FBR: the end is nigh

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VIADr. Pervez Tahir
SOURCEThe Express Tribune
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It is no more a question of why, but how. First the Prime Minister talked about creating a new FBR if it could not be fixed. Now the Prime Minister is also convinced that the FBR is a waste that the country can no longer afford. It has sabotaged all attempts to reform. Recently, it has been eyeing a $400 million loan from the World Bank, forgetting the unmitigated disaster that was the earlier $149 million Tax Administration Reform Project. The proposals on the table include outsourcing the functions of catching tax evaders, recruiting new people or setting up a special wing to perform the task of broadening the tax base. The last two have already been tried without much success. New people, meaning people other than from revenue services, have been inducted as chairman. DMGs from within the government and private sector leaders failed to make any difference. Some set-up already exists in the name of broadening the tax base. A new wing will only bloat the bureaucracy. Outsourcing the netting of tax dodgers is new. Separated from the FBR, this is likely to degenerate into another FIA. Except for tax policy, all functions are intertwined in numerous ways and must be performed by one agency. The present FBR has a design defect to do just that. Therefore, it has to go lock, stock and barrel. One agency also means one agency for all taxes. One collection point has been found as the major contributor to the ease of doing business.

Also Read: Poor performance of FBR

The transition to a new organisation has to be carefully executed to avoid any disruption of revenue inflows and, consequently, the business of the state. Without immediately disturbing the existing organisation, work should start in right earnest on designing new machinery. For best results, it should be a tax collection agency, leaving tax policy formulation to a separate council of experts representing federal, provincial and local governments, with a secretariat of its own. Secondly, the number of taxes is obnoxiously large. It should be reduced. Let’s not forget that the purpose of levying general sales tax was to do away with the multiplicity of indirect taxes. Thirdly, it should be the only window for tax payment — federal, provincial and local. To make it constitutionally possible, the new tax authority will have to be placed under the Council of Common Interests. Fourthly, the agency should be made autonomous in its operation. Its governing board should have members from all provinces, with the federal government appointing the chairperson. Fifthly, the agency should be de-linked from the budget. To ensure financial autonomy, the authority will have the right to retain one per cent of the taxes collected for its own expenses. Sixthly, the authority will directly disburse the shares determined by the NFC and the PFC awards. Last, but not the least, the agency will be headed by a competitively selected chief executive with a fixed five-year, non-renewable tenure. All other staff will also consist of professionals to be paid market salaries. The existing revenue services should be pensioned off, with those able to compete for entry into the new agency allowed to do so. Fresh recruitment in income tax and the customs groups of the CSS should stop and the groups should be abolished. The new agency will have its own professional mechanisms for recruitment.

A single tax agency and a coordinated federal and provincial tax policy mechanism should also facilitate the age-old issue of removing the agricultural-nonagricultural distinction in defining income and the newly-emerging issues of defining services.

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Published in The Express Tribune, March 15th, 2019.

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