Huzaima Bukhari, Dr Ikramul Haq and Dr Muhammad Babar Chohan
As the tentative deadline (Feb 25, 2019) for integrating the FBR, the PRAs and the MCBs is very close, it is high time for the PTI Government to immediately start taking concrete steps towards badly needed fiscal integration. It should not be a big job to immediately convene a meeting of the representatives from the federal government, the provincial governments, the ministry of defence, and the governments of Gilgit-Baltistan and Azad Jammu and Kashmir. The 18th Constitutional Amendment poses no hurdle in this regard as Article 144 of the Constitution clearly says:
If one or more Provincial Assemblies pass resolutions to the effect that Majlis-e-Shoora (Parliament) may by law regulate any matter not enumerated in the Federal Legislation List in the Fourth Schedule, it shall be lawful for Majlis-e-Shoora (Parliament) to pass an Act for regulating that matter accordingly, but any act so passed may, as respects any Province to which it applies, be amended or repealed by Act of the Assembly of that Province.
There is thus no need to touch the 18th Amendment or introduce a new amendment in the Constitution solely for the tax integration purposes. The solution is already provided in the Constitution and for better collection and appropriate representation in the APUTS, Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan will have no objection as the distribution of revenues will be within the four corners of Article 160 as amended by the 18th Amendment.
For integration of all the tax agencies at national and provincial levels, the only thing required is a resolution from all the provincial assemblies and those of AJ&K and Gilgit-Baltistan. The process of integrating the FBR and the PRAs does not require any Constitutional amendment or disturbing the 18th Constitutional Amendment as wrongly claimed and/or projected by some circles.
Pakistan needs a paradigm shift in revamping the tax administration at national level. Integration as suggested above would lead to establishment of National Tax Authority (NTA), capable of generating sufficient resources for the federal and provincial governments. This must be the top priority of the PTI Government. Following a democratic process, through consultation, all the national and provincial parliaments can agree to an autonomous NTA, run by the APUTS, comprising specialists and professionals that would facilitate people to deal with a single body rather than multiple agencies at national, provincial and local levels. The mode and working of NTA can be discussed and finalised under Council of Common Interest [Article 153] and its control can be placed under National Economic Council [Article 156]. By this process, all kinds of tax collection and operations will under NTA manned by APUTS. The policy formulations will be federalised as envisaged under Article 156(2) ensuring participation of federal government and all the provinces through Council of Common Interests (CCI), National Economic Council (NEC) and the Ministry of Inter-Provincial Harmony.
Eventually, it is the political will that is going to prevail. It is all about intelligently handling the power relations among various stakeholders. Like the provincial governments, the ministry of defence also needs a dedicated focus for taking back the tax component administered under MCBs. It is important to highlight that the MCBs may continue working as it is except surrendering their tax collection powers to the integrated tax administration formed by the government. It is also noteworthy that the ministry of defence is a federal organisation and transferring the MCBs tax component to the integrated tax system may not be treated as something more than mere changing the tax jurisdiction. However, no government or department would like that their powers are snatched away by the center, it is indeed all about rational exercise of power by the federal government that matters. The integration of taxes all over Pakistan is the first real test of robust tax policies and leadership of the PTI government.
The integration of taxes is the ‘real change’ that will not only be felt by the people but also the international community. Let the government be reminded that the inspectors of Financial Action Task Force (FATF) and Asia-Pacific Group (APG) had also highlighted institutional disintegration as the main hurdle in curbing money laundering in Pakistan. That means the integration of FBR, the PRAs and the MCBs before Feb 25, 2019, will be the first major step not only towards creating a harmonized and integrated tax system but also curbing illicit flight of money from Pakistan.
The second deadline (Mar 25, 2019) pertains to the issuance of O.M. for the formation of the APUTS by the Establishment Division. It is the second step after the integration of the FBR, the PRAs and the MCBs. This will be purely an administrative step by the Establishment Division. A similar O.M. was issued by the Establishment Division back in 2010 when the erstwhile Income Tax Group was converted into the Inland Revenue Service (IRS). At this stage, the Establishment Division may seek the concurrence of various occupational groups and services handling tax matters at the federal and provincial levels. That means the officers from the IRS, Customs, Pakistan Administrative Service (PAS) and the Military Lands and Cantonment Group (ML&CG) may be a given an option either to stay in their respective groups or join the APUTS. There is no harm if the officers from Provincial Civil Service (PCS) are also invited to opt for joining the APUTS on deputation basis. The long-awaited tax integration, once done, will be the real change in “Naya Pakistan”. It will not only undo the current disintegrated tax system of the British era, aimed at browbeating and harassing the masses, but also introduce a culture of institutional unification in Pakistan.
Once a unified and integrated tax system is in place, run by the APUTS across various field formations of Pakistan, their benefits will immediately emerge all over Pakistan. These benefits will include, but not limited to, facilitation to taxpayers, culmination of a culture of multiple taxation, introduction of a new modern integrated tax system, separation of tax policy from tax operations, an end to tax avoidance, and snubbing of money laundering and tax frauds. A robustly devised IT and technological interventions will have an intertwined impact on the entire economy of Pakistan where it will be very hard for the tax evaders and money launderers to steal taxes and park their illicit assets safely. For this purpose, the integration of FBR, the PRAs and the MCBs is the first major step requiring the government’s attention and time is really up for this intervention.
(Huzaima Bukhari and Dr Ikramul Haq, Advocate and authors, are Visiting Faculty at Lahore University of Management Sciences (LUMS). Dr Muhammad Babar Chohan is Additional Commissioner, FBR, holding PhD in Economic Planning from Massey University, New Zealand)