Creating hurdles: Implementation on TRC report put on backburner

Application of four most critical proposals has been deferred indefinitely

ISLAMABAD: Implementation on the Tax Reforms Commission report has been put on the backburner as only half a dozen out of 36 proposals have so for been fully or partially implemented, highlighting institutional resistance to much-needed reforms in the tax machinery.

The government has failed to implement the proposed reforms despite the strong commitment given by Finance Minister Ishaq Dar in October last year.

During a meeting of all stakeholders, Dar had prioritised these reforms in short-, medium- and long-terms.

The short-term recommendations had to be implemented within six months, medium in two years and long-term in over two years.

Out of 35 unanimous recommendations, which were also adopted by the Federal Board of Revenue, 21 had to be enforced in six months. Only four of the short-term reforms could be implemented.

In September 2014 Dar had set up a 25-member TRC to propose reforms in the FBR aimed at simplifying the laws, reducing corruption, plugging loopholes for tax evasion and broadening the tax base. Later on, it set up a seven-member Tax Reforms Implementation Committee (TRIC) to track progress.

Costs

The time to implement 60% of unanimously agreed recommendations has already lapsed, showed the documents. The same is the fate of the other recommendations. The implementations of four proposals, which are most critical ones, have already been deferred indefinitely.

The authorities have put the implementation of the proposal on discontinuing Rs25,000 and Rs40,000 worth prize bonds on pending. These bonds are often used to whiten ill-gotten money, according to sources.

The government has also deferred a proposal to withdraw immunity from probe against unexplained inward remittances. This is one of the biggest sources of whitening money used by all classes, said the sources. According to some estimates, about one-fifth of the country’s total remittances of over $19 billion are rerouted from Pakistan.

The fate of another important proposal - disclosing the stock of tax refunds - is also in limbo. The government is not ready to publish this vital information, as it would expose the volume of refunds that is shown as tax collection. According to some estimates, the volume of taxpayers’ refunds and rebates ranges between Rs270 billion to Rs340 billion. The government has so far admitted only Rs221 billion outstanding refunds.

The fourth proposal that has been deferred relates to compensating withholding agents. Due to the FBR’s own inefficiency, it has made every other business entity as its withholding agent, which has increased the cost of doing business. The TRC had proposed to give withholding agent at least 1% of the collection as compensation.

“Some of the recommendations of the TRC have been implemented in the last budget and we are soon going to hold the third meeting of the implementation committee to review the progress,” insisted Haroon Akhtar Khan, Special Assistant to Prime Minister on Revenue.

FBR’s unwillingness

The sources said that the bureaucracy was not inclined to implement these recommendations and see them as proposals put forward by ‘outsiders’. They are even not ready to convene the meeting of the implementation committee. The three members of the TRC are also members of the TRIC.

These are not indigenous reforms, according to FBR officials.

The proposals that are implemented, either partially or fully, are property valuations, approval of the Benami transactions Bill from Parliament, breaking the FBR field formations into functional and territorial jurisdictions and new taxation regime for a small company.

The implementation on the TRC recommendations is work in progress, said Nisar Mohammad Khan, the FBR chairman.

The other critical reforms that are waiting for implementations include simplification of tax laws, setting up an ethics and grievances redressal system, reducing cost of compliance for taxpayers and real performance evaluation of the FBR officers.

The FBR is also not willing to cooperate with other government departments for cracking down against tax evaders. It is also not ready to have liaison with National Accountability Bureau for curbing corruption with the FBR. The authorities are also reluctant to make FBR Audit wing functionally autonomous.

Published in The Express Tribune, October 11^th, 2016.

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