Prime Minister Imran Khan's address to the top officials of Federal Board of Revenue (FBR) on November 13, 2019 showed that his three-year-long tax reforms plan, approved on October 3, 2019, lacks proper homework, pragmatic research and solid planning. After giving and getting approval, he and his tax Czar (Shabbar Zaidi) are now seeking input of the tax bureaucracy!! Obviously, three-year-long plan was announced without any public debate and seeking inputs from experts and stakeholders. The plan includes amongst others: (i) a nationwide survey for tax assessment; (ii) evaluating wealth parked in real estate; (iii) implementing a new value added tax system; and (iv) setting up the Pakistan Revenue Authority by June next year and (v) restructuring the FBR in interim period.
It is reported that the Prime Minister accepted some of the recommendations given by Tax Reforms Commission in its final report given in 2016 but which, remained unimplemented. It is worthwhile to mention that in these columns we have been asking time and again to make public the report of Tax Reforms Commission that was declared confidential by the then Finance Minister, now a fugitive. This report relies on many of our recommendations and suggestions that were presented during the last 20 years in various columns and our books. This fact was duly acknowledged in the Tax Reforms Commission's report. Since our criticism of Federal Board of Revenue (FBR) was quoted verbatim and unholy alliance of political elite and tax evaders was exposed, Ishaq Dar and stalwarts of FBR decided to declare the report confidential. It is open violation of Article 19A. It is high time that the Prime Minster takes note of it and order Hafeez Shaikh and Shabbar Zaidi to make the report public without further delay.
Long before the submission of report of National Tax Reforms Commission, we made out a case for National Tax Authority (NTA) in these columns [Need for NTA, Business Recorder, May 22, 2015] and now the Prime Minister has desired its establishment by June, 2020 which is undoubtedly a laudable step.
The salient features of the three-year long tax planning programme are:
* "Nation-wide tax assessment and documentation drive from Nov 30, 2019. The drive has been planned to be completed within two years and detailed proposals will be submitted later on. It will aim at ascertaining untapped segments including businesses, real estate and industries.
* Tax reforms must not create a choking effect for economy and correct taxation measures be taken with prompt implementation instead of entanglement in extended impasses.
* Launching a nation-wide survey of immovable property, starting from Islamabad industrial area this month. The nation-wide survey of immovable properties should be undertaken and completed over the next two years. It has been decided to involve Ministry of Interior and Ministry of Defence for completing the immovable property survey.
* Considering a proposal from a Chinese company for a digital land survey. In order to assess the wealth parked in the real estate sector a nationwide survey along with geo-tagging was imperative. A Chinese firm has offered to conduct the digital land survey but its proposal remains pending for the last two years.
* FBR's broadening of tax base (BTB) zones have completed mapping of major shopping malls and plazas in the main cities but it was not clear whether the authorities used this information to enhance revenue collection.
* Prime Minister asked to fully implement the value-added tax (VAT) regime for all business segments over next three years. The deadline for the full VAT implementation is June 2022 for the FBR. The VAT will be progressively implemented across various segments commencing with Third Schedule products and gradually absorbing the complex value chain products. During the last stint of Dr Abdul Hafeez Shaikh as Finance Minister (2010-2012), the then government had tried to implement a VAT system under an IMF programme. But the Pakistan People's Party (PPP) government had to retreat after opposition from the business community.
* PM approved to enact VAT related legislation and formulate rules on need basis. The FBR will undertake surveys to assess particular business and industrial sectors to know the revenue potential of VAT of particular industrial sectors.
* Adopting the computerized national Identity card (CNIC) as common identifier by June 2020 -a thing that the FBR is trying to implement for the last many years without any success.
* Formulation of comprehensive proposal for establishing the Pakistan Revenue Authority (PRA) by June next year.
* The Ministry was also directed to make plans for centralised collection of General Sales Tax (GST) on goods and services by the PRA-that cannot be implemented without the support of the provinces.
* Restructuring of the FBR including appointing a Deputy Chairman for Inland Revenue and Deputy Chairman Customs. The restructuring and new appointments will be made before end of November, 2019. In the interim period, the FBR headquarters will be restructured on functional lines by segregating Inland Revenue and Custom Operations into North and South Zones.
* On the customs side, there will be two members for customs north and south operations, member transit trade and export and member legal and accounting.
* There will be four directors general in grade-21 looking after exports and transit trade, strategic planning, investigation and prosecution, valuations, input-output coefficients.
* On the Inland Revenue side, there will be member IR operations north and south, member taxpayers' audit and member legal and accounting.
* There will be six directors general looking after investigations, strategic business analysis, international tax compliance, reforms & automation, VAT and broadening of the tax base and amnesty regime.
* The approved restructuring includes a Tax Policy Board that will be assisted by member human resource management and administration, member strategic planning, chief management information system, and member facilitation and taxpayers' education.
* There will be six directors general in addition to four members. The PM approved the post of chief management officer and also to initiate the process of total automation of the income tax architecture of the FBR.
* In the Revenue Division, there will be secretary revenue, additional secretary customs policy, additional secretary income tax policy, additional secretary sales tax and federal excise and additional secretary international conventions.
* The prime minister also approved to restructure the existing regional tax offices, large taxpayers units, customs collectorates and district tax facilitation centres on fast track basis.
* It was also conditionally approved to enhance the FBR's collection charges from 0.65% of the total collection to 1% over a period of three to five years subject to increase in collection. The first review of collection charges will be undertaken after June next year".
Will the above actions achieve the fiscal consolidation that is one of the daunting challenges faced by Pakistan, especially the debt servicing?
(To be continued)
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)