Changes in FBR’s functionality: Govt implements new three-tier hybrid administration

Single officer will have authority to carry out audit function

Shahbaz Rana March 04, 2016
Single officer will have authority to carry out audit function. PHOTO: AFP

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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Rashid | 5 years ago | Reply Whether they are companies, individuals or AOPs, functional system should be done away with all the taxpayers! It is a flawed system which handicaps the authorities during different successive stages. Corporate cases have all the need to get rid of functional system because the audit proceedings are more rigorous, detailed and deep, hence, one office should have authority on all functions including audit, enforcement and legal matters so that the case is dealt with holistically and effectively. Distribution of function allows for loss of detail during different stages, truncated flow of information from one function to another and lack of ownership. It is a detrimental system and should be done away with at all levels.
H.A.Khan | 5 years ago | Reply This is a very positive move.FBR has extremely low tax base and the move to this hybrid for of working will greatly assist the Government in expanding the tax base and re-establishing the writ of the government in tax administration. The functional system of operation failed in Pakistan due to personal interest of FBR officers who did not want to be in specialized functional verticals; eg audit,legal,enforcement etc. They wanted to be generalist.In addition the required IT support was just not available. Even today, the LTUs do not work in the functional mode as was designed during the reform phase of FBR. Tax Reform Commission after a lot of discussion,feedback and analysis had recomended this hybrid system which allowed LTU and Corporate zones to work on Functional basis and for the rest reverting back to territorial basis of working.The major focus of FBR for next 5 years was to be broadening the tax base.
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