Prime Minister Imran Khan in his first official speech to the nation promised reforming the Federal Board of Revenue (FBR), a better tax system and a whistleblower law to fight corruption, particularly in the taxation mechanism.

A political will for reform, a necessary element that was lacking in previous governments, will not in itself be sufficient to change the face of a disfigured revenue administration. The political will must translate into reform implementation aimed at dismantling the status quo.

Five decisions will determine the quality and level of its implementation. These decisions involve the federal government’s choices for key positions of FBR chairman, member customs, member Inland Revenue Service (IRS) operations, director general customs intelligence and director general IRS intelligence. These five posts largely decide the quality of workforce.

Ironically, the choices for these five positions backfired in the past few years. Most of these position-holders consolidated their personal gains at the cost of the organisation. They created exclusive and closed shells of insiders to dish out illegal favours and concessions to organised mafias minting billions while sacrificing public revenues in the process.

Sales tax should be taken away from IRS officers. Policy reforms should also eliminate the revenue administration’s undue tilt in favour of indirect taxation

Parting with the past practice while posting outsiders of known repute and organisational ability from the public or private sector to these positions is the key to creating the necessary implementation will and breaking the status quo.

Another vital step towards creating an efficient revenue administration is to immediately correct the staffing imbalance between the FBR headquarters and its field formations.

Field formations of both customs and IRS are abound in BS:21 officers who claim heavy perks, draw hefty salaries, promote organisational politics, encourage corruption, interfere with the functioning of BS:20 heads of departments but mostly have no useful work to do and no meaningful skill to contribute.

On the other hand, in the FBR headquarters, only two BS:21 officers — members of customs and IRS operations — have full a monopoly and executive control over the entire country’s revenue administration. This centralisation of power is too risky to ignore. The integrity or corruption in the customs service and IRS rises or falls with the character of these two powerful position-holders.

All of the BS:21 customs officers and many of the BS:21 IRS officers need shifting from field formations to the headquarters to equitably distribute and dilute power and responsibility in the FBR presently concentrated in two positions. Many of the other BS:21 IRS officers may be replaced by outsiders to break the exclusive nexus of insiders.

The induction of a result-oriented mindset in the strategic five positions of the revenue administration and correcting the present staffing imbalance will level the ground for bringing in tax policy reforms and an element of strong internal accountability.

The first tax policy reform is taking the sales tax out of the IRS officers’ weak enforcement hands and establishing it as an independent central superior service. The second policy reform should correct an undue tilt of the present revenue administration towards an indirect mode of taxation.

Also, a sales tax performance audit is sure to find inadmissible refund payments running in billions but active recoveries of sales tax standing at insignificant levels. These are signs of weak enforcement. Given the status of sales tax as an independent service, its officers will own it and will be exclusively involved in its better enforcement arresting the revenue leakages and raising collection levels.

The separation of sales tax from the IRS will also give IRS officers time and opportunity to concentrate all their efforts exclusively on the collection of direct taxes, including income tax, and deliver better collection. This will also correct the present tilt towards indirect taxation.

This correction is important for at least two reasons. Firstly, indirect taxes become part of the price that inequitably hurt the poor.

Article 3 of the Constitution prohibits exploitation in all forms and seeks enforcement of the principle ‘from each according to his ability.’ The present tilt towards indirect taxation is defeating this constitutional principle.

Finally, a whistleblower law is crucial to bring in more internal accountability in revenue administration. This will give insiders an opportunity to break the cycle and make disclosures of deliberate corruption to avert massive revenue losses.

Coupled with this should be Integrity and Discipline Wing at the FBR headquarters under an independent BS:21 officer to afford whistleblowers, public or private, an opportunity to seek disciplinary action against senior customs and IRS officers who remain largely immune from any meaningful internal accountability at present.

An interactive website for complaints will also instil fear among seniors that a word on corruption or speed money in their jurisdiction on verification will culminate in immediate transfer and disciplinary action. This will substantially discipline senior officers and cut down revenue losses.

Published in Dawn, The Business and Finance Weekly, August 27th, 2018