Debate Over FBR Restructuring 

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According to a news report, the caretaker Minister for Finance, Revenue, and Economic Affairs, Dr. Shamshad Akhtar on February 3, 2024, constituted a high-powered ‘Implementation and Asset Distribution Committee’ [‘the Committee”] to undertake “all required actions for the Restructuring of the Federal Board of Revenue (FBR)”. Another new story reveals that “a tight deadline of 72 hours to finalize a legal package”. The notification of the Committee was suspended by the Islamabad High Court on February 7, 2024.

Dr. Shamshad, who is also Chairperson of the Pakistan Stock Exchange and Sui Southern Gas Company Limited, according to the news report, chaired “the first meeting of the committee was held on Saturday [February 3, 2024], immediately after the notification, during which the chairperson of the committee presented her plan for overhauling the tax machinery”.

Earlier, the Revenue Division notified the eight-member Committee to give effect to the FBR’s restructuring as well as two sub-committees “to prepare a slew of legal amendments in laws, finalise new statutes, and distribute the assets between the two new organisations”. The two sub-committee on the distribution of assets also met on February 3, 2024.

On January 30, 2024, the federal cabinet approved the FBR’s restructuring. Under the approved reforms, there will be a Federal Tax Policy Board in the Revenue Division. This Board will ensure formulation of national tax policy, fixation of revenue targets and liaison with the stakeholders. The Federal Finance Minister will be the Chairman of the Federal Tax Policy Board, while Federal Secretaries for Finance, Revenue and Trade, Chairman NADRA and experts of the relevant departments will be members of the Board.

Customs and Inland Revenue departments will be separated and would be led by Directors General (DG) of relevant cadres. Both the DGs will be fully authorized for institutional, economic and operational matters of their respective department. They will ensure the implementation of internationally adopted measures for digitization, complaint resolutions and transparency. There will be separate oversight boards for Inland Revenue and Customs. After approval of the restructuring plan, the caretaker Prime Minister, Anwaarul Haq Kakar, instructed, “There should be no clash of interests, while making appointments of experts”. He also directed the concerned ministry “to submit the draft summary of reforms to the upcoming elected parliament for necessary legislation”.

Immediately after approval, the Election Commission of Pakistan [ECP], according to the new report, “barred the caretaker prime minister from taking any action, terming it beyond his constitutional and legal mandate”. According to the ECP, the caretaker Prime Minister “should avoid major reforms in the FBR and keep it pending for consideration by the new government after the General Elections-2024”. The notification of the Committee “indicates that the interim government will prepare plans within four to seven days, but no timeframe for submitting this plan to the federal cabinet has been given”, the report added.

The approved restructuring involves the cessation of the FBR, leading to the creation of two new organisations and three new boards. Legislative changes, including enactments for Customs and Inland Revenue establishments, and alterations in respective rules and Rules of Business 1973, will be required for the restructuring’s implementation.

The terms of reference (ToRs) of the Committee as per the new report are:

  • Providing technical content for the formulation of statutory drafts to enshrine the core principles of operational autonomy and accountability of the tax administrations, separation of tax policy from tax administration, mandates of the oversight boards and mandate of the Federal Policy Board;
  • Monitoring the work of the sub-committees to resolve any disputes, expedite the drafting, review and approval of the legal instruments, and timely completion of their respective tasks relating to administrative & financial matters.
  • Issuance of necessary rules, regulations, notifications, and Statutory Regulatory Orders (SROs) as well as administrative orders and instructions.
  • Appropriate distribution of human resources and assets between the successor Organizations and Offices.
  • Equitable distribution of available financial resources between the successor organizations and offices.
  • Obtaining any required approvals from government to successfully implement the transition plan.
  • Ensuring seamless transition of the Federal Board of Revenue into its successor organizations and offices with appropriate legal & regulatory framework; and
  • Performing any functions ancillary or in addition to the above as assigned by the government, the SIFC or any other competent authority to implement the decision of the Federal Cabinet.”

