Plan under study to bifurcate tax collection machinery

ISLAMABAD: The government is considering different options to introduce major restructuring in the tax collection machinery by dividing it into two entities, including the Federal Board of Revenue (FBR) and Federal Board of Customs (FBC).

The strength of the 30,000 workforce is required to divide the tax machinery into two entities for looking after the Inland Revenue Service (IRS) taxes as Income Tax, Sales Tax and Federal Excise Duty (FED). The second entity is proposed with the name of Federal Board of Customs (FBC) whereby the customs-related issues will be handled.

The IMF’s technical team recommended the establishment of a National Tax Authority (NTA) over the medium term but it might not become possible because it would be hard to convince the provinces of the unified tax collection arrangement under one umbrella.

Caretaker Minister for Finance Dr Shamshad Akhtar chaired a high-level meeting on Tuesday in the Federal Board of Revenue (FBR) in which it was deliberated upon the options to place the Policy Wing of both the Inland Revenue Service (IRS) and Customs under the jurisdiction of Revenue Division. It might be located in the Finance Ministry to separate policy from the operation levels in the tax machinery.

“This kind of major restructuring of the FBR would require amendments to the laws and the caretaker government is unable to make such changes. So it is a possibility that the restructuring process is finalised and then its execution is left to the upcoming government,” top official sources said.

On the issue of the National Tax Authority (NTA) proposed by the IMF, the sources said that there was no need for amendments to the 1973 Constitution and cited examples of recent discussions held at the Special Investment of Facilitation Council (SIFC) that under the provision of Constitution, both sides could assign responsibilities to each other.

The caretaker Minister for Finance has so far assigned the respective authorities of the tax machinery to study models of different countries and then recommend its replication in Pakistan. In this regard, Pakistan could study the taxation mechanism that exists in Australia where fiscal federalism among the centre and federating units work quite similarly to Pakistan and lessons could be learnt from their experiences for placing foolproof arrangements.