be purchased for a price”. The commission passed strong observations, “that the tax collecting machinery stands in need of basic improvement both in terms of efficiency and integrity”. After 50 years, the position remains quite unchanged.
In 1970, the government once again appointed a seven-member taxation commission, which took five years to submit its report. The national tax reforms commission was set up in 1985 to present recommendations for improving the taxation system. The commission submitted its final report in December 1986.
Keeping in view the large fiscal deficits, mounting public debt and debt servicing, narrow tax base and poor compliance, the first phase of tax reforms was initiated in early 1990s. The main objectives were to increase the share of direct taxes in total tax revenue; to reform general sales tax (GST) and ultimately replace GST with value-added tax to minimize tax expenditures and cascading; to reduce the share of trade related taxes and to reduce the share of central excise duties.
The governments introduced simple taxation in the period of 1996 and 1999 but, due to poor enforcement, failed to enhance revenues at a satisfactory pace. Targets were met for all the years, but the average growth rate was only 6.97 percent. These were half-hearted reforms and total revenues did not even reach the figure of Rs400 billion by the end of 1999. In 1996-97, tax-to-GDP ratio was 11.6 percent but it kept on declining every year and in 1999, it was barely 9.1 percent.
On the demand of the International Monetary Fund and the World Bank, reforms were introduced between 2000 and 2004. However, no serious effort was made to restructure the Federal Board of Revenue (FBR) and improve the processes; resultantly, there were even larger fiscal and revenue deficits. Decrease in tax-to-GDP ratio, massive revenue leakages and above all, tax exemptions to the rich were the salient features of the reform agenda.
The taxes on the poor rose 37 percent, whereas absentee landlords did not pay even a single penny as income tax on agricultural income. As per an internationally-funded tax administration reform project (2005-09), the FBR was to spend $149 million financed by different lending agencies, including the World Bank and the federal government. The main component ($90 million) of the fund was to automate the FBR’s system. Under this program, the FBR initially planned to allocate $54.30 million to develop a computer software program for establishing connectivity across the country. However, the board failed to achieve any such connectivity; rather court battles started between the income tax and sales tax officers. From 2005 to 2009, the FBR miserably failed to improve the universal tax compliance under the tax administration reform project.