World Bank expresses concern over non-implementation of key reforms

The World Bank (WB) review mission has expressed concern over non-implementation of some of key reforms, including payment of sales tax refund only through the Expeditious Refund System (ERS), eliminating all kinds of manual refund procedures.
Sources told Business Recorder here on Friday that the latest report of the WB on the Tax Administration Reform Project (TARP) has shown that the FBR has to restrict sales tax refund through the ERS. In case the refund item is rejected by the ERS, it will remain pending in ERS till it is corrected or it has to be adjusted through either an audit or appeal. The WB observed that the measure of restriction of the sales tax refunds through the ERS has not been implemented by the FBR. This is an important measure that would further improve the sales tax refund system in FBR, but unfortunately it has not been implemented.
The WB observed that some major reform measures were either not implemented, or partially implemented, by the FBR. During the Bank's April 2011 mission, the authorities had agreed to implement a list of 22 measures that would help improve FBR's efficiency and effectiveness. The main unmet and partially accomplished measures are described below with indication of their current status:
One of the important measures was to create a Wing, and appoint a member, exclusively dedicated to coordination and monitoring of the WB Action Plan. However, the FBR has not implemented the measure.
The FBR has to establish a centralised Tax Audit Force (TAF), headed by a Director-General (DG), operating with a nation-wide jurisdiction under Member, IR, to conduct audit at the taxpayers' premises. However, this measure has been partially accomplished. A DG has been appointed to the task force, and a small number of auditors have been appointed as well. However, the task force has not started operations yet, the WB observed.
So far, the FBR has not established a centralised national appeals unit under FBR Member (Legal) to review the appeal cases as a result of the TAF audits. The WB stated that implementation of the measure has not started yet.
The WB observed that the FBR has to evaluate the reason for the high rate of appeals in taxpayers' favour and suggest specific measures to resolve the problem. However, the measure has been partially accomplished. The problems have been assessed, but a plan to put in place measures to correct them is yet to be prepared.
According to the WB report, the FBR has to establish a centralised selection for desk and field audits, based on risk profiling. The power of selection and notification should be given to the Board which may delegate this power. The measure has been partially accomplished. The centralised selection has been established, but field formation auditors still have to desk audit 100 percent of corporate income tax returns.
The FBR was also bound to implement the extension of the Active Taxpayer List (ATL) to income tax payers and withholding tax payers. Moreover, the FBR has to finalise the draft SRO already drafted for issuance. The measure has been partially accomplished. Legal aspects of the extension have been resolved. It is now necessary to put these measures in place.
The WB report said that the FBR has also not implemented another measure to disallow imports by non-ATL taxpayers. The FBR has not implemented this measure. As per WB, the measure would be a strong tool to deter non-filing, but has not been implemented yet.
Under the reforms, the FBR has to introduce, and fully apply, the system of e-notices to taxpayers, e-statutory notices, and application of fines for late filing/non filing. This measure has been partially accomplished by the FBR. The e-notices have been implemented, but e-statutory notices as well as automatic fines have not. This is due mainly to resistance to change as there are no remaining legal impediments to proceeding with these e-notices and with automatic application of fines.
The FBR had committed with the WB to create a procedure to notify, through newspapers, taxpayers who cannot be found or refuse to accept notification. This measure has been partially accomplished. Legal issues for this measure have been resolved. The FBR can now start using announcements in the newspapers to 'notify' non-compliant taxpayers who have not responded to other means of notification.
The WB report said that the FBR has to expand the Expeditious Refund System (ERS) to handle all zero-rated sectors and commercial exporters (ie all sales tax refund claims). This measure has been partially accomplished. The implementation of this measure is facing resistance, particularly by Audit staff. This should be resolved through coordination meetings with staff in charge of the ERS, PRAL and audit.
Another measure was to inform the FBR's field formations of both gross and net revenue targets. The FBR has not implemented the reform measure of communicating both gross and net revenue targets to the field formations. The WB pointed out that using only net revenue to evaluate FBR's performance is not appropriate because it creates wrong incentives for field formations. It promotes delays in the payment of refunds to taxpayers, which goes against the RGST introduction.
As per WB report, the FBR has to establish a plan for rolling out training in the Integrated Tax Management System (ITMS). The FBR has not implemented the reform measure. A firm date for the delivery of the training packages, along with the standing operating procedures (SOPs) to the field formations, has yet to be established and monitored. The users have required that training should be predominantly hands on.
The WB report said that the FBR has to finalise the specification of the taxpayer ledger project and the automation of the recovery officers' tasks. This measure has not been implemented by the FBR. Under the plan, the FBR will establish a protocol to convert existing paper ledgers to the new taxpayer ledger and proceed to populate the ledger with current payments/charges as they occur. The Board would charge the Core Business Domain Team and Enforcement staff to develop the arrears for the recovery officer's application. Target date will be set and Member Enforcement requested to monitor it.
The Board has to complete job descriptions of positions and the staff assignment to them as required by the new organisational structure in field formations. This reform measure has been partially accomplished. The FBR should define a clear date for these activities. Finalisation of job descriptions is taking too much time, the WB report said.
At the meeting between FBR and the Bank in November 2011 (held in Dubai) the following new items were added to the list of 'reform measures' to be implemented by the FBR: The first issue is related to the stuck up arrears (eg before the court or under a court stay). The FBR will prepare a plan to deal with these outstanding arrears. The second important reform measure is that the income tax refund is to be issued at centralised level as per the sales tax regime. The FBR has to implement the measure by December 31, 2011.
The third additional reform measure included reduction in the sales tax refund pendency. The FBR should reduce pendency by 41 percent as per plan established. The FBR should give special instructions to the field formations to get rid of refund with small discrepancies.