AFTER running a functional tax mode, covering all taxpayers for almost 15 years, the Federal Board of Revenue wants to switch back to the circle-based system in the budget 2016-17, but only for the non-corporate segment.

The bulk of the tax is collected from the corporate sector. In sharp contrast, 2.8m among the 3.9m National Tax Number (NTN) holders of different categories don’t even care to file their tax returns.

The proposed restructuring envisages creating territory and job-specific tax administration offices at three levels ‑ the mega cities of Karachi, Lahore and Islamabad, and 12 regional tax offices in major cities.

Specific targets will be given to non-corporate chief commissioner to broaden the tax-base

To reach out to maximum number, the chief commissionerate for non-corporate taxpayers will be set up in mofassil areas ‑ three in Punjab and one each in Sindh, Khyber Pakhtunkhwa and Balochistan.

The FBR estimates the revenue collection will go up to Rs7tr from the existing Rs3.1tr over the next three years after the tax administration is reorganised.

Tax Reform Commission Chairman Masood Naqvi says his commission had proposed for reverting to the circle-based system only for the non-corporate taxpayers. He said the functional system will continue for the corporate taxpayers in the existing large taxpayers units (LTUs) and regional tax offices (RTOs).

The commission, he said, also suggested to the government to establish tax facilitation centres in mofassil areas for new taxpayers.

An expert, who is associated with the tax reforms, said the need for separation of corporate taxpayers from non-corporate taxpayers is to improve and assess the officials’ performance.

Currently, the performance of tax officials is judged on the revenue figures, without analysing as to whether the increase in the numbers was because of their efficiency or a weakening of the rupee, extensive withholding and presumptive taxation or tax rate hikes.

Specific targets will be given to non-corporate chief commissioner to broaden the tax-base.

In the existing RTOs, there are 10-20pc big corporate taxpayers, which generate maximum revenue. While in case of LTUs, 50 cases generate 90pc revenue. Data shows that the existing RTOs collect approximately Rs200-300m per month from non-corporate sector.

There is enormous room for taxing non-corporate business. In three mega cities ‑ Karachi, Lahore and Islamabad ‑ dedicated officers will perform specific jobs of assessment, audit, recovery and appeal.

An expert engaged in the tax reforms said the need for separation of corporate taxpayers from non-corporate taxpayers is to improve and assess the officials’ performance

The existing RTOs will be converted into RTOs (corporate) and they will work on functional lines. The offices of chief commissionerate (non-corporate) will also be located in the buildings of these RTOs.

The chief commissionerate (non-corporate) will handle all the responsibilities, ranging from assessment to recovery of taxes in his area or circle of operation.

Supporters of the circle-based system say experience has shown that an officer posted in one particular division fails to acquire the skills and practical knowledge of the functions related to other divisions.

For instance, if an officer is posted in policy or legal division, he would not learn assessment work, and vice versa. Similarly, the performance indicators of audit and enforcement functions are conflicting.

To maximise the number of taxpayers from 3,500-4,000, the FBR proposes six new chief commissionerate (Mofassil). These offices will work on circle-based system and do district tax profiling and mapping. The NTN was used as bases for establishment of chief commissionerate (mofassil). For establishment of one chief commissionerate require 80,000 to 100,000 NTN holders.

Tax official believe the implementation will not be a challenge as there is no huge cost involved. The officers with lower grade can be appointed as chief commissioners. However, these offices might need support-staff, which will be a challenge. The government is yet to finalise the appointment of 190 junior officers of customs and income tax despite lapse of more than a year.

The new tax administration would require mandatory training of personnel to improve their capacity in tax assessment, recovery, audit and IT etc. A key objective of these reforms is to minimise the withholding tax collection and gradually eliminate presumptive taxation.

Published in Dawn, Business & Finance weekly, April 25th, 2016