The process of restructuring of FBR, from the very beginning elicited negative response from the officers and staff of Inland Revenue Service (IRS). In fact there was even a strike by one field formation in Karachi and warning from tax officers “to approach the higher judiciary if the caretaker finance minister rushes the approval of the summary through the federal cabinet”. There are no news of any such action on the part of IRS, expect earlier appealing to the ECP directly by one Deputy Commissioner (IRS) as reported in a news story.

The various news reports in January 2023 confirmed animosity between FBR high-ups and caretaker finance minister, Dr. Shamshad . According to a news item, the FBR officials were also “warning the government about the potential risks to the financial independence of the federation if further fragmentation of administration and taxes occurs without a well-thought-out strategy”. A number of media reports published also confirmed the decision by the Special Investment Facilitation Council (SIFC) to separate Pakistan Customs Service and IRS into two separate boards.

A media report published on February 1, 2024 claimed, “Sustained performance in income tax collection, coupled with a better show in previous months, has enabled the Federal Board of Revenue to achieve its seven-month target of Rs5.12 trillion. However, for the first time in this fiscal year, the monthly target was missed by Rs9 billion or 1.3%…..The tax authorities attribute the monthly collection shortfall to the interim finance minister’s drive to restructure the FBR, which they claim shifted focus away from the core goal of meeting tax collection targets”.

The above shows that IRS cadre will not accept the approved restructuring of FBR and in case of its implementation by the new elected government under the pressure of SIFC, there may be court battle. The resistance by IRS officers and animosity by some members of Customs Service towards any kind of constructive reforms are unfortunate. The SIFC should also realize that the only viable solution is comprehensive tax administration reforms, which are much-needed and long-overdue. The cosmetic changes of two independent boards will not help towards taxpayers’ facilitation and resource mobilization.  The structural reforms must be through a public debate involving all stakeholders, rather than discussing and implementing some half-cooked plans, as approved by the caretaker cabinet, behind the close doors.

The fundamental structural reforms of FBR should have been part of National Election Manifesto as highlighted by this scribe in an op-ed . However, the political parties, as usual, did not pay any heed. Now, after the general elections, all the political parties need to debate and agree that agenda for tax reforms would be their top priority. Pakistan cannot come out of the prevailing economic crisis, the worst in its 76-year-old history, unless tax system is completely overhauled and tax policy is rationalized to be pro-growth and people-friendly. This alone can ensure self-reliance for the country bringing relief for all citizens and bringing the nation back on the road to prosperity.

Pakistan needs to increase revenue collection at all levels to improve tax-to-GDP ratio to a respectable level of 20-25 percent—presently it is only 9.2 percent. This is not possible unless the new elected Federal Government after consultation with provinces introduces harmonised sales tax on goods and services and establishes National Tax Agency (NTA) as done by India in 2017. All existing tax authorities at federal and provincial levels should merge in NTA. The NTA should be modern, automated and efficient, manned by competent personnel and run by an independent Board of Management comprising officials of federal and provincial governments and independent professionals.

The idea of restructuring of FBR presented in Need for National Tax Agency, Business Recorder, November 1, 2013 was later elaborated in various articles, Need for National Tax Authority, Business Recorder, October 20, 2017, A case for National Tax Authority—I, Business Recorder, November 30, 2018, A case for ‘National Tax Authority’—II, Business Recorder, December 2, 2018 and Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms, Business Recorder, August 31, 2018.

The blueprint of federalised tax agency is available in Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020, PRIME Institute, Islamabad) and in Tax Reforms in Pakistan: Historic & Critical Review (PIDE, Islamabad).

There cannot be two opinions that FBR or any other tax collection agency needs to be run by a competent board as a short-term reform measure before all of these are finally merged into a single national tax authority. The officers of FBR in the past reportedly suggested the name: Pakistan Revenue Board (PRB).

