World Bank sees silver lining in problematic project

WB says Tax Administration Reforms Project finally shows progress and it is ready to extend it till December 2011.

ISLAMABAD: The World Bank (WB) has said that the problematic Tax Administration Reforms Project (Tarp) has finally shown some progress and the donor is ready to extend it till December 2011 in order to achieve key targets of improving tax collection through increased efficiency.

An implementation review and restructuring mission of the Washington-based donor witnessed some progress in the core areas of taxpayer registration, tax filing and recovering arrears under the multi-million-dollar project.

In addition to agreeing to extend the deadline for the reforms project to December 2011, the mission has agreed to reduce the cost from $146 million to $97 million, as the government wanted to exclude certain items from the implementation plan.

The mission notes that during the past 12 months, taxpayer registration has increased by 17 per cent due to better database management and efforts to detect non-filers. Filing of tax returns has also gone up by nine per cent while outstanding liabilities have declined 14 per cent.

“The reintroduction of audit and strengthening of tax enforcement actions have contributed to achieving milestones,” it notes.

Not all green

However, the WB has also observed that the pace of reforms was slow and that they lacked depth. “Despite showing some positive results there is significant room for achieving the development objectives,” said the WB.

The donor agency has estimated tax evasion in Pakistan to the tune of Rs796 billion, largely because of inefficiency at the Federal Board of Revenue (FBR). The government negotiated a loan with the WB on the basis of Shahid Hussain’s committee report that suggested bringing about a change in the tax machinery through improved efficiency and utilisation of technology.

“The crux of the project was to end discretionary powers of the officials, introduce paperless processing to end taxpayer harassment and abolish the Pakistan Revenue Automation Company,” said an official of customs department. But he said that tax laws remain outdated, officials still enjoy discretionary powers and the progress indicators the WB is reporting are not the ones that address core issues. In the eyes of the WB, the broader aims of the project are to facilitate and promote voluntary compliance, increase overall collection results and guarantee fairer and more equitable application of tax laws.

A recent report of the Auditor- General of Pakistan rebuked the claim of improvement in the organisational efficiency and effectiveness of revenue administration. The report has unearthed tax evasion of about Rs35 billion, done in connivance with FBR officials.

Promoting compliance through strengthening audit, another aim of the multi-million-dollar project, also seems to be losing ground as the process of auditing the accounts of 900 companies and Association of Persons with a cost of Rs500 million bears no fruit. The selected companies and associations have won stay orders from the court, thanks to initiation of the audit without legal cover.

Published in The Express Tribune, October 12^th, 2010.