ISLAMABAD: Regretting that tax collection had gone down despite increase in the number of tax filers, a key aide to Prime Minister Imran Khan warned that Pakistan would continue facing high deficits and the country remain dependent on borrowing and the International Monetary Fund (IMF) programmes without successful and meaningful reform of the Federal Board of Revenue (FBR).

At a meeting of the National Assembly’s Standing Committee on Finance and Revenue — presided over by MNA Faizllah Ullah — PM’s Adviser on Institutional Reforms & Austerity Dr Ishrat Husain said the number of filers of tax returns had gone up in recent years but unfortunately the tax collection had actually gone down.

He said that if the country’s tax system did not improve the higher fiscal deficit and needed borrowing to bridge it would continue to increase the country’s reliance on the IMF.

The present government decided to bring about reforms in the FBR. The process was started six month ago with $80 million World Bank funding since there was also an IMF condition in the reform programme to enable the government achieve revenue targets, he added.

Dr Husain said the automation system and digitalisation process taken under the reform process would minimise interaction between taxpayers and tax collectors. He also explained the functional and organisation restructuring including improvement human resources, policy management, integrity management and reducing withholding tax and expenditure scope.

He said a framework with timeline was prepared with salient feature of automation and digitalisation in the FBR as well as simplification of laws, human resources development, and delegation of powers to the chief commissioners and commissioners and DG level besides reduction in numbers of FBR members from 13 to eight. Also, from now onwards, revenue collection target would not be performance indicator but increase in new taxpayers would also be a performance benchmark.

The adviser said Customs would now be the lead agency against smuggling and improvement in custom operation was also part of the reforms. The implementation of single window operation would further improve the ease of doing business.

The misuse of audit would be prevented through risk based audit. Likewise, for human resource improvement, a performance based system was being introduced that would lead to removal of incompetent officials through early retirement, efficiency and discipline rules.

Also, the FBR was focusing on alternate dispute resolution mechanism for smooth functioning of the business. Without broadening the tax base, the tax-to-GDP ratio would not increase, said Dr Husain. He went on to add that a cut in tax rates and effective tapping of real estate and capital markets would help increase tax in percentage terms. He warned that as long as duties at import stage are higher, the smuggling would remain a challenge.

The committee members expressed their apprehensions regarding delay in outcome of the reforms. They were of the opinion that a time line in this respect must be defined.

Chairman FBR Javed Ghani said there used to be heavy reliance on revenue collection at import stage because it was an easy route to achieve growth in revenue taxes at import stage in the form of regulatory and additional custom duty etc but the policy was now being gradually reversed.

Published in Dawn, September 3rd, 2020