No point in reforming the irreformable

FBR is an organisation of the vested interests, by the vested interests and for the vested interests

Prime Minister Imran Khan is reported to have said now what his team should have come prepared for — the abolition of the Federal Board of Revenue (FBR) and raising a new organisation instead. I have said it before and for the umpteenth time that the FBR is beyond reform. The target to achieve is not doubling the tax revenue in five years — the PML-N had done that — but to double the tax-to-GDP ratio, if he is serious about recreating the welfare state of Madina. The rich have to be made to pay in proportion to their ability and the poor must benefit in proportion to their need. The FBR, in its present form, stands in the way. It is an organisation of the vested interests, by the vested interests and for the vested interests. Up till now, it has thwarted everything in the reform book — autonomy, pecuniary incentives, chairmen from other services and the private sector, automation, etc. The World Bank worked with it for good seven years and gave up. The Tax Administration Reforms Project worth $149 was finally evaluated as ‘moderately unsuccessful.’

A surgical operation is necessary. The first step, the separation of tax policy from collection, has already been taken. A similar separation should take place in provinces. Legislation and changes to rules of business should be made to abolish the FBR and provincial revenue bodies to create a single tax collection authority for federal, provincial and local taxes. Tonnes of evidence exist to show that a single window is good for collection as well as business. Let’s call it the National Tax Authority (NTA) and make it a subject under the Council of Common Interests (CCI) to respect provincial autonomy. (It is about time that the CCI had its own secretariat). New recruitment in the income tax and customs groups of the CSS should be stopped. The present lot can be asked to stay home. They will keep getting their salaries and receive pension on attaining the superannuation age. Those who can compete to join the NTA may do so, but after resigning from the present position. The cost to exchequer of maintaining these employees will be around 0.7 per cent of the taxes collected, which is far less than the potential of revenue that would be freed from their constraining rent-seeking. In any case, this huge machinery does not have much work as 66 per cent of the direct tax collection is through withholding agents while 75 per cent of sales tax on imports, 68 per cent of domestic sales tax and 60 per cent of customs duty are collected on 10 major commodities in each case.



The task of the NTA will be to collect taxes on behalf of the federal, provincial and local governments. It will collect taxes in accordance with the tax policy laid down by the respective boards and directly transfer to the various levels of government in accordance with the NFC award and other criteria for non-NFC taxes. Its own governance will have a board at the top with members appointed by the respective governments. This board will have the power to appoint, following due merit process, an operationally independent CEO for a period of five years. All other professional positions will be filled similarly from the market on contract basis. To ensure financial autonomy, the NTA will be authorised to deduct a certain percentage of collection for its expenses.

Target setting for the NTA should be in terms of expanding the base. Tax policy should also contribute to the base by levying an effective agricultural income tax and reintroducing wealth tax.

Published in The Express Tribune, November 23^rd, 2018.

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