FBR identifies over 35 major taxation reforms
ISLAMABAD: The Federal Board of Revenue (FBR) has identified over 35 major taxation reforms like Reformed General Sales Tax (RGST) and creation of the Customs and Tax Fraud Division not completed, under the World Bank (WB) sponsored Tax Administration Reform Project (TARP).
Sources told Business Recorder, here on Saturday that the FBR has compiled a Project Completion Report (PCR) on TARP for submission to the WB. The Project Management Unit (PMU) of the Board has finalised PCR on details of reforms implemented so far under the TARP to increase efficacy and tax efficiency of the tax machinery.
The reform activities conceived improvement areas, but could not implement under the TARP, a National Intelligence Division (NID) encompassing Risk Management Unit (RMU) was to be created but still in limbo. Although the RMU has been established, it does not serve the purpose as envisaged in the original plan. The NID had to identify and prepare cases for investigation where a serious tax evasion or prohibition was suspected. The RMU had to analyze and report on the overall taxpayer environment and individual taxpayer performance along with level of risk involved. Complete elaboration was given in the reform strategy document explaining the related terms of references (TORs) of the organisation, FBR said.
After the introduction of home grown Customs Automated Clearance System, namely, Web-Based One Customs (WeBOC), an RMU is functioning at Karachi. The various Risk Criteria development committees have developed the RSDs for the Risk Management System, and it is presently being run by customs professionals supported by Pakistan Revenue Automation Limited (PRAL). The proposal to develop an office of the Director, Customs Risk Management System, at the business hub of Karachi and two Sub-Offices for North/ South alongwith a business and Information Technology Team is under consideration at FBR.
Sources said that the Customs and Tax Fraud Division (CTFD) was to be established. This again could not be done. Responsibilities of CTFD as given in the reforms strategy document included detecting and eradicating major frauds, international frauds and serious criminal offences which have posed an economic, industrial and social threat to Pakistan.
A detailed report on re-organisation of Intelligence & Investigation (Customs), FBR has been prepared by team of customs professionals but due to lack of patronage it could not be proactively followed, FBR said.
The FBR further pointed out that the Risk Management System has not been implemented across the board. This system will, in advance, identify the Customs transactions through sensitivity analysis and will assign the Goods Declaration (GD) Red, yellow or Green channel with respect to its sensitivity profile.
The proposal to establish a Directorate General of Risk Management System (RMS) does include future countrywide coverage by the system. However, at present it is only being run at three terminals at Karachi. Countrywide roll-out would require a study and system audit of the RMS after approximately one year (by May 2013) of its roll-out at QICT. Management information linkages to a number of Customs function have been established by the WeBOC development team. However, there is a need for a review analysis of this aspect also.
A Customs and Tax Fraud Division (CTFD) was to be established. This gain could not be done. Responsibilities of CTFD as given in the reforms strategy document included detecting and eradicating major fraud, international fraud and serious criminal offences which posed an economic, industrial and social threat to Pakistan, FBR stated.
A detailed report on re-organization of Intelligence & Investigation (Customs), FBR has been prepared by a team of customs professionals, but due to lack of patronage it could not be proactively followed.
The FBR has stated that the Risk-based Post Clearance Audit (PCA) has not been linked with selectivity, targeting and profiling processes. A consultancy study in this regard could not be done due to lack of time. The legislations relating to electronic assessment, examination of Goods, auctions and refunds still need to be carried .out as per re-engineered processes. The requisite legislation and rules have been in place for automated clearances done under the PaCCS system. The same would, however, require suitable modifications/ replacements with the introduction of WeBOC system.
The paper trail existing in the current procedure relating to the auction of goods has not been eliminated as envisaged. The IT System was to be developed which was supposed to provide necessary cargo accounting controls through reconciliation of manifests and Goods Declarations and to report un-cleared cargo for auction. Same has not been done.
The FBR stated that the rules regarding responsibilities of declarant and carrier are yet to be determined for their placement in the future clearance systems like One-Customs, WeBOC and Micro-Clear, etc. An elaborate set of rules exit for the trans-shipment and transit cargo handled by Customs, which besides other details, delineates the functions and responsibilities of carrier/transporter and the importer pertaining to the aforesaid bonded cargo. Future adjustments, based on requirements of the system(s) can be made in the said rules.
