Caretakers carve out tax reform proposals for new government
ISLAMABAD: The caretaker government has prepared a set of proposals for the upcoming regime for overhauling outdated tax machinery, including separating policy and implementation to broaden the narrow tax base.
The Federal Board of Revenue (FBR) has also started an internal preparation for devising five-year strategy (2018-2023) for revamping tax structure. The strategy will be presented before the incoming regime following the installation of new government and approval from board in council and other competent forums.
All the efforts to reform tax collection machinery have failed to yield desired results. It is evident from the fact that the last Pakistan Muslim League-Nawaz (PML-N) led government constituted the Tax Reform Commission (TRC) but most of its recommendations were never implemented.
Although an implementation committee on TRC report was also constituted but again bureaucracy stonewalled its implementation in its true letter and spirit.
The TRC, in its report, said one of the objectives of tax reforms was to improve the tax structure by reducing reliance on indirect taxes like import duties and central excise duties and increasing the share of direct taxes.
Various studies and analyses show that the share of indirect taxes in total tax revenue was above 80 percent in 1990, though it has declined continuously but is still more than 60 percent, especially if presumptive taxes are excluded from the ambit of direct tax collection.
The efforts to reform general sales tax (GST) and gradually moving from GST to value-added tax (VAT) never succeeded in the past. The efforts to broaden the personal income tax base also failed to materialise and reliance on indirect taxes increased further. Another key objective of the tax reforms in the past and even today was/is to improve the efficiency of tax administration through transparency, training, auditing, and upgrade of information gathering and processing system. This goal remains unfulfilled even after six-year-long Tax Administration Reforms Program (TARP).
No tax administrative reforms can be considered as complete without looking at the structure and management of the tax administration and the competence of the manpower in that organisation.
The TRC reached a decision it should place a lot more emphasis on the administrative reforms of the FBR and that taxpayer services having customer focus should be given prominence. The brief current definition of tax reforms is good tax administration.
The complex tax policy leads to even more complex tax legislation, which then inevitably results in cumbersome administration through a cascading effect on filings, compliance procedures and enforcement measures.
The series of ad hoc exemptions and other tinkering in tax laws over the past decade have led to clutter the culture of compliance. A weak, complex and porous system has evolved, which by increasing transaction costs of participation is also dissuading potential taxpayers from entering into the tax net.