The interim government’s attempt to restructure the tax machinery again has encountered a stumbling block after the Federal Board of Revenue (FBR) took a position that tax policy formulation cannot be transferred to any other department without new legislation.
Sources informed The Express Tribune that the FBR has sought guidelines from the Ministry of Law and Justice regarding whether the function of making tax policies can be separated from the FBR. Currently, the positions of Secretary Revenue Division and Chairman FBR are vested in one person, and the functions of operations and policy formulation are performed by the FBR.
The FBR’s move followed Finance Minister Dr Shamshad Akhtar’s proposal for a restructuring plan to separate policy functions from FBR operations. However, success has not been achieved yet due to ambiguity in the plan and possible legal changes that the interim government cannot make due to its limited mandate.
In the last week of November, the FBR wrote to the Law Ministry and sought its intervention on what it called “a contentious point” related to the restructuring of the FBR. FBR officials said that they have not yet received a response from the Ministry of Law.
Tax authorities are of the view that under the FBR Act of 2007, “tax policy formulation is a sole function of the FBR,” and in the present form of the law, this function cannot be transferred to any other division, nor can it be withdrawn from the Revenue Division.
The FBR urgently sought Law Ministry guidelines, pointing out that timely advice was crucial for the seamless execution of changes vital to transforming the FBR into an organisation exclusively mandated for tax policy execution.
The last government of the PTI had also decided to separate tax policy from the FBR. The then cabinet had decided to separate the policy and hand it over to the finance division, subject to changes in the FBR Act of 2007. However, the FBR never moved a summary to bring changes in its governing law, and the matter remained pending.
The FBR authorities believe that since the Law Ministry gave its views about amending the FBR Act in 2019, this position also bars separating the policy functions from the FBR without making legal changes.
Sources said that the FBR has also sought Law Ministry advice about the mandate of the Revenue Division, as per the Rules of Business, and whether that mandate includes tax policy formulation. It has also sought legal advice on whether, under the FBR Act 2007, any restrictions can be imposed on the Revenue Division in formulating proposals for the consideration of the federal government and legislature.
Dr Akhtar aims to establish a new tax policy division to hand over the function of tax policy formulation. Still, she has not yet been able to put in place a plan that enjoys the backing of all stakeholders.
Read Action plan in place for FBR restructuring
The FBR also asked the Law Ministry whether the FBR Act, 2007 exclusively assigns tax policy formulation to the FBR or if the FBR is mandated for policy formulation strictly in the context of tax collection and implementation.
Last month, Prime Minister Anwaarul Haq Kakar did not approve the FBR’s restructuring plan due to constitutional issues in setting up a National Tax Authority (NTA) and confusion over the mandate of the newly proposed structure.
Sources said that the government had presented an ambiguous restructuring plan to the recent tax policy mission of the International Monetary Fund (IMF). The plan, on one hand, talked about centralising the tax functions of the federal and provincial governments under the NTA, and on the other hand, it talked about further fragmentation of the FBR tax functions.
The finance minister on Monday informed the US Principal Deputy Assistant Secretary for South and Central Asia Affairs, Elizabeth Horst, about the FBR restructuring without first bringing her own house in order. Finance Minister Akhtar “informed (Horst) about the restructuring of FBR to make it more efficient in documenting and digitisation of the economy,” according to the Ministry of Finance handout.
In a meeting at the PM House in November, questions were raised about the constitutional autonomy that the provinces enjoy and also whether an interim setup should take such drastic measures.
Akhtar had also recommended an autonomous FBR under the Tax Administration Oversight Board and the separation of Customs from FBR aimed at focusing on trade facilitation and border controls. These two proposals have also not been approved by the PM.
Under existing laws, the rules related to policy implementation are framed by the FBR, and handing these functions to other departments would also require amendments to the laws. But the other view is that the separation of policy function can be done through executive order.
Published in The Express Tribune, December 13th, 2023.
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