The Federal Board of Revenue (FBR) has constituted a Steering Committee for Implementation of Inland Revenue (IR) Strategic Reform Plan (2021-2025) covering reform actions to improve tax administration in four strategic reform areas, i.e., improving tax compliance, strengthening tax administration, building institutional capacity, and reinforcing legislative framework.
According to a notification issued by the FBR here on Monday, Secretary Revenue Division / Chairman FBR has constituted a Steering Committee headed by Chairman FBR.
Members of the committee are Member (IR-Operations), FBR; Member (Reforms & Modernization), FBR; Member (IR Policy), FBR; Member (Audit & Accounting), FBR; Member (Information Technology), FBR; Member (Legal-IR), FBR;
Member (Public Relations), FBR; Director-General, Withholding Taxes, FBR; Director-General, Revenue Analysis, FBR and Chief (Tax Reforms), FBR would work as Secretary of the committee.
Member (IR-Operations), FBR shall be Head of Committee in the absence of Chairman FBR, the notification added.
Inland Revenue plans to address the challenge of low tax compliance through implementing a compliance risk management capability; improving registration, filing, payment, and reporting compliance; reducing the cost of compliance, strengthening the audit capability, and streamlining processes, and procedures.
Needless to add that greater use of automation for better service delivery and a data-centric approach is a key reform area. Leveraging existing data holdings and developing further data sources will allow the FBR to better identify compliance risks and allow the FBR to direct our resources to areas of highest risk.
Inland Revenue also endeavors to improve the skill set of its workforce and simplify and standardize the IR procedures by providing a common tax code. The IR Strategic Plan will be reviewed on an annual basis to ensure the program is still a sustainable and viable reform strategy. The envisaged reforms have the potential to structurally improve the performance of the tax system and make a significant contribution to revenue mobilization.
The report said that Pakistan’s revenue performance is relatively weak with the tax-to-GDP ratio decreasing from12.9 percent in 2017-18 to 11.4 percent in 2019-20. Comparator countries in our region show averages of 14-17 percent. Although the economy grew in recent years, tax performance stagnated or increased at a slower pace. This goes against the conventional fact that revenue performance tends to improve as countries become richer.
Moreover, the tax-to-GDP ratio remains below the tipping point needed to achieve the sustainable development goals (SDGs) and, more generally, secure robust and stable growth. There is increasing evidence supporting the hypothesis that it is hard to secure lasting growth with a tax ratio below 15 percent. Indeed, higher levels may be needed to secure broad-based sustainable development outcomes.
Estimates indicate that tax revenues are only at 62.9 percent of their potential. This is due to a narrow tax base with a low number of registered taxpayers and a low filing rate. The complexity of the tax system, the high level of informality, low tax morale, and weak tax administration are considered the main underlying causes.
Pakistan’s tax revenues rely heavily on federal taxes (about 90 percent of total tax revenues, which are mainly from indirect taxes). For instance, about 60 percent of the Federal Board of Revenue’s tax revenues of Rs3,361 billion in the fiscal year 2017 were collected from indirect taxes.
Most of the direct taxes come from businesses (corporate income tax) and property-related taxes, with a very low share of personal and Agriculture Income Taxes (AIT), the report added