Collecting taxes: Have you tried playing nice?

The Federal Board of Revenue has been advised to minimise interaction with them.


Shahbaz Rana August 21, 2011

ISLAMABAD:


As the government struggles to meet its tax collection targets, the World Bank and the United States have suggested a different approach: instead of harassing taxpayers, the Federal Board of Revenue (FBR) has been advised to minimise interaction with them and base tax demands on actual evidence, rather than collection targets.


Against the backdrop of rising complaints about harassment by tax officials, the FBR held a meeting on Monday to decide between two approaches – the first that would continue the current model which ends up making tax payments a pain for the average citizen but suits the civil service’s bureaucratic style, or a different model that may rely on less interaction but, experts say, produces better results.

FBR officials currently send tax notices to companies and individuals based on its own internal parameters without properly going over the records of the taxpayer, said sources. Tax officials then send an audit notice or a tax demand, which creates panic amongst the taxpayers who receive them.

Having those tax demands adjusted to reflect real income as opposed to FBR estimates can be quite a chore, which in turn frustrates and angers the less than 2 per cent of Pakistanis who are registered as active taxpayers.

According to the plan being proposed, the FBR would first analyse all available data, match it with third party records, and find substantive evidence of any potential problems before sending an audit notice. A provisional tax demand, according to the proposal, would also be raised only based on a similar evidence-based procedure.

“There has to be paradigm shift in audit policy. There is no room for harassment of taxpayers due to increasing scrutiny,” said an official of the FBR audit department.  He said that provisional tax demands are often raised based on the FBR’s own collection targets rather than any indication of wrongdoing on the part of the taxpayer.

The plan is being pushed by the Competitive Support Fund, a joint venture between the finance ministry and the United States Agency for International Development to help Pakistan’s economy become more competitive.

In terms of ease of paying taxes, Pakistan currently ranks 145th out of a total of 183 countries according to the World Bank’s 2011 Doing Business report.

Many experts see a direct correlation between Pakistan’s high tax evasion rates (the government estimates around 44 per cent of all taxes owed are never paid) and the difficulty in paying taxes.

The World Bank has proposed that the government establish a Central Audit Taskforce to introduce an element of accountability for the field officers who send audit notices to taxpayers. The Inland Revenue Service  has backed the proposal.

Published in The Express Tribune, August 21st, 2011.

COMMENTS (10)

Billoo Bhaya | 9 years ago | Reply

@TightDhoti: They did not come back from the Gulag. It will serve the Pakistani tax dodgers equally well. To start with Zardari, Sharif Brothers, all the MNA's, MPAs and Nazims, then Bureaucratic families. Did you know that when Salman Farooqi was arrested in the 1990s the police found Rs 14 crores in cash in his home. Then in lockers they found millions in foreign currency and jewelry. And now he is given the Nations Award. They are all traitors and deserve worse but the Gulag would be like a holiday.

Meekal Ahmed | 9 years ago | Reply

The author makes some good points. The fact that we are ranked 145th says it all.

A central audit task-force will comprise the same crooks as they are over-seeing.

The whole approach needs to be re-worked. In the advanced economies, you file your returns. That is considered full and final settlement. You can file on-line as well. No one bothers you.

If you go through a tax preparing firm, so much the better. They, not you, are responsbile for any errors.

However, there is an audit system. You MAY be audited. So you are required by law (in the US for example) to keep all your documents for SEVEN years in case your name comes up in the random audit. Even if you are audited, you are allowed an error/misdecleration of upto 15% and not pay any penalty.

All said and done, this tinkering with the edges will not do. We need a wholsale and drastic re-working of the tax regime. We don't need to re-invent the wheel. There are successful tax collection models in other developing countries. Study them and choose "best-practice".

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