IMF suggests powerful panel for collection of federal, provincial taxes

ISLAMABAD: The International Monetary Fund (IMF) has recommended the Federal Board of Revenue (FBR) the establishment of a modern and semi-autonomous tax authority for collecting federal and provincial taxes over a long-term period.

“The split in taxing rights between the federal government and provinces poses challenges for tax policy making and revenue administration,” it said.

The IMF has conveyed its policy prescriptions to Pakistani authorities and asked that on a long-term basis, these discussions be completed and actions taken with the objectives of creating a modern tax authority for collecting all taxes at federal and provincial levels of the country.

Parliament may only legislate on matters including taxation matters that are expressly enumerated in the Federal Legislative List as set out in the Fourth Schedule of the Constitution. While parliament has broad legislation powers over most common tax types, there are notable exceptions which are under the legislative domain of the provincial assemblies, including taxes on agriculture income and taxes on immoveable property in addition to sales tax on services.

The split of responsibilities for the sales tax on services and goods, which are typically part of the same value chain, causes confusion and distortions. Some federal tax revenues are placed in the divisible pool where proceeds are distributed between the Centre and provinces under the NFC Award.

“This also creates distortions where the federal government favours the collection of taxes that are not put in the divisible pool, for instance Petroleum Development Levy, and provinces face reduced incentives for maximizing their own revenues,” stated the IMF in its report.