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For the first time in the history of the country FBR is keeping pace with changes taking place on the tax landscape around the world. But the question remains the same: how far the move could be sustainable? My answer is, “I am quite hopeful”. I have reasons to believe that the new outfit is all set to accept challenges of transformation and serious enough to experiment.

They have taken the first step in launching POS integration though in a very hurried manner. The essential galore of incubation is lacking and the question of adequacy of present law is yet to be answered.

However, they have overcome the initial hurdles and now it is just a time game when the much wanted digital tax system is enmeshed in the fragile tax system of the country. They have taken the first step towards fiscalization but in a more methodical and calculated way.

Unlike the failed efforts of the past the tide is in their way this time. The much trumpeted “lack of political will” has given way to the full blown “politics of economic sustainability”. Fiscalization when viewed from the international perspective is a term used to describe in one sentence: the progressive development of legal regulations for the use of electronic recording systems.

The basic principles of fiscalization are the seamless recording of all sales data, as well as their protected storage to prevent manipulation, fight the grey economy, and report to the Tax Authorities. Even though basic principles are the same in all fiscal countries every country has its own set of rules that must be adhered to.

The first country that introduced the concept of fiscalization that we know today was Italy back in 1983 and the first country experimenting the first e-Invoicing system was Chile in 2001. ‘Fiscal country’ is a term used for a country that has adopted fiscalization as a means to control taxpayers, usually the retail and hospitality sectors.

The pandemic has provided impetus to the much wanted fiscalization but may be in a different way. The actual need of faceless trade has led to the faceless tax system.

This year has proven a dizzying challenge for the e-commerce and more so to the tax authorities to capture that ever changing transaction laden e-Commerce world. Businesses have shifted strategies, channels, and business models in an effort to thrive in a world changed by COVID-19.

The changed landscape has posed even a bigger challenge to the tax authorities around the world. It is still not clear how they are likely to respond to this elusive challenge.

FBR and the tax authorities like it are struggling to grasp the change in order to transform themselves. ‘Making Tax Digital’ is the call around the globe.

But the question that is to be answered is: Are the businesses ready for that especially in the countries like Pakistan where basic digitization is still a distant dream? For those responsible for the tax compliance, the past year has been confusing at best.

A startling 88 percent of financial workforce has faced challenges with sales tax compliance, with most facing multiple challenges of transforming their corporate entities alongside keeping abreast with transformation in digital tax compliance.

The complexity of maintaining digital compliance is forcing businesses to think through new approaches. E-Commerce can take place anywhere and anytime as people are now buying online more than ever before.

Brands are working on overdrive to navigate shipping, nexus laws, variable tax rates, and more in this dynamic and evolving commerce environment. While e-commerce sales have been an increasing source of revenue for businesses it has posed a bigger threat for the revenue authorities as it has opened up new avenues for evasion.

Direct-to-consumer brands and retailers are finding new excuses of overburdened tax compliances. Is FBR ready to accept this challenge? Apparently, it is but capacity constraints speak otherwise.

They have to overhaul their collection machinery in a completely new way. This gigantic transformation requires the replacement of a traditional tax collector with someone who is well equipped with AI and BI tools.

FBR has to think about reshaping PRAL to respond to the growing perfect storm of increasing complexity of sales tax or VAT, increasing regulation requirements, and increasing professional needs. Future tax compliance will all be revolving around compliance softwares. It is important that compliance software stays up to date with tax obligations for each jurisdiction.

Any automation software has to address the greatest number of Foundational and Functional needs of tax and financial professionals alike. Ideally, automation provides the key to addressing the biggest challenges of bridging the tax gaps, staying compliant, without sacrificing efficiency.

(To be continued)

(The writer is former Chairman Punjab Revenue Authority and a VAT expert)

Copyright Business Recorder, 2022


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