Goods Declaration (GD), introduced in 2003, has yet to be designed in conjunction with UNCTAD rules to conform to the international standard for Bills of Entry and Bills of Export, namely the Single Administration Document (SAD). The clearance document i.e., G.D in use is an updated version, FBR said.
The establishment of a Centralized Valuation Directorate to determine transactional value and to check under-invoicing through post-release verification is still pending. Clear delineation of work between clearance and valuation formalities on the basis of Article-III of the GATT Code have also not been carried out. Valuation has also not been integrated with assessment, FBR said.
The new improvised transshipment procedures relating to computerization of document and reconciliation between sending and receiving Customs offices have not been implemented fully. This also involves regular reconciliations of such consignments. However, system based reconciliations might experience regular problems due to untimely data feeding, software issues and related matters, FBR said.
The implementation of Customs Administrative Reform Program (CARP) for introducing new multi-modal procedures thereby enabling the authorized carrier to ensure sanctity of cargo between the port of first entry into Pakistan and the final port of destination for imports and exports has not yet been carried out. Though the provisions of multi-modal transportation of goods exit in the Customs Act, 1969, detailed rules are not available in this regard, perhaps due to absence of such transportation in the country on a significant scale. This aspect, hence, can be marked as an area, which requires technical advice of the consultants/experts, FBR said.
The FBR pointed out that the creation of a Warehousing IT System to register, profile the licensees and assess risk relating to the into-Bond and out-of-Bond entries for access of auditors has not been done yet.
The safe transportation business processes ensuring Goods’ arrival at the warehouse of destination have not been re-engineered to incorporate, certain safety checks. Similarly, electronic communication with cargo custodians and other stakeholders has not been created.
Online access to laws, rules and other essentials information pertaining to the adjudication function is not yet established as envisaged in the reforms, FBR stated.
The FBR further stated that the centralization of refund system through automation was supposed to help in processing of refund claims and to separate low-risk claimants from high-risk ones. This has still to be achieved. The long-term goal of internal audit scrutiny of refund audit trails has also not been achieved.
The integration/linkage of Customs processes to other tax systems like Sales Tax and Direct Tax through full life-cycle support has not been achieved for refund of import duties.
The computerized support to customs duty and Tax Remission for exports fur rebate claims processing, their approval and establishment of communication between Custom House and the DSAO (Duty Suspension Audit Organization) is still pending, FBR said.
For imports under concession, FBR was supposed to develop electronic profiles of users of concessionary duty regimes, including their past imports and compliance history. This profiling was to be based on input-output coefficients for most efficient industry standards to apply them to qualifying importers and subsequent cross-matching with import data and audit findings. The same has not been done. The Export Classification System has not yet fully adopted Harmonized System to be reported on the basis of accepted international coding structure. The whole procedure of auction is being re-examined in FBR in light of suggestions that are being received from trade bodies/ stakeholders, FBR stated.
Regarding auctions, the associated IT System was to be developed which was supposed to provide necessary cargo accounting controls through reconciliation manifests against GDs and to report un-cleared cargo for auction. Same has not been done.
As envisaged in reforms, the procedures to prevent importers abandoning Goods and then buying them cheaply in auction have not been developed yet, FBR said.
During implementation process, hiring of consultancy services for following five activities were started but those had to be dropped due to time constraint: Compliance Measurement, Facilitation of Passengers at Airports/borders, Risk Management, Valuation and Bond Carrier Management.
The FBR further said that the removal of zero rating (apart from exports), exemptions, and special treatments under the sales tax act has not been achieved. This affects revenue collection and makes compliance and tax administration more complicated.
Among the Automated Key Performance Indicators (KPIs), the main tax administration indicator, i.e., the tax gap, has not been implemented yet and it cannot be produced automatically as part of the KPIs.
Pending Implementation of a reformed VAT/GST system will affect revenue generation significantly because of the current exemptions and zero rates and for the exclusion of services, FBR said.
Pending Implementation of the taxpayer ledger, being a high priority measure as it provides the record of what payments and charges have been made to a taxpayers’ tax-type.
The FBR said that an initiative agreed upon between the FBR and the Bank in April 2011 to establish a Wing and appoint a member exclusively dedicated to coordination and monitoring of the Action Plan has not yet been completed.
The FBR said that all this point in time, implementation of HRM policies has not been completed. The set of rules that will drive the management of HR in the future are not yet completed.
Similarly, the annual staff evaluation system using KPIs or other objective indicators to assess merit and performance has not been approved and still requires further analysis and design efforts.