ISLAMABAD: The Federal Board of Revenue (FBR) has chalked out an Inland Revenue Service Strategic Reform Plan (2021-24) to remove multiplicity of taxes/rates and jurisdictional overlapping, strengthen audit functions, increase number of taxpayers, increase electronic services to taxpayers and redesign Inland Revenue Services (IRS) processes.
The draft plan will make the FBR a data-centric tax administration and improve performance in the foundation compliance pillars of registration, filing, payment and reporting and ensure that the FBR is seen as a tax administration with integrity.
The plan has identified four objectives to improve the overall compliance with taxation laws and to increase our revenue collections.
The objectives are to implement a compliance-risk management capability; improve registration, filing, payment and reporting compliance; reduce the cost of compliance; strengthen the audit capability and streamline processes and procedures.
The reform actions set out in the Strategic Reform Plan constitute the reform programme which will guide IRS transformation. The reform program implementation will be closely monitored, and would entail regular reviews and course correction, as and when required.
According to the draft plan, the key constraints to revenue mobilization at the federal and provincial levels include a narrow tax base fraught with exemptions and low registrations; weak tax policy design; and complex and fragmented tax administration due to which compliance is required for too many tax authorities and laws.
The reform program is based on an analysis of the strengths and weaknesses of tax administration informed by internal assessments and a recent externally conducted tax administration assessment.
Under the plan, the audit function needs to be strengthened to promote tax compliance and reduce the scope for discretion.
The FBR lacks an effective, centralized, risk-based audit function. In addition, there is no effective planning for audit activities, or monitoring of results, and insufficient staffing and, inadequate training. The FBR has moved to a basic risk-based format, however, audit operations remain distorted by revenue-target policies.
The low level of registration is one of the key factors leading to a narrow tax base.
A substantial part of the economy is informal, including mostly the agriculture and retail sectors, where the bulk of transactions take place in cash or in kind, leaving behind a little paper trail. According to available data, there are about 3.98 million taxpayers registered with the FBR. This represents only seven percent of the employed labor force in the country (about 54 million). Further the extent of exemptions and preferential treatments in some sectors, increase inequities and reduce the economic efficiency of the tax system.
The IRS Strategic Plan and its constituent reform actions will require well-planned and effective implementation. Implementation will consist of system reviews; process engineering; formulation and implementation of IT solutions; drafting and approval of legal provisions; and sourcing and management of technical resources and procurements.
To leverage the efficiency gains through the information technology (IT) systems, the business processes of IRS need to be redesigned. Purposeful processes will be delineated to serve the IRS’ internal requirements and needs for relating to taxpayers and other stakeholders. The redesigning of the processes will be made with a view to determining an orderly transition, the needs for human resource realignment and hardware and software requirements.
The Implementation Plan has been prepared to ensure optimal implementation supported by periodic reviews that ensure that implementation capitalizes on opportunities while also addressing constraints.
Strategic policy formulation and effective implementation, along with monitoring and regular reviews are key factors for sustainable reform and transformation. It is imperative to have a long-term vision and break it down into strategic interventions across the organization. The Strategic Reform Plan envisages the transformation of Inland Revenue into a world-class, technologically-savvy and taxpayer- centric service. The envisaged reforms have the potential to structurally improve the performance of the tax system and make contributions to revenue mobilization.
The policy formulation alone cannot fetch the desired results. It must be complemented with a well-developed Action Plan. The strategic reform plan is a reasonably ambitious document. It contains a number of reform interventions that may stretch the capacity of the FBR to deliver. Hence, it is pertinent to prioritize the activities with well-defined and measurable results. Otherwise, the reform outcomes will be at risk of not being delivered.
The IRS Strategic Plan will be implemented over the next four years. Implementation actions have been placed on a timeline set out in the preceding section.
A critical requirement of optimal implementation is to formulate a Change and Transformation Plan, and to organize an appropriately mandated, staffed, and equipped Change and Transformation Unit to steer implementation. An IRS Strategic Plan Steering Committee will be notified to oversee and steer implementation, it added.
The reform program will be governed by a Steering Committee which will be notified under chairman FBR, with all IRS Members servicing as its members. The Chief (Reforms and Modernization) will be the Secretary of the Steering Committee. The Committee will supervise, suggest timely course corrections, and make the necessary administrative decisions.
Copyright Business Recorder, 2022