THE finance minister has announced that the power of the Federal Board of Revenue to issue exemptions for specific parties from various types of taxes is being withdrawn.

This power was exercised via an instrument known as the Statutory Regulatory Order and to date so many SROs had been issued by the FBR that people had lost count.

Last year alone, the total tax lost due to exemptions was estimated by the finance ministry to be Rs477bn, with SROs accounting for more than Rs380bn of this amount.

Also read: PML-N gives new lease of life to tax exemptions

This is a staggering number and it is good that the government has finally mustered up the courage to roll back these exemptions.

It begins with withdrawing the power to grant SROs from the FBR, thereby closing off the discretionary decision-making that had devolved enormous power to the tax bureaucracy.

The next step will be to roll back the hundreds of SROs that have already been issued, which is when the revenue impact of the exercise will begin to be felt and the distortions introduced into the tax code begin to be eliminated.

This is a step that has been urged upon the government for almost three decades now, dating back to at least the National Taxation Reform Commission of 1985 if not earlier.

The fact that it is now going to be implemented — first via a presidential ordinance in the days to come, then written into law via the finance bill — indicates the government might be getting serious about tackling the structural bottlenecks that have hampered the revenue effort for so long now.

If the government can undertake this reform measure in earnest, and make a strong effort to pass legislation for State Bank autonomy as well as ramp up its attempts at broadening the tax net, it will be able to show the sceptics that it is serious about undertaking difficult structural reforms. The latter are the real measure of progress. There should be no backpedalling on this promise any longer.

Published in Dawn, May 13th, 2015

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