In the light of dynamic shifts in business and advancements in technology, it is opportune for the Federal Board of Revenue (FBR) to embark on a transformation journey. This entails updating its tax administration framework to enhance efficiency and tackle challenges like evasion and counterfeiting. Embracing digital solutions can be important in overcoming these hurdles and promoting transparency in tax processes.
By harnessing modern technology, FBR can streamline operations and fortify its revenue collection efforts. This is essential for aligning with the evolving business environment and unlocking maximum revenue potential.
In order to achieve these objectives, proactive steps must be taken to implement innovative solutions and optimize tax management practices. Through such endeavours, FBR can position itself as a forward-thinking, people-friendly and service-oriented institution adept at meeting the demands of modern economy.
An exemplary endeavour by FBR is the Track & Trace system (TTS), aimed at monitoring goods’ supply at all points and ensure tax compliance. Initially implemented in key sectors like sugar, tobacco, fertilizer, and cement, TTS monitors accurate tax payments where it meticulously tracks production and distribution of goods, affirming tax adherence at every stage. With TTS, FBR aims to simultaneously enhance transparency and combat tax evasion.
Implementation of TTS by FBR represents a significant step towards modernizing tax administration whereby taxable goods are endowed with Unique Identification Markings such as barcodes and QR codes, embedding crucial data like origin, manufacturer, and tax information.
Furthermore, the system incorporates high-security physical tax stamps on unit packets to bolster tax verification and product authentication efforts.
Information regarding markings and stamps are meticulously recorded into databases, facilitating real-time monitoring and verification procedures by strategically installing devices at various checkpoints, manufacturing facilities, and retail outlets that enables prompt detection of irregularities and unauthorized diversions in the supply chain, ultimately fortifying tax compliance and transparency efforts.
According to FBR, comprehensive coverage has been attained across the sugar sector since November 2021, ensuring that all products leaving manufacturing sites are duly stamped and labeled. Similarly, industry-wide coverage has been realized in the fertilizer and tobacco sectors since June 2023 and March 2024, respectively.
As for the cement sector, full industry-wide coverage is slated for completion in the second quarter of 2024. This achievement marks a significant milestone in implementation of TTS improving tax compliance and ensuring regulatory oversight across these vital industries.
FBR must persist in expanding TTS’s scope to encompass additional sectors, aligning tax collection with the true revenue potential of each sector. Pakistan’s revenue generation has consistently fallen short of its expenditure profile, a challenge exacerbated by ineffective tax administration and financial misconduct.
Addressing this chronic issue demands a multifaceted approach, with digitization and technological integration playing pivotal roles. By embracing digital solutions, FBR can streamline tax administration processes, mitigate human error, and combat corruption more effectively.
The strategic shift towards modernization holds promise for fostering greater transparency, efficiency, and accountability within the tax system, thereby facilitating sustainable economic growth. Expanding the tax net to encompass the retail and informal sectors stands as a fundamental challenge for the FBR, necessitating a holistic approach and leveraging modern technology.
With the help of data scientists useful information from banks, withholding statements, tax returns of compliant entities, along with harnessing technological tools, FBR can effectively assess the tax potential of businesses within these sectors.
This would enable identification of potential taxpayers and facilitate issuance of compliance notices to encourage tax adherence. Adopting innovative solutions can empower FBR to expand its outreach and engagement with previously untapped segments of economy, thereby fostering both greater tax compliance and revenue generation.
FBR’s recent endeavour, the ‘Tajir Dost Scheme, 2024’ [Traders’ Friendly], is designed to outline scope of tax, filing procedures, and assessment criteria for small traders and shopkeepers with fixed business premises.
These establishments, including shops, stores, warehouses, and offices, situated within specified territorial limits, such as Karachi, Lahore, Islamabad, Rawalpindi, Quetta, and Peshawar, fall under the scheme’s purview wherein every eligible individual is mandated to remit a monthly advance tax, constituting minimum tax liability for business income covered by Tajir Dost Scheme computation of which is prescribed in accordance with specified guidelines.
In cases where advance tax obligation amounts to zero, a minimum annual payment of Rs. 1200 remains applicable as advance tax. This scheme aims to streamline tax compliance procedures for small traders and introduce a culture of regular tax payments. By providing clear guidelines and standardized procedures, the Tajir Dost Scheme seeks to facilitate ease of tax compliance for improved revenue collection.
FBR’s focus extends to enhancing efficiency in its litigation and appellate processes, essential for resolving high-stake tax disputes. The government’s recent enactment of the Tax Laws (Amendment) Act, 2024, marking animportant step in this direction has introduced amendments to key tax statutes, including the Income Tax Ordinance of 2001, Sales Tax Act of 1990, and Federal Excise Act of 2005.
These amendments aim at addressing complexities and streamline procedures, for more expeditious resolution of tax-related disputes. Such reforms are essential in reposing confidence in the tax regime and promoting fairness and transparency in the adjudication of tax matters.
The Sales Tax Act has been amended to delineate the appellate process more clearly. Under the revised framework, appeals to the Commissioner (Appeals) are permissible for tax assessments or refunds valued up to Rs 10 million. Conversely, matters exceeding this threshold fall under the purview of the Appellate Tribunal Inland Revenue.
This amendment introduces a tiered approach to appeals, aligning the adjudicative process with the magnitude of the tax assessment or refund in question. By providing distinct avenues for resolution based on financial stakes involved, the amendment aims to enhance efficiency and expedite resolution of cases.
The above measures would contribute to instilling confidence in the tax regime and ensuring equitable access to justice for taxpayers across different scales of financial engagement. Amendment made in the Income Tax Ordinance 2001, define pecuniary jurisdiction for appeals.
Thus appeals where tax assessment or refund value does not exceed Rs 20 million would be directed to the Commissioner (Appeals) and such appeals surpassing this threshold are to be filed with the Appellate Tribunal Inland Revenue. The amending law also reduces appeal period to the High Court from 90 days to 30 days, expediting the adjudication process.
From FBR’s historical performance, a recurrent pattern emerges, where there is tendency to implement uniform solutions that leans towards modifying withholding tax rates or instituting fixed rates to augment revenue streams. However, this approach often exacerbates the financial strain on businesses, particularly when coupled with provincial sales taxes therefore, a comprehensive strategy leveraging technology and data on potential taxpayers is important.
Since imperative reforms within the FBR are being taken, it is necessary to acknowledge legislative responsibility in this regard. Comprehensive laws are indispensable for effective tax administration, and the lack thereof often hampers FBR’s efforts. Absence of coordination mechanisms among various institutions, including the State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP), exacerbates challenges faced by FBR.
For moving forward, Pakistan must prioritize financial inclusion and documentation of the economy to increase revenue generation. Preferential treatments to specific sectors should cease, and a uniform application of the law is essential for fostering a fair and equitable tax regime. By addressing these fundamental issues and embracing modern technological solutions, FBR can truly evolve into a forward-looking institution capable of meeting the demands of contemporary economic environment.
Copyright Business Recorder, 2024