Tax reforms: FBR accused of erecting hurdles

Federal Board of Revenue (FBR) was accused of creating hindrances in reforming tax system to broaden the tax base while government formed Tax Reforms Commission (TRC) maintains that revenue collection can be doubled in three years by implementing their recommendations.

“Reforms in tax system are a major issue,” TRC Chairman Masood Naqvi stated on Wednesday during a briefing to the Senate Standing Committee on Finance on their final report, which was handed over to the Finance Minister Ishaq Dar.

Another member of TRC said: “Things with respect to reforms are moving very slow.” FBR does not want reforms, said Committee Chairman and the TRC member endorsed him.

He said, “Our proposals have been divided into three categories – those which can be implemented in six months, those to be implemented within six months to two years and those to be implemented within two to five years and we are expecting those which have been agreed with the FBR will be implemented in budget for next fiscal year”.

An official of FBR stated: “We have put up agreed recommendations to the Finance Minister. He constituted an implementation committee to review and implement the agreed recommendations”.

The meeting was also informed that tax compliance level is very low at present and single most priority of the FBR should be to broaden and deepen the tax base. “The situation is very terrible and the number of filers has declined by 18 percent,” said Chairman Naqvi.

There is 19 to 20 percent compliance rate which needs to be enhanced, according to TRC. A three-member delegation of TRC also faced some tough questions as to how they would ensure implementation of their recommendations when, despite being members of implementation committee, have no clues about the person’s education appointed as head of IT in PRAL on their recommendations.

“You have failed to oversee the implementation of your first recommendation and were not part of the process,” remarked Chairman as well as member of the committee and the TRC delegation has no answer to their question.

The efficient and effective tax administration of FBR is the IT backbone of FBR which at present is being provided by PRAL. The system is not responding either to the needs of the FBR or the taxpayer. There is an urgent need to put PRAL under an Independent Board and PRAL should be headed by an IT professional CEO.

The chairman of the committee also read out letter of TRC addressed to Finance Minister, stating that government has reported instructions to commissioner appeals for not granting any stay in tax case has created concern among the tax professionals.

However Ashfaq Tola and Chairman of TRC stated that the matter has been resolved. TRC has in its recommendations emphasised on the measures to ensure increasing tax payers’ compliance level and strengthening implementation and wants an institutional framework on a permanent basis to monitor implementation with accountability to the Finance Minister and the relevant standing committees of the Parliament on a regular basis.

The TRC proposed measures to be taken within six months, to bring about reforms in tax system to improve the collection and broaden the tax base.

Those include; (i) constitution of a committee for simplification of laws; (ii) framework for monitoring implementations of Reforms on an on-going basis; (iii) ethics and Grievance Redressal System; (iv) functional and territorial jurisdictional; (v) IT Infrastructure; and (vi) cost of compliance as well as emphasis on corruption and liaison with NAB for implementation of recommendations on corruption.

The TRC also proposed that valuation of property at market rate can enhance tax collection along with utilisation of withholding tax data as well as data available with other authorities and formation of alternative dispute resolution (ADR) besides administrative reforms.

The committee decided to constitute a sub committee after the budget to thoroughly go through the report of TRC and come up with its views within six months. The Finance Committee also approved a bill to further amend the Foreign Exchange Regulation Act 1947 to allow the regulator (SBP) to impose a 0.5 million penalty on exchange companies on violation of law. –Business Recorder