The World Bank (WB) has said that the government of Pakistan has shown inconsistent commitment to its tax administration reform agenda, which significantly affected implementation of Tax Administration Reform Project (TARP).
Sources told Business Recorder here on Tuesday that the WB's "Implementation Completion and Result Report" on the TARP has given 'unsatisfactory' rating to the government performance during the implementation of the TARP. According to the WB report, while recognising the challenging country context prevailing during the TARP period, overall, GoP showed an inconsistent commitment to its own tax administration reform agenda, which significantly affected project's implementation.
During the initial years of TARP, GoP took several steps to show its strong commitment to the project, including: (a) establishment of Large Taxpayer Units (LTUs) and Medium Taxpayer Units (MTUs); (b) confirming the Chairman, FBR for three years and renewing the terms of the FBR Members responsible for functional areas; (c) granting FBR greater autonomy under the oversight of the Cabinet Committee on Finance and Revenue (CCFR); and (d) preparation of a rationalisation plan for FBR staff. In line with GoP's commitment to the reform agenda, the FBR Act 2007 was enacted. The GoP also provided relatively adequate counterpart funds until the restructuring.
However, the Government's commitment to major tax policy and administration reforms wavered over time, especially during the boom years (2005-2008) when higher economic growth generated modest revenue gains, despite limited results on its tax administration reform program. The security of tenure of key and senior FBR officials of at least three years was a desirable requirement to move the reform agenda forward. Yet, during the nearly seven years of project life, four FBR Chairmen were appointed, with some of them coming from outside the Income Tax and Customs services which did not go down well with some of FBR's staff. FBR Board members and senior officials were transferred frequently. The Cabinet Committee on Finance and Revenue also did not meet regularly to provide necessary oversight and guidance. Nor did GoP implemented the plan for the rationalisation of FBR staff, WB said.
The above mentioned major shortcomings impaired the achievement of the tax administration reforms. Subsequently, the GoP committed to a significant increase in tax revenues through inter alia: introduction of a broad-based Value Added Tax (VAT), or reformed General Sales Tax (RGST); reintroduction of tax audits; and strengthened enforcement measures. However, despite the critical need to implement these tax policy and tax administration reforms, which were required to address the macroeconomic imbalances in 2009-10 and onwards, GoP was unable to secure political consensus on the passage of the proposed Value Added Tax (VAT) or reformed general sales tax (RGST) bill by the TARP closing date, WB's "Implementation Completion and Result Report" added.