ISLAMABAD: In a paradigm shift, the government has decided to implement a new three-tier hybrid administration system in the Federal Board of Revenue (FBR) aimed at broadening the tax base and reducing the size of the growing black economy by reaching out to small administrative units.
After experimenting for over 13 years, the government has decided partially to do away with current ‘functional system’. It has decided to utilise the best of both the current functional system and the earlier circle-based or territorial system.
Finance Minister Ishaq Dar on Friday gave the go-ahead for enforcing the new composite system during a meeting of the Tax Reforms Implementation Committee.
Under the new system, an income tax officer will have the authority to assess the income of an individual, perform the audit function - unlike the present system where a file of a tax payer is dealt by four officers working in isolation.
Against the current system of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs), where the government has decided that the RTOs will be further divided into two - the functional corporate RTOs for corporate clients and the territorial RTOs for individuals and Association of Persons.
In fact, the Taxpayers Facilitation Centres will be upgraded to the territorial RTOs.
Under the new regime, the large corporate taxpayers would still be treated under the present functional system while individuals and Association of Persons (AOPs) will brought under the old circle system, according to officials of the FBR.
Blame the system?
The Tax Reforms Commission (TRC) had proposed to change the present system - a recommendation that the FBR liked and further refined to enforce its writ at the smallest administrative unit.
Supported by international lenders, the functional system failed to achieve its results of broadening the tax base, according to TRC report. “One of the reasons for poor tax collection is the functional system of organisation,” notes the TRC in its final report. .
The number of non-filers having National Tax Number is four times that of the number of filers. The TRC said that what is very worrisome is that instead of increasing the tax base, FBR is losing active taxpayers.
Published in The Express Tribune, March 5th, 2016.
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