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The IMF is not satisfied with the pace of reforms in the Central Board of Revenue, taxation system and collection of revenue


Jan-07- 13, 2002

Perhaps under pressure of the IMF the government is planning to invite international experts for preparing a blueprint for restructuring Pakistan tax machinery on Singaporian or Malaysian model. Through international tendering worth 40 to 50 million US dollar, experts companies would be invited to prepare blueprint for a highly efficient and corruption-free organisation to maximise tax collection in Pakistan.

The 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 average monthly collection during the past five months worked out to Rs.26.74 billion showing a slackened pace as compared to the projected target of Rs. 36 billion. The target for the full year of 2001-2002 was recently reduced by the government to Rs.435 billion from the original target of Rs.457 billion. The reduced target would work out to an average monthly collection of Rs.36.25 billion. Thus the tax collecting machinery is lagging behind by about Rs.10 billion as reflected in the performance for the past five months, which underscores the need for a handsome growth in the tax receipts for the remaining seven months of the fiscal 2001- 2002. The task would appear to be a stupendous one for the CBR to accomplish. The collections of Rs. 23 billion in the month of November in particular have turned out to be markedly disappointing, which indicate a negative growth to the extent of Rs.5.6 billion as compared to the figures of Rs.28.6 billion for the corresponding month of last year.

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 Hussain 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 proged 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.

Not satisfied with the ongoing efforts the IMF has suggested to engage professional experts for restructuring of Pakistan tax machinery on the two suggested model which have proved very effective to detect tax evasion and highly improving tax collections in Singapore and Malaysia. IMF has indicated to bear the cost of project. The Finance Minister recently remarked that in Pakistan the rate of tax evasion was highest in the world.

Sources in the Finance Ministry disclosed to this correspondent that the plan is in final stages. The international tenders are required to outsource the job of preparing a blueprint. The most conversant with the Pakistan tax machinery are the international companies like Price Water Cooper House and the Crown Agent. The former has been active laying down the GST assessment accounts procedures in Pakistan and the latter is busy finalising export subsidy system.

The blueprint for engineering tax machinery involves simplification of rules and procedures of Income Tax, Customs, GST and Central Excise. The work also entails automation of the tax and duty assessment and payment records.

Besides, the successful company will also be required to improve the online connection between all the tax offices in Pakistan and the Central Board of Revenue and offer an online service to the taxpayers to electronically deposit the tax and avail themselves of all the services offered by the authorities from time to time.

The government plans restructuring of tax machinery in order to do away with overstaffing, cumbersome procedures, tax officials' discretionary powers and improve tax amounts generated by the economy. Presently, as the tax reformists of the country suggest, the over staffing, complicate procedures and discretionary powers breed corruption and tell upon the final amounts received in terms of taxes and duties. The restructuring programme is intended to be put on rails from June 2002, and the international companies will be required to furnish a blueprint for the purpose within the next two months or so.