ISLAMABAD, Aug 31 Stepping back from its earlier decision, the federal board of revenue (FBR) on Monday announced the formation of the proposed Inland Revenue Service (IRS) as proposed by the World Bank for functional integration of income tax, sales tax and federal excise duty as part of the reforms of the tax administration.

This proposal was abandoned by the tax management following the stay order granted by the Islamabad High Court on a petition filed by the agitating customs and excise group on the plea that both taxes are different in procedure, collection, laws and regulations from the income tax. The court directed the FBR for not making any change in the status quo till further order.

A senior official in the tax department said that this reversal in the reform process did not go well during the third standby arrangement review of Pakistan's economy ahead of the release of third tranche in Turkey. To mitigate the anger of the donors, the finance ministry agreed with the Fund to establish two streams of taxes---IRS and Customs group.

A newly furbished Human Resource Source Wing established in FBR has been given the task for preparation of the organisation for the proposed service to be established on functional lines. The wing has already put in place a host of measures aimed at accelerating the pace of reforms process with a focus on re-organisation and capacity building of the human resource.

As agreed with the IMF, the government would form the new occupational groups within the FBR, revise the structures of regional taxpayer officers (RTOs) and large taxpayers units (LTUs) and amendments of all relevant laws and rules by September 15. According to the IMF documents, as a corrective measure Pakistani authorities will submit to parliament by end-September 2009 legislative amendments to harmonise the sales tax, income tax, and federal excise tax laws into one functional group with a view to facilitating tax administration.

Under the new structure, the responsibilities for sales, income, and excise taxes will be consolidated in one domestic revenue department. To reduce the risk of renewed legal challenges, a new occupational group encompassing the staff of the newly created department will be created within the FBR.

The new FBR management structure was put in place as of June 30, 2009 (by an executive Order of the FBR Chairman) and the functional reorganisation of the FBR, including the revision of the structures of RTOs and LTUs, will be completed by end-September 2009.

The PPP-led coalition government had reversed the seven-year old World Bank-funded project started in the year 2002 to reform tax administration owing to persistent pressure from the customs and excise group.

The World Bank also proposed to reduce the number of members' posts (BPS-21) at FBR to five and further rightsizing in the tax administration. But the government also reversed this decision by increasing the number of members to 12 instead of five.On the other hand, the reforms process was focused on three features, integrated tax management system, common taxpayers identifiers and common data warehouse, which did not happen despite spending millions of rupees on consultants and studies.

According to an official statement issued by the FBR said as part of these measures, a special presentation was given to Finance Minister Shaukat Tarin who visited the FBR recently to attend the DGs Conference. The minister appreciated the work done so far and called for its early completion to achieve the desired targets of the reforms programme.

The new service to be set up through an Act of the Parliament will replace the existing set-up, paving the way for a fully integrated tax administration of sales tax, excise and income tax in line with recommendations and aspirations of the stakeholders.

The renewed focus on the human resource management is also reflected in the appointment of a director general to head the all-important HRM Wing which was previously overseen by a chief. The move has resulted in various measures to reform and restructure the existing work processes with a view to enhancing the quality of skill sets and creating a performance-based reward system.