All efforts in the name of tax reforms undertaken in Pakistan have miserably failed. These were nothing but mere patchwork here and there. Institutional reforms based on restructuring and redesigning the entire tax system have not been given any serious thought by our legislators and policymakers. The Sisyphean task of improving and reforming the incorrigible, outdated and outmoded tax machinery, mainly on donors’ demand, is a futile and fruitless exercise. We need comprehensive institutional reforms, along with the simplification of tax codes. Pakistan urgently needs a national tax agency that can ensure optimal collection of revenues at all levels—federal, provincial and local—with efficiency and through facilitation and education of masses. It will also save multiplication of costs and ensure ease of doing business as presently taxpayers have to deal with various departments and make multiple payments.
In a detailed write-up, it was stressed that all tax collection agencies in Pakistan should be merged into a single National Tax Authority (NTA), which should effectively enforce tax and revenue laws at federal, provincial and local levels, besides providing single window facility to taxpayers. Before establishing NTA, it is imperative that all the four provinces should be consulted and through democratic means a consensus must be reached for establishing an All Pakistan Unified Tax Service (APUTS) as suggested and elaborated in various articles.
One major hindrance towards optimizing revenue collection is the scattered and haphazard tax collection through multiple authorities at the federal and provincial levels. This was further strengthened in the wake of the 18th Amendment, effective from April 19, 2010. After the passage of the 18th Amendment, provinces started establishing their own tax collection agencies initially for collecting sales tax on services. However, the provinces lacked skilled manpower, tax collection expertise and other necessary human capital and paraphernalia to collect this tax at the beginning. To meet these objectives, the services of officers of Federal Board of Revenue (FBR) were requisitioned by the provincial authorities for their posting at provincial tax collection agencies on deputation basis. Resultantly, many of the FBR officers were sent to provincial tax agencies, namely, Sindh Revenue Board (SRB), Punjab Revenue Authority (PRA), Khyber Pakhtunkhwa Revenue Authority (KPRA) and Balochistan Revenue Authority (BRA).
Unless, all federal and provincial tax agencies are unified and harmonized, the dream of optimum tax collection will never materialize.
Although the 18th Amendment was widely appreciated by the provinces, it created fissures in the revenue collection authority of the FBR, resulting in a further decline in tax collection because tax on services fell to the provincial domains. On one side, the move was hailed by the provinces but, on the other, the taxpayers immediately started raising their eyebrows, because they had to now face both federal and provincial tax authorities.
All chambers of commerce in the country expressed their concerns and showed reservations on the scattered tax collection in the aftermath of the 18th Amendment. It is important to mention that Excise and Taxation (E&T) departments have historically been working under the provincial governments. The E&T departments have no formal administration connection with PRA, SRB, KPRA, BRA and other provincial tax collection agencies. Unless, all federal and provincial tax agencies are unified and harmonized, the dream of optimum tax collection will never materialize.
None of the governments since 2008 have shown seriousness in moving towards fundamental structural reforms to address the administrative issues of tax collection necessary for optimizing revenue collection as per the country’s potential. In this regard, the formation of APUTS will be the first major step towards harmonizing the tax system and culture in Pakistan. The proposed APUTS will function similar to All Pakistan Unified Group (APUG) services such as Pakistan Administrative Service (PAS) and Police Service of Pakistan (PSP).
The proposed model of APUTS will initially harmonize three main tax agencies: (1) FBR, (2) provincial tax authorities: PRA, SRB, KPRA and BRA (3) provincial Excise and Taxation departments. The officers will be posted anywhere in Pakistan, both at federal and provincial levels. An officer of the rank of Joint Secretary from Establishment Division may also be posted who will establish liaison with FBR over administrative issues of posting and transfers of officers. Officers performing better will be given station of their choice, while the corrupt and inefficient shall be posted outside the province as punishment.
The NTA must replace FBR and all provincial revenue authorities that have miserably failed to collect revenues according to their actual potential.
