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Tax reforms: What needs to be done?

Tax reforms: What needs to be done?

ISLAMABAD: Tax reforms in Pakistan have largely remained a problematic area as after recent attempt during the Musharraf regime, it resulted into decline in tax-to-GDP ratio. Under Tax Administration Reform Project (TARP) funded by World Bank in shape of loan and UK based DFID through grants helped FBR for constructing brick and mortars by constructing beautiful buildings, purchasing vehicles but failed in expanding its narrowed tax base.

Now again FBR is going to seek WB’s assistance to undertake second phase of reforms with proposed assistance of $300 million. On Inland Revenue Service (IRS), there is a need to initiate new set of reforms to achieve the desired results.

In order to put things in proper prospective, it should be kept in mind that before reforms, the basic Unit of income tax management was a circle whose officer in-charge was entrusted with all the responsibilities of maintenance of record, receipt and assessment, recovery of taxes, filing of appeals at various appellate for issuance of refunds and assisting the commissioner in issuance of exemption certificates etc.

Although all the work having been entrusted with one person, there was a unity of command, with better understanding of issues and sense of ownership among the tax officials, yet there was a general perception amongst all the stakeholders of the system that a circle officer was over-burdened with work and dissatisfied with working conditions.

As a result of the report issued by renowned Shahid Hussain Committee on reforms in the existing taxation systems in Pakistan, the working of income tax was distributed on functional basis at the Commissionerate level, with the objective of promoting specialization and resulting into emergence of an efficient system giving quick disposal to issues and serving the taxpayers in a better and organized way.

However, several years experience indicates that working on functional lines has not yielded the desired results. Rather it has created lots of problems of coordination amongst various functional divisions.

The experience has also shown that an officer posted in one particular division/function fails to acquire the skills/learning knowledge of function that relates to other divisions. For instance, if an officer is posted in IP or Legal Division he does not learn the assessment work and vice versa.

Similarly, the performance indicators of audit and enforcement function are conflicting. For instance, performance of audit is gauged with the amount of created demand whether recoverable or otherwise, whereas that of Enforcement division is indicated by actual collection. This compartmentalized approach and uncoordinated effort is resulting in raising of irremovable demand thus undermining the actual performance vis-a-vis collection and achievement of assigned targets. This situation has created a disinterested, de-motivated and demoralized workforce which lacks sense of ownership. In the absence of unity of command, the taxpayers have to go from one commissioner to another commissioner for redressal of their problems. The purpose of tax reforms must only be improvement of system which unfortunately is not the case.

It is proposed that small composite divisions should be formed which would work under one commissioner and the functional distribution of work is delegated to grade 17/18 officers.

Each Commissionerate should have 3 to 5 additional commissioners of BS-19 and 25 to 30 Assistant Commissioners/ Deputy Commissioners of Inland Revenue (IR) (BS-17 and BS-18) who should have incharge of their units and responsible for all functions of record keeping, audit, enforcement and legal etc.