Lack of political will behind non-implementation of RGST: World Bank

The World Bank (WB) has informed the Federal Board of Revenue (FBR) that lack of political will is a major reason behind non-implementation of the 'reformed general sales tax' (RGST) or value-added tax (VAT), affecting revenue collection, in the presence of exemptions and exclusion of services sector from RGST or VAT regime.
Sources told Business Recorder here on Saturday that the WB Review Mission has submitted a report to the FBR on the pending activities (non-achievements) under the Tax Administration Reform Project closed on December 31, 2011. According to the WB report, the government has not implemented 'reformed' VAT/GST system. This will affect revenue generation significantly because of the current exemptions and zero rates and for the exclusion of services from the tax base.
The reason for non-achievement is that the implementation of a reformed VAT/GST system has not been possible due to political problems, in particular the difficulty of reaching Parliament's approval. The report said that the VAT/RGST approval by Parliament has not been done. This has limited the revenue collection growth as some sales of goods are still zero rated, or exempt, and services are not yet included in the sales tax regime. The removal of zero rating (apart from exports), exemptions, and special treatments under the sales tax act has not been achieved.
This affects revenue collection and makes compliance and tax administration more complicated and costly. The lack of political agreement with for VAT/RGST implementation has prevented the anticipated expansion of the sales tax, seriously undermining FBR revenue mobilisation capacity. Delay in putting expeditious refund system (ERS) in operation also hampered VAT/RGST implementation. The ERS program was to prove to the taxpayer that the FBR was able to effectively process refund requests in a timely manner, thereby limiting the need for special treatment to some export sectors. There is also lack of political agreement to significantly remove zero rates and exemptions, the WB added.
The report said that the FBR has not been able to carry out a workflow review and automation of the appeals/disputes process. Currently, these functions operate with a paper-based system that cannot easily produce management reports. They cannot effectively track disputes through the system either. The workflow review and automation of the appeals/disputes process has not been started yet because the authorities decided to do it when the new' IT system has stabilised and new features are being added to it.
The FBR was unable to implement the taxpayer ledger. This is a high priority measure. The taxpayer ledger lies in the heart of the tax administration - it provides the record of what payments and charges have been made to a taxpayers tax type by specific period. Without a reliable taxpayer ledger, it is very difficult to have effective enforcement.
The taxpayer ledger has not been implemented yet because it has not been possible for the business owner group to decide on the strategy to capture old transactions from the paper ledgers, the report added. Another non-achievement is that the FBR was unable to carry out study to determine the tax gap. This is also critical as without knowing the tax gap it is not possible to accurately measure FBR effectiveness.
The tax department also remained unable to carry out business process review for the debt collection function. This is important and will be carried out together with the implementation of the taxpayer ledger. Carrying out of business process review for the debt collection function has not been completed due to delay in establishing a business owners group to do the review and in the activation of the taxpayer ledger. The studies to determine the tax gap were made for ST year of 2006-07 but were not made for the following years for lack of resources and lack of management decision, the report said.