The provinces will continue to enjoy the benefits and power under the 18th Amendment as is the case of working of the PAS and PSP officers. The formation of APUTS will be a win-win situation for the federal government, the provincial governments and taxpayers.
The proposed APUTS will have following advantages towards maximizing revenue collection at the federal and provincial levels:
- The officers will be posted anywhere in Pakistan, both at federal and provincial levels, through centralized postings/transfers.
- The taxpayers will feel better that they are in fact dealing with only one organization, the IRS, for paying taxes and redressal of their grievances.
- The formulation of APUTS will better handle tax matters all over Pakistan as a unified service just as PAS and PSP. There will be better coordination among federal and provincial tax authorities that will eventually increase badly needed revenue.
- Inland Revenue Service (IRS) will emerge as a strong but accountable government service spreading over the federal government, all four provinces, Gilgit-Baltistan and Azad Jammu & Kashmir.
- APUTS will help the federal and provincial governments to achieve tax targets.
The NTA, having officers from APUTS, will be a competent and effective body, representing all constituents of the federation of Pakistan. NTA having nation-wide data at one place and centralized processing, will certainly be able to compel all taxable persons to fulfill tax obligations and pay due taxes under various tax codes.
The NTA must replace FBR and all provincial revenue authorities that have miserably failed to collect revenues according to their actual potential. For example, provincial Revenue Boards have not been collecting agricultural income tax, imposed since 2000. The collection of less than Rs. 3 billion by all provinces together on this account in fiscal year 2022-23 is highly lamentable. In the same manner, provincial excise and taxation departments are not collecting taxes they are entrusted to administer. Same is the story of PRA, SRB, KPRA and BRA in respect of sales tax on services—their capacity to tax all taxable services in their entire territories is quite inadequate.
At present, at both the federal and provincial levels, tax collection is highly unsatisfactory. All broad-based and buoyant sources of revenue are with the federal government and contribution of provinces in total tax revenues is only seven percent.
FBR needs restructuring as a short-term reform measure before it is merged in NTA. In the long-term Pakistan must have single tax agency that collect taxes as well disburse benefits like universal pension and income support etc. The database of NTA and its digitization will be a great step towards e-government model for the country that is presently non-existent. The model of Canadian Revenue Authority is worth consideration and adopting after suiting our peculiar needs and requirements.
The best example of an efficient tax structure is that of Sweden where tax agency, Skatteverket, has a database of each and every person, natural or juridical. Skatteverket is accountable to the government, but operates as an autonomous public authority. This means that the government has no influence over the tax affairs of individuals or businesses.
The main functions of Skatteverket are collection of taxes, registration of population and estate inventories. Everyone who lives in Sweden is registered with Skatteverket. Everyone who is registered is issued with a personal identity number, which is used in contacts with government agencies etc. Each personal identity number is unique and is made up of the person´s date of birth and a four-digit number.
Skatteverket processes a great deal of data about private individuals and companies. Everyone has a right to know about data processing under section 26 of the Personal Data Act - Pakistan still not have such legislation. One can always contact a tax office or the Head Office of the Skatteverket if any personal data is incorrect or incomplete or if there are any other questions about the processing of personal data. Had we established NTA on the pattern of Skatteverket today, we would not have any problem with national census or collection of taxes or managing land records. This is the kind of innovation we need to debate and implement.
At present, at both the federal and provincial levels, tax collection is highly unsatisfactory. All broad-based and buoyant sources of revenue are with the federal government and contribution of provinces in total tax revenues is only seven percent—in overall national revenue base (tax and non-tax revenue) it is around eight percent. This has made them totally dependent on the federal government for transfers from divisible pool or/and direct grants.
The performance of provinces in collecting agricultural income tax is extremely pathetic. The federal legislature has till today not imposed agricultural income tax within the Islamabad Capital Territory (ICT) which is its sole prerogative under Article 142(d) of the Constitution of Islamic Republic of Pakistan. It confirms sheer absence of the political will both at federal and provincial level to collect agricultural income tax from the rich and mighty in the Land of Pure.