Meaningful changes in realms of finance

Prime Minister Gilani has transferred Secretary Finance Salman Siddique to Revenue Division and brought Dr Wiqar Masood Khan back into Finance from the Textile Ministry. The retirement of Secretary Planning Aslam Hayat gave the opportunity to the Prime Minister to make the two key changes in all probability after due consultation with President Zardari.
Dr Khan has worked with Zardari in the Benazir administration. He was transferred from finance, despite opposition from the then minister Shaukat Tarin by the Prime Minister as he was said to be unhappy as being told that some of his expenditure orders could not be executed as the government was trying to curtail expenses to lower the fiscal deficit from nine to 5.5 percent as per commitment given to the International Monetary Fund.
Yearning to refurbish their offices and have new flashy vehicles, the blocking of demands of the newly elected PPP ministers earned Finance Secretary Dr Wiqar Masood the nickname 'Dr No'. Upon retirement of FBR chairman Ahmed Wiqar Minister Tarin, 22 months ago, wanted Salman Siddique to head the FBR. But a Grade-21 rank DMG officer Sohail Ahmad was selected by the PM to head FBR. Senior officers in FBR revolted and refused to work as some of them claimed seniority in service.
With few weeks left to present the federal budget FY10 - Minister Tareen had to personally intervene to ensure that no delay occurs in presenting the money bill to the National Assembly. The first challenge chairman Sohail Ahmed faced was to resolve the legal challenge against reorganising the FBR from four collection lines - Customs; Income Tax; Sales Tax and Excise Duty - to two ie direct taxes and indirect taxes.
Caught in the internal turmoil and then reorganisation - valuable time was lost by the FBR, as a result the tax-to-GDP ratio slumped and the reform process derailed with no visible improvement in tax-to-GDP ratio. Furthermore, FBR also failed to engage the stakeholders in a dialogue explaining the long-term benefits of Reformed General Sales Tax (RGST) replacing the existing law.
The imminent challenge facing Salman Siddique is to improve the tax management in order to fill the tax gap estimated at 67 percent within the existing law. FBR has to provide efficient and transparent service to taxpayers besides plugging the loopholes and minimise collusion between the payee and the collector causing loss of revenue. This requires FBR's technology capability to move ahead from just electronic filing. A seamless completion of entire transaction from the time of submission of returns to the automatic transfer of refund to the tax payer in their bank account needs to be operationally in place.
In order to overcome the perennial problem of low tax-to-GDP in Pakistan, the need to have a separation of policy formulation from execution of the policy has been repeatedly recommended. FBR needs to be confined to execution. Policy formulation of a fiscal tax policy with long term perspective and vision needs to be entrusted to a policy board outside FBR under the Federal Finance Minister with members drawn from among the crucial stakeholders as well as renowned economists and tax experts. The strategy formulation needs to be aimed at improving the business atmosphere and enhancing the capacity of FBR for tax collection.
Taking change at MoF for the third time Dr Wiqar Masood Khan is now faced with a bigger challenge than before. Stabilisation of the economy with the help of IMF was undertaken the last time when he was at the helm. Now the fiscal deficit is once again crossing six percent despite the help from the Fund due to host of issues among which the top most is poor governance. Dr Hafeez Sheikh has inherited the IMF programme from his predecessor. Derailment on account of failure to pass the requisite legislation by the end of the year is being feared. Pakistan is asking for an extension in the fund programme by six months or more, which in effect means rolling the RGST tax into next year's budget.
It is now up to the leadership across the political divide to agree on a minimum economic agenda which assures reduction in fiscal deficit and stabilisation measures aimed to enhance growth. But this does not imply that the fiscal improvement cannot be achieved under the current legal dispensation.
According to World Bank's sectoral analysis over 50 percent more revenue can be collected within the current law. It requires improvement, in capability of the tax body. Salman Siddique has his work cut out. Dr Wiqar Masood has to giggle and satisfy demands from all quarters from a shrinking pie. The challenge is doable provided the political bosses have the realisation that our friends are losing patience and people of Pakistan will exhibit their anger and frustration at the next polls - whenever held.