ISLAMABAD: The Prime Minister’s Adviser on Institutional Reforms, Dr Ishrat Hussain has stated that there is a need to reform the tax system and the tax machinery; otherwise, higher fiscal deficit and borrowing will continue to increase the country’s reliance on the International Monetary Fund (IMF).

While briefing the Finance Standing Committee of the National Assembly presided over by Faiz Ullah on reforms being introduced in the Federal Board of Revenue (FBR) in the tax system, the adviser stated that the present government decided to bring about reforms in the FBR, and the process was started six month ago with $80 million World Bank Package as there was also IMF conditions in that regard.

The adviser added that without increase in tax base, tax-to-GDP ratio would not increase and underlined the need of tapping untapped areas with cut in tax rates to increase tax in percentage terms.

He said that as long as duties at the import stage would remain high, the smuggling issue would continue to remain a challenge.

The adviser added that the IMF had suggested some reforms to the government for obtaining its revenue targets, and regretted that during the last few years, tax filers had increased but revenue collection as a percentage of the GDP had contracted.

He further stated that automation system and digitalisation process would minimise the interaction between the taxpayers and the tax collectors, and elaborated the functional and organisational restructuring including improvement in human resources, policy management, integrity-management and reducing withholding tax and expenditure scope.

He said that a framework with timeline was prepared also included delegation of powers to the chief commissioners and commissioners and DG-level besides reduction in numbers of the FBR members from 13 to eight etc.

Hussain said that now revenue collection target would not be a performance indicator but increase in new taxpayers would also be a performance benchmark.

The adviser also revealed that the customs would be a lead agency for anti-smuggling and improvement in custom operation was also part of the reforms, and implementation of single-window operation would further improve the ease of doing business, and misuse of audit was being prevented through risk-based audit.

He added that under human resource improvement, a performance-based system was being introduced envisaging to remove incompetent official through early retirement and integrity management, and acknowledged that the reputation of the FBR had not been good because of the black sheep in the department.

However, the members of the committee appear unsatisfied, and stated that they had been hearing about such reforms for quite a long time but none of the governments have succeeded in accomplishing it

Chairman FBR Muhammad Javed Ghani said that in the past there was a heavy reliance on revenue collection at import stage because it was easy to collect and to achieve growth in revenue taxes at import stage – regulatory duty and additional custom duty – were increased but now this policy was being reversed.

As a result of heavy reliance in revenue collection at import stage, in 2018, imports were increased to $60 billion.

He added that custom duty at import stage last year and this year was reduced to set the policy in the right direction.

He added that revenue target during the first two months of the current fiscal year, gross and net, was higher than the target, despite higher refunds payments.

He said that the FBR decided to implement the weeding out deadwood through early retirement rules, dismissal corrupt staff through efficiency and discipline rules.

He further stated that the FBR was focusing on alternate dispute resolution mechanism for smooth functioning of the business.

Member Custom FBR informed that the FBR had taken necessary measures for trade facilitation through operational activities.

The meeting was also informed that the total stock of pending refunds liabilities had increased to Rs710 billion as on July 1, 2020, including the liabilities of past years even beyond fiscal year 2014.

The meeting was informed that income tax refund of Rs568 billion with Rs414 billion from 2014-2019 and Rs49 billion prior to fiscal year 2014 with current stock of Rs90 billion.

Sale tax refund stock stood at Rs142 billion and the federal excise Rs0.10 billion.

Member custom operation said that a study of two years back gave a figure of $7 to $8 billion smuggling as more than half of the mobile phones were brought to the country through smuggling, however, this number has been reduced, and revenue collection from mobile phones has increased from Rs15 billion to Rs45 billion as well as a number of mobile manufacturing companies.

He said that a crackdown would soon be launched across country with the help of law enforcement agencies.

A statement issued by the committee stated that the committee discussed the Pakistan Single Window Bill, 2020 (Government Bill).

Project Director briefed the Committee about the requirement of this legislation.

He said that PSW was a facility, which will allow the parties involved in trade and transport to lodge standardized information and documents with a single entry point to fulfill of all imports, exports and transit-related regularity needs.

He also apprised the committee that the PSW was finalised with consensus of the stakeholders, while providing legal basis for the approved functional, operational, governance and revenue model.

He added that the PSW will help to unlock Pakistan’s potential as the regional hub and trade and transit by simplifying harmonizing and automating regularity controls.

After detailed discussion, the committee unanimously recommended that the said bill may be passed by the National Assembly as reported by the committee.

Dr Muhammad Ishfaq, member FBR informed the committee about the updated status with regard to income tax and sales tax refunds.

The stakeholders were also present in the meeting.

They expressed their concerns on the problems being faced by the exporters due to FASTER System and its technical issues.

The committee expressed its grave concern about the long-time pending claims of income tax since 2007 to 2019, and directed the FBR for preparing a comprehensive briefing in this respect.

Dr Muhammad Ishfaq briefed the committee about the measures taken by the FBR for resolving of problems and the way forward.—ZAHEER ABBASI