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The Chairman CBR to deal with top 150 tax payers

Nov 26 - Dec 02, 2001

President General Musharraf approved, on Saturday last, the much awaited restructuring plan for the Central Board of Revenue (CBR) giving it limited autonomy against the recommendation of a fully autonomous status for the CBR by the task force. Under the new tax reform strategy approved by the President, CBR will continue to be a revenue division as a part of Ministry of Finance but it has been empowered to spend, recruit and offer compensation to its efficient officers without seeking prior permission from the Ministry of Finance.

The President also approved the proposal to have a separate tax office in Karachi under Director Supervision of the Chairman CBR to deal with top 150 tax payers who pay over Rs.150 billion annually. The restructuring plan was approved after a lengthy meeting with Finance Minister, Secretary General Finance, Chairman CBR and other top government officials of the relevant ministries.

The task force on CBR and tax system restructuring headed by Shahid Hussain, and also the IMF and World Bank had proposed full autonomy for CBR by turning into a revenue service. This was also insisted upon by the Chairman CBR only a few days back. While briefing the visiting Vice President of World Bank, the Chairman CBR, Riaz Ahmad Malik stressed the need for early transformation of the tax collecting machinery into an autonomous organization. According to him, this step alone would ensure improved working of the organization which would be converted into a highly professional and technically automated institution. He felt that the autonomy should be in the spheres of management and financial power so that the restructured organization could be enabled to go ahead with recruitment of highly skilled and technically qualified personnel at market-oriented salary scales without any interference from the finance ministry. The briefing also included an explanation about the causes of substantial shortfall in tax collection during the first four months of the current financial year which led to downward revision of the tax collection target for the first half of the year. The explanation delay in the restructuring the major cause of the relatively poor performance.

The World Bank has promised to provide, over a three-year period, 200 million dollars in loan to Pakistan for the specific task of restructuring the country's tax collection machinery. The proposed restructuring was aimed at making the Central Board of Revenue (CBR) completely autonomous in the matter of its budget and administrative policies and in respect of the recruitment and training of its personnel. Under the proposed plan, a 'supervisory council' equal to the status of a cabinet was also to be set up within the next three months. The council will approve the revenue target, CBR's budget, its human resource development policy, compensation, delegation of powers to the CBR and the exercise of federal authority The council was proposed to be headed by the federal finance minister, as its chairman while its members would include the Minister of Commerce, Secretary-General of Finance, Deputy Chairman, and Chairman of the CBR, The members to be co-opted would include minister for science and technology, law secretary, the president of the FPCCI and a panel of three private sector members.

There are of course a number of logical reasons for making the CBR as autonomous as possible. Since the Board at present functions under the direct supervision of the finance ministry it is constrained by the budgetary needs of the finance ministry in fixing the annual revenue targets and more often than not it would find itself agreeing to a target which may be wholly unrealistic in the context of the economy's revenue-yielding potential or which may be arbitrarily fixed by the finance ministry. Also because it works as a department accessible to every one connected with the government, including the intelligence agencies, it becomes very difficult for the CBR to operate independent of the needs of other departments which again, more often than not, work in direct conflict with the objectives of the revenue collectors. So the lack of adequate freedom to act has constrained the working of the CBR all these years and undermined its ability to perform to the best of its ability. Its dependence on the regular government channels for recruitments, promotions and placements has also over the years worked against its interest in the sense that the CBR has come to be manned overwhelmingly by officers not well grounded in the intricacies of finance and revenue generation.

In recent years, the government had conducted several studies on administrative reforms of the CBR, but none of them could be implemented due to lack of political will, and vested interests of the tax machinery. The last victim was a report prepared by Syed Shahid Hussain, former Vice President of the World Bank. He proposed complete autonomy of CBR, with a market-based pay structure, reengineering of processes and induction of information technology to revamp the tax system. His findings also revealed that majority of the tax officials were corrupt and dishonest.

The Finance Minister, while briefing the newsmen after the meeting said that good proposals in the Shahid Hussain report had been incorporated in this final strategy, with inputs from the International Monetary Fund (IMF), World Bank and the CBR bosses. However, the report had fallen short of the much-needed surgical change in the overall structure of the organization by, deciding to work with the same 30,000 workforces, which lacks skills and motivation to meet new challenges. The CBR collects less than 11 per cent of GDP in taxes, and about 1-2 per cent collection is made by the provincial governments. However, the international experience of countries at similar stage of development shows that the tax revenue collection should be around 20 per cent of GDP which is the current expenditure level of the state. This seven per cent of GDP shortfall (Rs.250 billion) in revenues is generally perceived as money going to the pockets of the tax officials through corrupt practices.

According to strategy approved the CBR would induct five new functional members for information technology, human resource management, audit, tax policy and taxpayer facilitation in addition to three existing line members for income tax, sales tax and customs. New indications would be offered remuneration, which is compatible for similar skills in the private sector (MP-I and MP-II pay scales).

The whole structure would supervised by the Cabinet Committee on CBR, headed by the finance minister, including minister commerce, secretaries of finance, commerce, establishment, deputy chairman planning commission and chairman CBR.

This model is similar to what Dr. Hafiz Pasha had proposed in 1997, but then government messed up the whole process by abruptly sacking late Moeenuddin Khan, as the tardy tax officials were reluctant to accept an outsider as Chairman, and the government was wary due to his efforts to crack down on owners of the smuggled vehicles.