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July 13, 2020

FBR, Customs developing reforms plan for revenue generation

National

July 13, 2020

ISLAMABAD: The Platform for Collaboration on Tax (PCT) – a joint initiative of the IMF, OECD, UN and the World Bank – published its Progress Report 2020 which states that FBR’s Inland Revenue Service (IRS) completed the first draft of its 5-year strategic plan that along with Customs would constitute the FBR medium- to long-term vision and mission of revenue collection.

The PCT Progress Report 2020 is the part of the PCT’s commitment to transparency by making its work plan and outputs publicly available to governments and relevant stakeholders. The report highlights activities that the PCT has carried out since June 2019 under three work streams: cooperation and exchange of information in domestic resource mobilization (DRM) capacity development activities, analytical activities, and outreach activities.

About Pakistan, the PCT Progress Report states that the government developed a Medium Term Revenue Strategy (MRTS) with close support from the WB. Drawing on comprehensive WB analytical work funded by DFID, the WB organized a number of workshops to help the Federal Board of Revenue develop a tax reform strategy that aims to address challenges with tax policy design, coordination between different levels of government, a narrow tax base, complexities in the tax system, compliance rates, the informal sector, and revenue administration efficiency. Since the last Annual Report, the MTRS has evidenced two important milestones in the last year. First, the World Bank has approved a large loan—the Pakistan Rises Revenue (PRR)—to support the Federal Board of Revenue (FBR) with US$400 million.

The PRR objective is contribute to a sustainable increase in domestic revenue by broadening the tax base and facilitating compliance. The loan is result based with annual targets. Once the results are attained the government and FBR will get the funds.

The results are linked to improvements of the tax policy, for instance the harmonization of the Sales Tax between the federal and provincial governments as well as administrative measures such as risk-based audits. Most of the first-year targets are in good course even though the Covid-19 crisis.

Second, the Inland Revenue Service (IRS) has completed the first draft of its 5-year strategic plan, which, along with the already approved 5- year strategic plan for the Customs Service, will constitute the FBR medium- to long-term vision and mission. The WB will continue assisting the FBR to consolidate the MTRS providing technical advice in the tax policy and tax administration including customs fields.

During the year, the report notes, the PCT has helped developing countries access good practices in international tax through its various knowledge and outreach activities. Another key activity of the PCT is the Medium-Term Revenue Strategy (MTRS), a comprehensive approach to undertaking tax systems reform for boosting tax revenues over the medium term, through a country-led and whole-of-government approach. The PCT Partners have so far engaged with 23 countries in discussing, formulating, or implementing an MTRS and country updates can be found in the report.

Despite the challenges posed by Covid-19, the PCT quickly adapted to a virtual delivery environment to support developing countries in building capacity to mobilize tax revenues. The MTRS approach will play a critical role in the PCT Partners’ efforts to support tax system reforms post-crisis, as countries focus on economic recovery and adjusting their tax system reforms in the light of new medium-term expenditure goals.