With a slow but steady pace devolution is creeping into the domain of PTI’s policymaking despite the party’s tilt towards centralisation in decision-making at the federal level witnessed over the last two years. But devolution has yet to gather critical mass required for swift change.

The issues of institutional autonomy and empowering different ministries have cropped up from time to time to cut red tape and grant operational freedom to them to implement government policy decisions in an effective manner. It goes without saying that the activities of autonomous entities would need close monitoring and oversight of an honest government to improve their performance and ensure that they work for collective and not individual interests.

The recent reported initial reforms plan of the Federal Board of Revenue (FBR) envisages administrative and financial autonomy for the tax authority as well as for its regional offices, field formations, large taxpayer units, and model customs collectorates. It is significant that the autonomy will not be restricted to the highest administrative organisational level but the second tier of autonomous units will be empowered to make ‘independent’ decisions. This may expedite decisions in tax cases at the empowered second-tier level. The objective of the reforms is to effectively implement tax policy and raise tax revenue.

The dire need of urban renewal after the fallout of the current monsoon rains in Karachi has brought into the spotlight the issue of setting up of representative local bodies to independently resolve grassroots problems

There is also a move for launching a single filing of sales tax returns by taxpayers registered with the FBR and provincial revenue boards/authorities. The FBR is reported to be consulting the provinces for making necessary arrangement for introducing the new coordinated system. Such issues as data-sharing and clearing house are being thrashed out. The single filing of tax returns is a deviation from the earlier proposed centralised sales tax harmonisation policy.

The FBR is reported to have set up a working group of senior tax officials to draft a detailed document in the light of the guidelines given by the prime minister’s advisor Dr Ishrat Husain. As tax officials with intimate knowledge of the working of their organisation seem to have been assigned a crucial role in evolving and implementing a detailed plan of action, there is a greater chance of the reforms succeeding when compared to previous attempts.

Despite earlier organisational reforms, the FBR has not been able to raise the tax-to-GDP ratio to 15pc as envisaged over a decade ago in the 7th NFC award. The collection is stuck at around 10pc of the GDP though tax policies can also be partially (particularly tinkering with the tax code) blamed for it.

To increase tax revenue the reforms plan envisages that the FBR would be more focused on the implementation of tax policy. However, the importance of the FBR’s input in the formulation of tax policies and setting realistic annual revenue target cannot be over-emphasised. Overambitious targets need to be avoided because they create cash flow problems for the provinces, make economic planning difficult and tend to squeeze development spending.

Historically, there has been a strong though weakening trend to monopolise power and authority at the federal level. The question of granting autonomy to the State Bank of Pakistan to manage an independent monetary policy has been on the finance ministry’ agenda for a long time and the issue remains unresolved despite the International Monetary Fund’s goading and changes in governments.

When the issue was raised in a cabinet meeting on April 14, the prime minister’s advisor on Finance Dr Abdul Hafeez Shaikh informed his colleagues that the issue was under discussions among the stakeholders. Personally, he said, he was not averse to granting of autonomy to the central bank but thought it should be accompanied by checks and balances.

However, one can argue that the SBP’s mandate should include supporting economic development while controlling inflation. The preceding PML-N government’s policies had demonstrated that moderately high growth rate is possible with a subdued rate of inflation. However, it needs to be admitted that the SBP has aggressively tried to control damage to the economy caused by the outbreak of coronavirus and lockdown.

Similarly, the federal ministries/divisions want the Ministry of Finance to end the current practice of approval of the release of every financial instalment after the annual financial allocations have been finally budgeted. They insist that they should be allowed to use the earmarked funds independently to improve their efficiency and performance. In the first three quarters of the last financial year, the approval procedure for release of funds was relaxed to expedite disbursement of development spending. The issue is stated to be still under discussion.

The dire need of urban renewal after the fallout of the current monsoon rains in Karachi has brought into the spotlight the issue of setting up of representative local bodies (LBs) in three provinces and empowering LBs in all four sub-federation’s jurisdiction in order to enable them to resolve independently the aggravating grassroots problems.

The Sindh government has also come under pressure from the opposition to empower the local bodies to address Karachi’s civic problems.

Then there is the issue of the creation of South Punjab province which was a part of PTI election manifesto. Although the PTI leadership has not been able to create a separate province, the Punjab government is struggling to set up secretariats at Multan and Bahawalpur to facilitate the people there to get their problems solved nearer to their dwelling places.

Coming bank to FBR reforms, in an apparent move to curb corruption, the discretionary powers of the entire lower staff of the FBR is proposed to be curtailed. Some corporate executives think that discretion should be completely disallowed. They also feel that the FBR’s operations should be completely digitalised to make dealings with taxpayers transparent. The handwritten official file system should be abandoned.

In this context, a well-planned move would be to phase out the extractive withholding tax. Instead, the FBR plans to set up an automated surveillance and monitoring system for the whole value supply chain.

While the FBR needs autonomy with appropriate oversight, to maximise its operational efficiency, it is its responsibility to win the confidence of taxpayers to encourage voluntary tax compliance and the obligation of the government to use the taxpayers’ money prudently for the common good. But the institutional autonomy can only work without unwanted government interference. It needs to be ensured that autonomy exists not only on paper but in practice.

Published in Dawn, The Business and Finance Weekly, September 1st, 2020