ISLAMABAD: After decades of lapses, the government on Friday took the first step to separate tax policy from revenue admi­nistration and notified the creation of Tax Policy Office (TPO), hea­d­ed by the finance minister.

The notification was issued following the federal cabinet’s approval on January 13.

The TPO, to be set up at the Ministry of Finance building, was part of the “government’s economic reform agenda,” according to the Finance Ministry’s notification.

The TPO will devise tax policies and proposals thro­ugh data modelling, revenue and economic forecasting, and the country’s international tax treaties and obligations, it added.

The ministry’s notification on Friday said appointments to the TPO will be made with appro­val of the Establishment Division and Finance Division on terms and conditions prescribed by the government.

Successive governments have announced plans — advised by international lenders — to separate tax policy and collection to ensure that the Federal Board of Revenue (FBR) only focuses on revenue collection.

However, a practical move towards this bifurcation remained elusive, mainly due to resistance from FBR.

Under the ongoing $7bn

Extended Fund Facility of the International Monetary Fund (IMF), Pakistan had given an undertaking to set up TPO under supervision of the finance minister to ensure it had sufficient teeth for policy implementation, according to IMF documents.

Finance Minister Muhammad Aurangzeb had given a written committee to the IMF to set up the TPO in the first quarter of fiscal year 2025.

However, it was delayed till the third quarter and notified just ahead of the IMF team’s visit to review the programme.

Under the commitment with FBR, the creation of TPO will enable it to concentrate on detailed revenue analysis.

The revenue authority’s input would, however, be sought by TPO on policy matters.

“We will equip the TPO with robust analytical capabilities, including expertise in data modelling and data analytics, revenue forecasting, and assessments of tax expenditure reviews,” the government said in its undertaking to the IMF.

“This will enable a thorough analysis of the distributional and financial impacts of tax measures.”

It added that an advisory board for tax policy issues, comprising external experts and stakeholders, would be formed to support and guide the TPO.

Published in Dawn, February 15th, 2025