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A 14-member Advisory Board has been formed for assisting the CBR

Oct 22 - 28, 2001

It appears that the International Monetary Fund (IMF) is not satisfied with the pace of reforms being carried out in the Central Board of Revenue, taxation system and collection of revenue in Pakistan. In its latest report on Pakistan economy the IMF has emphasized the priority of reforms in this sector in the overall programme of economic overhaul in the country.

The report has described the existing administration of all CBR departments as inefficient and the procedures of tax collection and assessment as archaic. This conclusion seems to have been drawn by the IMF staff in the light of the continued failure of the CBR to achieve the targets of tax collection. During the first quarter of the current financial year, the shortfall in tax collections turned out to be 9 per cent as compared with the target prescribed by the IMF mission. The downward revision of tax collection targets has been found to be a regular feature over the past couple of years indicating that the performance of the taxation departments has remained far from satisfactory.

The IMF Report has recommended a semi-autonomous status for the Central Board of Revenue with authority for independent recruitment of officials and fixation of salary scales, and for conducting training programmes for the staff and integration of the organizational setup. The changes as recommended also include separation of the Customs department from Income Tax, Sales Tax and Excise Taxation management. At the same time, it has been emphasized that the CBR should also provide functional services to the taxpayers for their guidance, besides improvements in tax assessments, auditing, refunds of taxes etc. The IMF wants that two model offices of the taxation departments should go into operation by June 2002. These outlines for restructuring the CBR and its sub-ordinate departments appear to be well intentioned and are designed to improve the qualitative performance of the country's taxation departments, which would yield better results in the form of tax assessments, audit and collections.

The much touted plan of the present government for the restructuring of the CBR ran into snags as the recommendations framed by the Task Force constituted for this purpose because of the difference of opinion between the Chairman CBR and the Task Force. At a high level meeting chaired by the Chief Executive Gen. Pervez Musharraf, the difference surfaced openly leading to a controversy. The Chairman Task Force Dr.Shahid Hussan had engaged consultants who launched a study into tax procedures and operations for listing the distortions and corrupt practices in implementation of the tax policy. These consultants presented a report, which was examined by the finance minister before it was to be presented to the CE. The finance minister and the CBR officials had found that the report was based on certain studies, which had drawn wrong conclusions and a restructuring based on these conclusions would be counterproductive. The briefing given to the CE was based on a formula for removing corruption in the tax machinery. A presentation in this regard was made by Dr. Ahsanul Haq. His formula was based on two pronged strategy to remove corruption from CBR. This included procedural re-engineering of the tax policy and methodology and reduction in tax collection staff. Ironically the formula lacked any proposals on Customs, Sales Tax and Central Excise. It only touched upon the tax operations of Income Tax Department.

The implementation of report was left to Ministry of Finance and the CBR which picked five major recommendations of the Task Force on Tax Administration pertaining to customs, sales tax and income tax for consideration by the regional tax authorities. These are overhauling of the existing income tax system, selection of cases of audit based on objective criterions supported by survey and research, simplification of sales tax regimes to facilitate the taxpayers, replacement of manual system with Electronic Declaration Processing System (EDPS) for speedy processing of bills of entry and minimum interaction between the taxpayers and the collectors.

The CBR directed all the tax collectors and commissioners of income tax (CIT) to forthwith submit their comments or alternate proposals regarding the Task Force's suggestions to Member Policy and Tax Reforms.

It was only last week that the Ministry of Finance notified formation of a 14-member Advisory Board for assisting the CBR in the task of implementing the various aspects of taxation reforms. The members of the Advisory Board drawn from the private sector represent the various important segments of business and other economic activities, including the stock exchange. The regular meetings of the Advisory Board with the finance ministry officials including the CBR, it is expected, would make the ongoing implementation of taxation reforms more smooth for the CBR. At the same time the business circles may also be able to oversee the process of removal of distortions and irritants which they have often to put up with from time to time.