The Federal Board of Revenue is reviewing a proposal to create a Tax Policy Formulation Cell to take major tax-related decisions pertaining to sales tax and income tax through a well-organised and institutionalised tax policy unit within Inland Revenue Wing of the Board.
Sources told Business Recorder here on Thursday that the proposal for creation of the Tax Policy Formulation Cell in the FBR is under consideration of the tax managers. It has been proposed that a Tax Policy Formulation Cell be created in the Tax Policy Branch of the Inland Revenue Wing for playing a supporting role to Chief (Tax Policy). If the approval has been made at the highest level in the FBR, the Tax Policy Formulation Cell may be created under new reforms in the tax administration.
According to sources, this cannot be said that tax policy formulation is the core function of the State, and therefore, needs to be taken absolutely seriously as the eventual policy outcomes (ie tax collection) is linearly dependent upon it. For subsidiary objectives, tax policy can also be used for other objectives including equitable distribution of economic resources, economic stabilisation etc. This is why that formulation of tax policy across the globe is given utmost importance, and it is sifted through various filters, checks, and layers examination from different angles.
Sources said that there are no monolithic models, but broadly speaking, a standard tax policy formulation process may involve the following steps/stages: Firstly, it would involve determination and articulation of over-arching policy principles/ objectives.
Secondly, the process also involves conceptualisation of matching tax policy bits geared to achieve the objectives. Thirdly, the standard tax policy formulation process may involve juxtapositioning of the policy bits in the overall scheme of fiscal laws.
Fourthly, the process also involve approximation of revenue-tags (both plus and minus) attached with each proposed policy bits. Fifthly, a standard tax policy formulation process also included study of plausible implications of each policy initiative for various dimensions/ sectors of the economy ie inflation, unemployment rate, exports, smuggling, sector competitiveness, distribution of economic resources, inter-provincial, and federation-provinces relations, inflow of foreign exchange, FDI - apart from, of course, revenue collection.
Sixthly, the standard tax policy formulation process also included balancing act between various competing interests/sector of economy. Seventhly, the standard tax policy formulation exercise also included writing of the letter of the law with maximum synchronicity in the existing laws.
Eight, a standard tax policy formulation process also ensure standardized implementation through Taxpayers' education via Circulars/brochures, etc. However, (unlike a standard process as outline above) Pakistan's tax policy formulation process is highly skewed and skinny. In all, a Secretary, and a Chief are supposed to formulate the entire tax policy of the country. This goes without saying that actual tax policy formulation is only their sub-function (at the time of annual budget exercise) as their main functions are issuance of clarifications on the existing laws, co-ordination with field formations, holding of meetings with various economic sectors/interest groups etc and disposal of inter-ministerial business. Resultantly, most of the important steps that are otherwise required to formulate good tax policy compulsively get bypassed, sources said.
Sources further said thus, the non-existence of a well-organised and institutionalised tax policy wing within IR Wing to work throughout the year on the subject and the scant allocation of human resource (without a professional team of experts) to the core function of the State has serious implications - the foremost being absence of long-term, medium-term and short-term tax policy strategy, ad-hoc policy decisions on day to day basis either to meet the revenue targets or changes in the interest of influential select groups of trade and industry without a meaningful evaluation of the impact on the overall tax policy and operations, lopsided tax policy initiatives, to-and-fro movement of tax policy, and distortions in the economy - apart from a substantial below-par revenue performance.
Sources said that this scenario needs immediate corrective action. Thus, it is proposed that a Tax Policy Formulation Cell be created in the Tax Policy Branch of the Inland Revenue Wing in a support role to Chief (Tax Policy) with the following expertise/ human resource: -
Tax Policy Advisor (Full time with option to engage additional advisors on specific issues); Tax Policy Expert (Full time with option to engage additional experts on specific issues); Sector/Trade specialists (to be engaged on case to case basis); Fiscal Economist with 10 year experience; Fiscal statistician with 10 years experience; Legal expert with 10 years experience in drafting, implementation of tax laws and appropriate support staff, sources added.