, lack of a centralised-based audit function in charge of planning, programming and monitoring of results, and poor training, the WB maintained.
The WB review mission stated that the TARP implementation lags behind the intended achievements against the Project Development Objectives (PDOs) of the reform program. Areas of concern relate to Net revenue collection as percentage of target. Based on provisional figures released to the mission by FBR, total tax collected (net) in fiscal year 2010-11 amounted to Rs 1,550 billion, falling short of the revised target of Rs 1,604 billion (post-floods target) which was revised downwards to Rs 1,588 billion in March 2011. Secondly, the area of concern is net revenue collection as percent of GDP. Based on preliminary data, FBR''s tax revenue for fiscal 2010-11 is likely to be 8.6 percent of GDP compared to 9.0 percent for fiscal year 2009-10, further deteriorating Pakistan''s weak fiscal stance.
Thirdly, the modernised FBR organisational structure fully functional by end of project is facing critical challenges on account of the following factors: (i) possible adverse impact of the organisational changes, introduced in February 2011, on FBR''s effectiveness and accountability goals originally pursued by the Government''s endorsed organisational model along functional lines; (ii) lack of an appropriate co-ordination mechanism to oversee operations between headquarters and field formations, and (iii) an unstable tenure at mid-management levels undermining the efficiency and effectiveness of FBR to implement its reform action plan.
The WB review mission further said that the critical issues are likely to have an adverse impact on the achievement of the PDOs, in particular on revenue collection targets and FBR organisational structure fully functional. It needs to be recognised that FBR''s performance may have been affected by exogenous factors beyond its control such as the impact of lower than expected economic activity - due to the floods and higher commodity prices, among other factors - on tax bases and compliance levels. However, FBR has full control on the operational tools needed to implement the set of Priority Administrative Measures (PAM) agreed with the April mission aimed at improving project''s implementation performance in the last about four months of TARP. A full-fledged implementation of PAM is likely to enhance tax compliance and improve revenue collection in the short and mid-terms through the implementation of actions in the following areas: organisation and management, audits and appeals, enforcement, refunds, and information technology. The assessment of full implementation of the PAM pending actions, and FBR''s revenue performance against targets for first quarter of 2011-12 will be considered as key benchmarks. As a result of this assessment, both PDO and IP ratings will be reviewed and re-evaluated. The current rating for PDO stands as Moderately Satisfactory, the WB report stated.
As per WB report, the mission''s objectives were to: review implementation progress since the April 2011 Implementation Review mission against the revised Project Development Objectives and Project Outcome Indicators, the Action Plan in support of tax administration reforms'', the restructured TARP components and "activities; and to inform the Federal Board of Revenue (FBR) management of the requirements for the Bank''s Implementation Completion Report (ICR).
"Based on information received from FBR, this Aide-Memoire provides an interim assessment of the key outcomes, and the mission''s findings and recommendations relating to two out of four project components covering the Organisation and Management and Project Management components. During the final supervision mission planned for end October/November, 2011, implementation progress will be reviewed for all project components", review mission report said.
As per key outcome of the TARP, the WB review mission observed that the FBR maintained progress against some key intermediate performance indicators. Positive results in fiscal year 2010-11 included: (i) registered and active taxpayers increased by 6.2 percent from 2.984 million to 3.167 million; (ii) electronic return filers increased by 6 percent for sales tax, with income tax filers registering a 27 percent increase in fiscal year 2009-10; and (iii) registered and active taxpayers for Income Tax and Sales Tax CE-enrolled, liable to e-filing increased by 29 percent and 13 percent, respectively, WB review mission added.