The federalised tax collection agency, whatever may be the name, should not only be responsible for collection of taxes for federal, provincial and local governments but also to administer various social and economic benefits and incentive programmes, otherwise tax compliance will remain a distant dream. People must get free education, quality healthcare, decent housing/transport plus social security, such as universal pension, disability allowance, old age benefits, income support, child support, just to mention a few, in lieu of paying due taxes as suggested in There’s need for new tax model, Business Recorder, February 26, 2021.

The NTA can be assigned the task of collecting all taxes for the federation (levied in terms of Article 142 of Constitution of Islamic Republic of Pakistan [The Constitution]. This is necessary for reducing the monstrous size of multiple collecting agencies at federal and provincial levels that are marked with inefficiencies, incompetence and corruption and creating unnecessary compliance cost, rather than operating under one-window. Presently, taxpayers have to deal with multiple tax agencies adding to their cost of doing business.

On March 12, 2020, according to a Press release of Ministry of Finance, the National Tax Council [NTC] was established and its terms of reference (ToRs) approved. According to a Press report, “The harmonisation of GST is part of the World Bank’s budgetary support loan of US$750 to US$900 million”. It is mentioned in the report that as “suggested by International Monetary Fund (IMF), the centre and provinces have finally agreed to establish NTC “to resolve all tax-related issues, especially for the harmonisation of general sales tax (GST) across the country”. It confirms that our governments do nothing unless lenders/donors force them to do. It was decided that NTC would have technical level representations from the federation and federating units to resolve tax-related issues without amending the constitution.

The NTC has an executive committee, comprising federal finance secretary, Chairman of FBR, provincial finance secretaries and heads of the provincial revenue authorities, namely, Punjab Revenue Authority (PRA), Sindh Revenue Board (SRB), Khyber Pakhtunkhwa Revenue Authority (KPRA) and Balochistan Revenue Authority (BRA).

The executive committee of NTC, despite repeated requests by this scribe in various articles and books mentioned above, has failed to recommend the establishment of NTA to Monitoring Committee of the National Finance Commission (NFC). It could have been done by amending the Federal Board of Revenue Act, 2007 and passing of resolutions by all the provincial assemblies under Article 144 of the Constitution. Now it is not possible unless all the provincial assemblies come into existence after general elections on February 8, 2024.

The NTC should seriously consider the models of Swedish revenue authority [Skatteverket] and Canadian Revenue Authority (CRA) that not only collect taxes at all tiers of government but also extend benefits like social security, food stamps, universal pension and income support etc. The linkage of database of various bodies with NTA (complete digitisation) can be a great step towards an e-government model for the country that is presently non-existent.

The complete roadmap for achieving this goal is discussed in Time up for fiscal integration—I, Business Recorder, December 21, 2018, Time up for fiscal integration—II, Business Recorder, December 23, 2018, Overcoming fragmented tax system, Business Recorder, October 19, 2018, Doing business under scattered taxation, Business Recorder, September 7, 2018 and Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms, Business Recorder, August 31, 2018.

In the federal budget 2024 by a new elected government, the policymakers and legislature need to restructure the tax system to tap the real tax potential at national level and at the same time provide quality social services to the citizens, drastically cut wasteful expenditures, get rid of mess in energy sector and stop further bleeding of public funds on loss-bearing state owned enterprises (SOEs). The real dilemma of Pakistan is outdated, colonial-style administrative and judicial structures, elitism, cronyism, greed and corruption on the part of predatory elites.

_________________________________________________________

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media and cyber laws, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:

https://www.amazon.com/dp/B08RXH8W46  and

https://aacp.com.pk/product/pakistan-tackling-fatf-challenges-solutions/

He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).

He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

Dr. Ikramul Haq
Dr. Ikramul Haqhttp://www.thescoop.pk
Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media and cyber laws, ML/CFT, IT, intellectual property, arbitration and international taxation. He holds LLD in tax laws with specialisation in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served in the Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He has co authored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis). The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions available at: https://www.amazon.com/dp/B08RXH8W46 and https://aacp.com.pk/product/pakistan-tackling-fatf-challenges-solutions/ He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi poetry 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal). He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad. X: (formerly Twitter): DrIkramulHaq

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