Representational image. PHOTO: REUTERS
The plan, which was approved days before the government succumbed to pressures exerted by traders, also includes setting up the Pakistan Revenue Authority by June next year and restructuring the Federal Board of Revenue (FBR) in interim period, showed the official documents.
Prime Minister Imran Khan took these decisions in a meeting held on October 3 at the PM House, which he had earlier announced to make a public university. It carries some of the recommendations given by Tax Reforms Commission over three years ago. But the TRC proposals remained unimplemented.
However, the deadlines set in the plan appear ambitious and some of the steps that were approved had also been taken in the past but were subsequently reversed – like dividing the FBR’s operations between north and south zones.
One of the decisions of the meetings was immediate implementation of the fixed tax regime for shopkeepers and real estate sector. But this decision has become redundant after the International Monetary Fund (IMF) opposed the proposal this week.
The actions that the prime minister approved to implement from November 2019 to June 2022 require strong political will and full support from the bureaucracy. By compromising with the traders, the government has already shown signs of weaknesses that will keep haunting it in coming years.
The PM approved to launch nation-wide tax assessment and documentation drive from Nov 30. The drive has been planned to be completed within two years and detailed proposals will be submitted later on. It will aim at ascertaining untapped segments including businesses, real estate and industries.
It was decided in the meeting that the tax reforms “must not create a choking effect for economy” and correct taxation measures be taken with prompt implementation instead of entanglement in extended impasses.
It was also decided, in principle, to launch a nation-wide survey of immovable property, starting from Islamabad industrial area this month. The nation-wide survey of immovable properties should be undertaken and completed over the next two years, according to the PM’s decision. It has been decided to involve Ministry of Interior and Ministry of Defence for completing the immovable property survey.
The meeting also decided to consider a proposal from a Chinese company for a digital land survey.
The FBR’s broadening of tax base (BTB) zones have completed mapping of major shopping malls and plazas in the main cities but it was not clear whether the authorities used this information to enhance revenue collection.
The meeting was informed that in order to assess the wealth parked in the real estate sector a nationwide survey along with geo-tagging was imperative. A Chinese firm has offered to conduct the digital land survey but its proposal remains pending for the last two years.
VAT
The prime minister approved to fully implement the value-added tax regime for all business segments over next three years. The deadline for the full VAT implementation is June 2022 for the FBR.
The VAT will be progressively implemented across various segments commencing with 3rd schedule products and gradually absorbing the complex value chain products.
During the last stint of Dr Abdul Hafeez Shaikh as Finance Minister (2010-2012), the then government had tried to implement a VAT system under an IMF programme. But the Pakistan Peoples Party (PPP) government had to retreat after opposition from the business community.
PM Imran approved to enact VAT related legislation and formulate rules on need basis. The FBR will undertake surveys to assess particular business and industrial sectors to know the revenue potential of VAT of particular industrial sectors.
It was also decided to adopt the computerized national Identity card (CNIC) as common identifier by June 2020 –a thing that the FBR is trying to implement for the last many years without any success.
FBR restructuring
The prime minister directed the Ministry of Finance to formulate comprehensive proposal for establishing the Pakistan Revenue Authority (PRA) by June next year.
The ministry was also directed to make plans for centralised collection of GST on goods and services by the PRA –a decision that cannot be implemented without the support of the provinces.
The prime minister also approved to restructure the FBR including appointing a deputy chairman FBR for Inland Revenue and deputy chairman customs. The restructuring and new appointments will be made before end of November.
In the interim period, the FBR headquarters will be restructured on functional lines by segregating Inland Revenue and Custom Operations into North and South Zones.
On the customs side, there will be two members customs north and south operations, member transit trade and export and member legal and accounting.
There will be four director generals in grade-21 looking after exports and transit trade, strategic planning, investigation and prosecution, valuations, input-output coefficients.
On the Inland Revenue side, there will be member IR operations north and south, member taxpayers' audit and member legal and accounting.
There will be six director generals looking after investigations, strategic business analysis, international tax compliance, reforms & automation, VAT and broadening of the tax base and amnesty regime.
The approved restructuring included a Tax Policy Board that will be assisted by member human resource management and administration, member strategic planning, chief management information system, and member facilitation and taxpayers’ education.
There will be six director generals in addition to four members. The PM approved the post of chief management officer and also to initiate the process of total automation of the income tax architecture of the FBR.
In the Revenue Division, there will be secretary revenue, additional secretary customs policy, additional secretary income tax policy, additional secretary sales tax and federal excise and additional secretary international conventions.
The prime minister also approved to restructure the exiting regional tax offices, large taxpayers units, customs collectorates and district tax facilitation centres on fast track basis.
It was also conditionally approved to enhance the FBR’s collection charges from 0.65% of the total collection to 1% over a period of three to five years subject to increase in collection. The first review of collection charges will be undertaken after June next year.
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