The Federal Board of Revenue (FBR) strongly favours restoration of 'Circle-Based System' at the national level as it has been duly supported by Pakistan Business Council (PBC), Overseas Investors Chamber of Commerce and Industry (OICCI) and All Pakistan Tax Bar Association (APTBA).
Sources told Business Recorder that replacing the existing 'Functional-Based System' with the 'Circle-Based System' was discussed threadbare at a meeting of the FBR-PBC Joint Working Group held at the FBR House here on Wednesday. The meeting deliberated upon budget proposals of the PBC. The council suggested that the restoration of the 'Circle-Based System' can bring large segment of informal economy into the documented regime.
The FBR is in favour of reverting to the circle system immediately with smaller territorial circles with BS-17 and BS-18 officers managing those circles. Under the proposed Circle-Based System, each RTO should comprise of 4 to 5 Commissionerates depending upon the work load/revenue involved. Each Commissionerates should comprise 3 to 5 Ranges headed by an Inspecting Additional Commissioner (BS-19) and each Range should consist of 4 to 5 circles headed by Assessing Officer of BS-16-17 & 18.
According to sources, the FBR wanted to restore the 'Circle-Based System' after failure of functional-based system and gross violations of the Universal Self Assessment Scheme (USAS). After all kinds of experiments and facilitation under the self assessment regime, the FBR has reached the conclusion that restoration of 'Circle-Based System' is the only way to broaden the tax-base and documentation of economy without compromising automation. Earlier, there was no automaton under the old 'Circle-Based System'. Now, the same system can be restored backed by strong automation.
Under the 'Circle-Based System', each circle can closely monitor the performance of all taxpayers falling within the jurisdiction of each circle. The proposal was conceived and floated by Shahid Hussain Asad Senior Member (Inland Revenue) Policy FBR which has been highly appreciated by top business groups and documented companies etc including PBC, OICCI and APTBA. It proved to be the best system in the past for controlling and monitoring taxpayers falling within the jurisdiction of each Circle.
The FBR strongly feels that around 1500 Circles be established across the country at Tehsil level and each Circle can effectively handle 2000-3000 taxpayers which would be a major step towards documentation and BTB, sources said. Details of the FBR proposal revealed that before Reforms, the basic Unit of Income Tax management was a Circle whose Officer In-charge was entrusted with all the responsibilities of maintenance of record, receipt and enforcement of income tax returns/statements, conducting audit and assessment, recovery of taxes, filing of appeals at various appellate fora, issuance of refunds and assisting the Commissioner in issuance of exemption certificates etc. Since all the work having been entrusted with one person, there was a unity of command, better understanding of issues and a sense of ownership among the tax officials.
However, as a result of the report issued by a Committee headed by Shahid Hussain on reforms in the existing taxation system in Pakistan, the working of Income Tax was distributed on functional basis at the Commissionerate level, with the objective of promoting specialisation and resulting into emergence of an efficient system giving quick disposal to issues and serving the taxpayers in a supposedly better and organised way. However, last ten years' experience indicates that working on functional lines has not yielded the desired results. Rather it has created lot of problems of co-ordination amongst various functional Divisions. It has also caused problems of ownership of the system and the sensitive case record of the taxpayers.
According to the FBR, the experience has also shown that an officer posted in one particular division/function fails to acquire the skills/learning and practical knowledge of the functions that relate to the other divisions. For instance, if an officer is posted in IP or Legal Division, he does not learn the assessment work and vice versa. Similarly the performance indicators of Audit and enforcement functions are conflicting. For instance, performance of Audit is gauged with the amount of created demand whether recoverable or otherwise, whereas that of the Enforcement Division is indicated by actual collection. This compartmentalised and uncoordinated effort is resulting in raising of irrecoverable demand, thus undermining the actual performance vis-à-vis collection and achievement of the assigned targets. This situation has created a disinterested, de-motivated and demoralized workforce which lacks sense of ownership. In the absence of a unity of command, the taxpayers have to go from one Commissioner to another Commissioner for redressal of their problems which consumes more time. Since one person is not responsible for resolving all the problems of a taxpayer, the issues are not disposed of as quickly as actually envisaged because everybody's responsibility is nobody's responsibility. This state of affairs is alarming. The purpose of reform must only be improvement of the system which, unfortunately, is not the case.
Sources said that the adoption of the functional system of working for the Inland Revenue Department has played havoc with revenue generation. The foot print of the tax functionary has been removed from most areas and has been restricted to the few Regional tax Offices and their linked Tax Facilitation Centres whereas there used to be more than 700 circles all over the country. This step was initially taken to minimise interface between the taxpayer and the tax-man but ultimate outcome has been an adverse effect on revenue generation. While in the previous system of having territorial circles the in-charge of the circle was responsible for the following functions:- Survey (Broadening of Tax base); maintaining (Custody of) Taxpayers' record; enforcing and receiving returns & statements; on ground verification of business activities including spot visits; assessment; recovery of taxes; monitoring and collection of withholding taxes; follow up of appeals and administrative matters pertaining to circle staff.
Sources said that the abolition of circle system has created chaotic conditions in the working of the tax machinery. Instead of consolidation of control over the affairs, the functional system has led to disorganisation and mismanagement. Above all the foot print of the Tax department that should have been increased to even lower levels of the society/economy and should have been visible in far flung areas is now not visible even in most of the district headquarters and all most all Tehsil headquarters many of which have large urban population centres and huge transactions in trade, commerce and industry (Both small and medium and large scale). Pakistan with the population of 180 million has a tax force of around 24,000 personnel both for IRS and Customs (Comprising mainly of lower grades as the officer cadre is only 1700) whereas Germany with a population of 80 Million has an Inland Revenue Officers force of 120,000, which includes only 6% lower grade officials. Pakistan collects revenue of roughly 17 billion Euros whereas German revenues are 620 Billion Euros.
Sources said that the issue of maintenance of record has suffered the most serious blow because of excessive and unmanageable number. Requisition of one file simultaneously by different divisions has resulted not only in destruction/disappearance but also in creation of a duplicate set of record at a huge financial cost of photo copying/ paper & stationery etc.
Sources said that the government need to revert to the Circle system immediately and even there FBR need to have smaller territorial circles with BS-17 and BS-18 officers managing those circles. While in the mufasil areas those circles can be managed even by BS-16 officers. The territorial limits can be determined by prescribing a threshold on taxpayer population within a circle like 2000 to 3000 live cases per circle. If one Assessing Officer is In-charge of all the functions including maintenance of record, the things would be much better co-ordinated and effectively handled. Due to reasonably sized units there would be better sense of ownership/motivation amongst the officers/officials etc as well as proper control and effective writ of the FBR.
Each RTO should comprise of 4 to 5 Commissionerates depending upon the work load/revenue involved. Each Commissionerate should comprise 3 to 5 Ranges headed by an Inspecting Additional Commissioner (BS-19) and each Range should consist of 4 to 5 circles headed by Assessing Officer of BS-16-17 & 18. Large Taxpayers Units, however, may continue to work on functional lines due to very small number (a few hundred in each LTU) of cases, sources added.