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November 15, 2019

A new tax agency


November 15, 2019

Prime Minister Imran Khan on October 3, 2019 approved an ambitious three-year plan to conduct nationwide surveys for tax assessment, evaluating wealth parked in real estate and implementing a new value-added tax system and “setting up the Pakistan Revenue Authority (PRA) by June next year and restructuring the Federal Board of Revenue (FBR) in the interim period.

The plan of the PRA and restructuring of the FBR has elicited criticism and strong opposition from the officials of the Inland Revenue Service (IRS).

On November 6, 2019, in an emergent meeting, the Inland Revenue Service Officers Association (IRSOA) dubbed the prime minister’s restructuring plan as “ill-conceived, flawed, and designed by vested interests”. The IRSOA in a press note warned that the uncertainty created by the approved plan “could be very damaging for the national revenue collection targets”.

The IRS officers are not against reforms or restructuring. What they want is to retain civil servant status, and no reduction in their seats/positions -- their career progression and indiscriminate layoffs. According to them, withholding taxes are not automatic and for their monitoring, a strong and competent workforce is required.

They have asked the government that, to dispel the prevailing perception of corruption within the FBR, stern action should be taken against personnel indulging in such practices. They allege that that Customs officers have already started a competing claim over taxes on imports and to remove this impression IRS officers need to be positioned at ports; this will also take care of the suspected maneuvering of taxes into customs duties.

No doubt, Pakistan needs a paradigm shift in the existing tax policy and revamping of the entire tax administration -- establishment of the PRA (the nomenclature can be different, like the National Tax Agency etc), capable of generating sufficient resources for the federal and provincial governments.

The real issue is what the best course of action for this could be. The decision taken by the premier, without public debate and input of all stakeholders, is not appropriate.

The establishment of a single agency should be through a democratic process. Consensus should be reached through a consultative process and then asking all the provincial parliaments to resort to Article 144 of the constitution for establishment of an autonomous tax agency, run by members of the All Pakistan Unified Tax Service (APUTS). The mode and working of the NTA can be discussed and finalised under the Council of Common Interests [Article 153] and its control can be placed under the National Economic Council [Article 156].

It is a fact that one major hindrance towards optimizing revenue collection is the scattered and haphazard tax collection through multiple authorities at the federal and provincial levels. The trend was further strengthened after the 18th Amendment, after which the provinces established their own tax collection agencies at the provincial level.

Although the 18th Amendment was widely appreciated by the provinces, it created fissures in the revenue collection authority of the FBR resulting in further decline in tax collection because tax on services fell in the provincial domains. On the one side, the move was hailed by the provinces but, on the other, taxpayers immediately started raising their eyebrows because they had to now face both federal and provincial tax authorities. All major Chambers of Commerce expressed their concerns and showed reservations on the scattered tax collection in the aftermath of the 18th Amendment.

The APUTS should function similar to the All Pakistan Unified Group (APUG) services such as the Pakistan Administrative Service (PAS) and the Police Service of Pakistan (PSP). The most salient feature of APUTS should be merging all tax agencies working at the federal and provincial levels. Like PAS and PSP, the officers of APUTS may be posted anywhere in Pakistan. The provinces will continue to enjoy the benefits and power under the 18th Amendment as is the case of the PAS and PSP.

The formation of APUTS would be a win-win situation for the federal government, the provincial governments, officers of all existing tax agencies and taxpayers. The APUTS will better handle tax matters all over Pakistan as a unified service. There will be better coordination among federal and provincial tax authorities that will eventually increase badly needed revenue. The PRA, manned by APTUS, will emerge as an efficient and accountable government body spreading over the federal government, all four provinces, Gilgit-Baltistan and Azad Jammu & Kashmir.

The formation of APUTS can usher in a new era of reformed taxation in Pakistan. It will be the beginning of the end to the British-era scattered tax system that was meant to subjugate the people. It will be the first serious step towards eliminating multiple tax authorities, and integrating taxes, thus paving the way for one-window operations in Pakistan. As a strong and accountable service, APUTS will have the courage to say no to illegal orders and political interference as envisioned by PM Imran Khan. Through better data coordination among federal and provincial tax authorities, APUTS will not only be better equipped with information for broadening the tax base but also would prove to be a gigantic step forward towards integrating taxes through national-level long-term strategic planning.

It needs to be highlighted that APUTS will in no way encroach the powers of the provincial governments, cantonment boards etc. Its working will be just like the working of PAS and PSP where the services of federal officers can be placed at the disposal of provincial governments, other departments and institutions. Furthermore, officers from provincial services may also be posted in the tax agencies of the provinces. In this regard, the Establishment Division may issue an Office Memorandum in terms of the Civil Servants (Appointment, Promotion and Transfer) Rules, 1973. A similar OM was issued by the Establishment Division when the erstwhile Income Tax Group was successfully transformed into the IRS back in 2010.

As an immediate measure, the Directorate General of Training and Research Inland Revenue (DOT) in Allama Iqbal Town Lahore can be transformed into the National Tax Institute (NTI) on the lines of National Police Academy in Islamabad.

At a later stage, a state-of-the-art NTI and Institute of Fiscal Research (IFR) may be established in Islamabad, for the long-run strategic objectives of PRA and APUTS. Here, all federal and provincial taxes such as income tax, sales tax, federal excise, customs, taxes administered by cantonment boards, property tax, agricultural tax, land revenue, capital value tax, registration fees, professional tax, infrastructure cess, registration fee and all other miscellaneous taxes could be taught in a strategically conceived national tax framework.

The writer is an advocate of the Supreme Court and adjunct faculty at LUMS.

Email: [email protected] com

Twitter: @drikramulhaq