The Asian Development Bank (ADB) has approved a $1 billion program to assist in reforming Pakistan’s tax system under the country’s new five-year tax policy, as revealed by sources from the Federal Board of Revenue (FBR).
They informed ProPakistani that an amount of $500 million would be provided during the current fiscal year (FY23), and the remaining $500 million will be granted during FY25.
The amount will provide logistics for the tax reform project.
The FBR sources also said that the government would soon announce a five-year new tax policy to implement the International Monetary Fund’s (IMF) conditions, for which a technical study has been completed.
They mentioned that under the policy, a carbon pricing tax will be imposed in all the relevant sectors of the country’s economy. It has also been decided to include this initiative in the National Tax Policy and to prepare a tax gap report for each sector.
The burden of the taxes in the federal budget will be transferred to each sector in a phased manner over the next five years, the sources revealed.
Furthermore, tax evasion will be closed and tax avoidance through collusion will be eliminated.
The government plans to bring massive reforms in tax collection through the five-year policy to increase the tax to GDP ratio, which currently lies at 8.5 percent. The sources said that the basic tax conditions will be changed to ensure voluntary payment of taxes, and transactions will be scrutinized to determine the actual tax efficiency. An electronic monitoring system will also be installed in the tax evasion sectors.
Pursuing the reforms, the Inland Revenue Code Bill will be presented in the National Assembly this month. A road map has also been prepared to extend the scope of taxes to all taxable income.
Additionally, a new system of cross-border transaction tax will also be implemented on the G20 model. Contact between tax officers and taxpayers will be eliminated, for which it has been decided to implement a third-party survey system.
The FBR will also introduce a mechanism to collect full tax from the pharmaceutical and petroleum refinery industry. An online monitoring system will be introduced in petroleum marketing and beverage companies, and production will be monitored to collect due taxes and crack down on fake brands.
The government is going to launch the IRIS-2, linking the Federal and provincial tax systems to a single portal, to implement the aforementioned policies, and the client audits of each sector will also be part of the policy.