A new FBR: miles to go...

09 Mar 2019


IT is hard to tell whether Prime Minister Imran Khan’s warning to ‘create a new FBR’, if the existing one fails to live up to expectations, is an off-the-cuff remark or whether there is serious intent behind it. The PTI manifesto deals extensively with the Federal Board of Revenue and promises to turn it into a completely autonomous body, like the State Bank. It talks of an empowered tax authority that will be able to operate independently of government interference. In his first televised address to the nation, Mr Khan had also promised to begin his reform agenda with the FBR. The tax body has occupied an important place in his party’s scheme of change for the country, and if today the prime minister insists that he will build a new FBR, one can see a string of earlier such commitments that were made but that his government has so far not acted on.

The problem is that building a new tax authority is easy to talk about but difficult to accomplish. Thus far in all its consultations with its various advisory bodies, there has been no serious conversation under way about reforms in the revenue-collection authority. Back in November, a measure to separate the policy and operation wings of the FBR was announced with much fanfare. We were told that this would be a revolutionary step and would pave the way for deep-rooted tax reform in the country. Nothing much has come of this step. A cell has apparently been created within the finance division to deal with tax policy, but this is little more than a cosmetic measure. Other than this, the tax authorities have delivered a number of tax notices to certain high-net-worth individuals in the hopes of obtaining compliance, as well as realising some revenue. But over the past 10 years at least, successive governments have undertaken this exercise numerous times, and even though it helps keep some people on their toes regarding tax compliance, it yields little by way of structural change or revenue mobilisation.

In the meantime, the revenue shortfall is starting to bite. Latest data shows that the shortfall so far has reached Rs235bn and continues to increase. The tax effort is faltering and Prime Minister Khan is issuing emotional appeals to business leaders to pay their taxes as a national duty. Meanwhile, the finance minister also castigated the tax authorities for being too harsh in their dealings with the business community, and singled out issues such as the complexity of tax forms as inhibiting compliance. If there was any serious will or capacity on the part of the government to build a new FBR, surely its public utterances on tax matters would be far weightier than this. Revenues are key to stabilising the economy, and the government needs to get serious about it.

Published in Dawn, March 9th, 2019