In the light of what was discussed in the first part, Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms, Business Recorder, August 31, 2018, the draft roadmap for harmonisation of fragmented taxes and consolidation of national tax agency and establishing NTA for public debate and for the national and provincial legislators as well as senators is as under:
In NTC, the very first step should be establishing All Pakistan Tax Services (APTS) and once consensus is reached all the tax agencies should be merged through amendment in the Federal Board of Revenue Act, 2007 as amended, renaming it as National Revenue Board [NRB] Act, 2021 after consultation and approval from National Economic Council in terms of Article 156(2). The mode and working of NRB can be discussed and finalised under Council of Common Interests [Article 153 of the Constitution] and its control can be placed under National Economic Council [Article 156 of the Constitution].
All serving CSS officers of FBR, PRA, KPRA and BRA would become part of APTS working under National Revenue Board [NRB] Act, 2021. They will have their seniority and other terms of condition as before. Those who joined through provincial public service commissions or recruited or transferred/promoted by some other means would only be made part of APTS as done recently by Pakistan Administrative Service (PAS) through a mechanism absorbing the Provincial Civil Services (PCS) and Provincial Management Service (PMS) Officers into the PAS through a competitive examination held by the FPSC for which advertisement has already been given in the newspaper. If PAS can do it, Inland Revenue Service (IRS) and Pakistan Customs Service (PCS) within FBR should also adopt the same mechanism.
For collection of harmonised sales tax on goods and services, new law would have to be passed in federal budget 2021, after resolutions by provincial assemblies under Article 144 of the Constitution. In the same manner, right to enact a uniform law for agricultural income tax (AIT) for all provinces and its collection given to NRB. In the Income Tax Rules, 2002, one page for declaration of AIT would be added to the income tax return and all the provisions of Income Tax Ordinance, 2001 relating to assuagement, recovery, appeals etc can apply mutatis mutandis.
Collection of AIT would be made by NRB but shares would be transferred to provinces directly. As regards, sales tax on goods and services, the transfer of sales tax on services would be directly to the province to which it belongs and distribution of sales tax on goods would be strictly under NFC Award. Alternately, if and when agreement is reached by all political parties, harmonised sales tax (HST) on goods and services can be given to provinces and agricultural income tax should be with the federal government under Article 142(a) of the Constitution by amending Entry 47 and omitting Entry 49, from Part I of the Fourth Schedule to the Constitution.
For each tax payment, there would be a distinct number to ensure transparency in transfer and distribution, as the case may be.
At a later stage, after successful merger of FBR, PRA, SRB, KPRA and BAR, those serving in provincial boards of revenue, provincial departments of excise and taxation and Military Lands and Cantonment Group (ML&CG) can also be made part of National Revenue Board [NRB] Act, 2021 and can join NRB. The principle of CSS and non-CSS cadre would remain the same as explained in Sr. No. 2 above.
Fresh batches through CSS exams for All Pakistan Tax Service posts instead of IRS. They would get specialised training in NTA and officers of Customs Group would also be part of APUTS.
The above can be further fine-tuned after input from all stakeholders, experts. However, it is imperative that before establishing NRB as an efficient and integrated tax administration, major information technology and human resource improvements in tax collection methods as well as effective audit techniques should be developed along with development-oriented tax policy. Tax reforms are meaningless without an effective tax administration and rational tax policy that can ultimately provide funds for social services to all citizens at grass root level as envisaged under Article 140A of the Constitution. Without wasting further time all the provincial governments must concentrate on devolution of political, administrative, financial responsibility and authority to the elected representatives of the local governments, after training candidates (preferably fresh graduates) with millions near home getting jobs for secretarial support of local governments, achieving the Prime Minister’s target for employment.
At the moment, there is not a single institute, exclusively engaged in fiscal research and teaching taxation. We do not have a chartered institute of taxation—as in the United Kingdom, Australia, Malaysia, Nigeria, Ghana and elsewhere. The business and law schools in universities, institutes, etc, in Pakistan cannot show even one comprehensive research study suggesting a pragmatic, workable tax policy to achieve the above cited goals. Present tax system discourages capital formation and investment and is the real cause of retarded economic growth, burgeoning fiscal deficit and insurmountable debt burden. But our economic managers are unable to fix them. They are not ready to accept that tax is a byproduct of growth. Rapid and sustainable growth can bring more taxes, but they are least concerned. For them tax collection numbers matter, but growth does not!
We need to incentivize corporatization of business. At present, there are only about 98,000 companies registered with SECP (Securities and Exchange Commission of Pakistan) out of which less than fifty percent are active and file tax returns. There are numerous anti-corporate provisions in the tax codes. Companies are maltreated by FBR (Federal Board of Revenue)—after collecting billions as ‘withholding tax agents’ of the state without any compensation; they are penalised for minor lapses that may neither be intentional nor willful.
Devising an efficient tax model for rapid economic growth in Pakistan requires an analytical study of all the irritants prevailing in tax codes, procedures and implementation processes. The main irritant is highhandedness, corruption and unprecedented high level of maladministration in tax apparatuses—both at federal and provincial levels.
We need research and public debate for suggesting solutions to remedy the situation and to promote taxation and business growth attracting domestic and foreign investment and ensuring much-needed jobs. For this we must establish National Tax Academy (NTA) where academicians, tax officials, practitioners, businessmen, and all other stakeholders contribute for devising holistic tax reforms aimed at incentivizing rapid growth. It can also provide a platform for earning degrees/diplomas by young Pakistanis, who want to adopt tax practice as career as well as training the officers of APUTS.
(The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE))
Copyright Business Recorder, 2021