At the outset of his term, the first step Prime Minister Imran Khan promised was to set the Federal Board of Revenue (FBR) right, raising public expectations. Just before the completion of his first 100 days in office, the cabinet has approved the separation of revenue policy from administration.
Most importantly, the internal revenue audit wing will be placed directly under the prime minister and will be fully resourced unlike in the past 18 years, starting with Shaukat Aziz’s preference for self-assessment schemes, when the audit machinery was kept understaffed.
The top economic team led by the finance minister has been getting impatient with FBR chief Jehanzeb Khan to set the direction right within the Board. To show results, he has surrendered a lot of 22-grade officers to the Establishment Division.
In terms of overall reform, the change has struggled. On the customs side, for example, the reform has not gone beyond the separation of customs into operations and policy wings. On the Inland Revenue Service (IRS) side, the greatest innovations have been to catch last year’s late filers, subjecting them to a fine of 25 per cent.
The authorities have ignored a significant part of the FBR reforms
The authorities have ignored that a significant part of FBR reforms lie in true compliance of the provisions of the Federal Board of Revenue Act, 2007. Even separating customs into operations and policy wings is not an innovation in itself but merely a compliance of section six of the FBR Act. This provision seeks a separate policy board for the FBR and has so far remained confined largely to the pages of statute book.
The provisions of the FBR Act, if implemented properly, can emerge in the shape of innovative and promising tax reforms. The implementation of section 4(g) can deal a fatal blow to the corruption now rampant in the tax machinery and eroding performance. The provision provides for internal controls, checks and feedback procedures on corrupt practices to combat corruption.
To implement this provision, a separate Performance and Integrity Management (PIM) Wing can be set up within the FBR with an interactive website, postal address and contact numbers, all well publicised so that the public, when it detects instances of corruption, can complaint against them.
All the pending and future departmental enquiries into corruption — currently conducted as a formality by seniors of the accused officials, working in the same organisation and in many cases also partners in crime — may be entrusted to this PIM Wing.
Most importantly, the Wing may be headed by a BS 21 officer from outside the taxation services to guard against the possibility of collusion among old acquaintances in the tax machinery. Complaint verification may be made briskly and, on availability of a prima facie evidence of corruption, the accused officer may be relieved of his duties.
Section 4(j) provides for a system of accountability for competence and performance. There is hardly any trace of implementation of this provision within the FBR. The current performance evaluation system has long outlived its utility. In this system, some of the known corrupt and desperately incompetent officers succeed in getting outstanding and very good performance evaluation reports (PERs) and in securing their elevation to BS 21 and 22, if they possess the skills to please their seniors.
To implement this provision, performance evaluation through a system of Management by Objectives (MBO) may be launched in which senior and junior officers discuss and agree upon the performance standards and objectives to be achieved for the specified future period. Senior officers then continuously keep watch that the juniors are on track, facilitate and guide them in the process while documenting all proceedings and agreed upon achievements, and reflect them in the PERs of junior officers.
Section 5(a) and 5(f) respectively focus on making and implementing a human resource policy and transfers of officials on the basis of transparent criteria. The power of the top tax persons in the FBR currently flows from a blatant violation of this provision.
Within the Board, there is hardly any concept of a posting policy and officers’ career management. Personal likes and dislikes built on irrelevant factors determine officers’ placements irrespective of their performance and competence.
Section 5(k) provides for the formulation of performance standards and criteria for grant of rewards. Section 14(1) provides that the performance of each employee be evaluated on the basis of a databank maintained in the FBR and containing information from third parties.
In stark violation of this provision, rewards worth Rs400 million were dished out by top men of customs and IRS in the FBR in June this year on the basis of seniority and favouritism.
The provision can be implemented by empowering the PIM wing to maintain a data bank of performance as evaluated through the MBO system, its own intelligence and neutral third parties’ information to spot each year around 15 to 20 performers in terms of innovation, initiative and exceptional contribution opening new revenue channels, as an incentive for others to follow.
Several other provisions exist in the FBR Act that can transform the revenue body. However, top tax men have been taking undue advantage of relative ignorance of outside chairmen about the FBR’s legal framework and have been trampling the very law which created their offices.
Published in Dawn, The Business and Finance Weekly, December 3rd, 2018