Automating taxation: Pakistan’s push for transparency and efficiency

LAHORE: The Pakistani government’s initiative to reform the taxation system through technology and automation is a commendable step with the potential to address persistent issues of corruption, inefficiency and harassment by tax officials.

The new taxation reforms aim to reduce direct contact between taxpayers and tax collectors by leveraging automation, thereby minimising discretionary powers -- a major contributor to corruption. By eliminating face-to-face interactions, the chances of bribery or harassment decrease significantly. Advanced technology can track transactions, monitor compliance and provide real-time data, making it increasingly difficult for tax officials or taxpayers to manipulate records. These measures target under-invoicing and other malpractices, particularly during the import process and under-filing of taxes.

Assigning duties randomly through computerized systems, such as for customs clearance, reduces the likelihood of collusion between importers and officials. This process will be monitored via a dashboard accessible to a limited number of high-ranking officials, who must conduct regular checks to identify and address any misconduct.

A predictable and transparent system is likely to encourage more businesses and individuals to become tax filers, thus broadening the tax base. However, tax officials require adequate training to adapt to these new systems. Resistance to change or a lack of understanding could lead to delays or even deliberate sabotage.

The persistent issue of withholding export refunds, despite complete documentation, underscores the need for time-bound processes for refund approvals. Officials causing unwarranted delays should face penalties, and the system must include third-party reviews or appeal mechanisms for exporters.

To ensure the success of this initiative, the government must establish an independent oversight body to monitor the system, investigate irregularities and enforce compliance. Strict penalties should be imposed on officials who attempt to manipulate the system or delay refunds. Automation must also include clear deadlines for refunds, dispute resolution, and clearance processes, with strict consequences for breaches.

The state should prioritise making the technology user-friendly to ensure a seamless experience for taxpayers. A cumbersome system could discourage compliance. Feedback from users and stakeholders should be collected regularly to address gaps or inefficiencies.

The new system must also account for past instances where tax officials bypassed automation to withhold refunds or dispute transactions using dubious claims. For instance, officials have previously refused to accept sales tax receipts from duly registered sellers verified by the Federal Board of Revenue (FBR). In such cases, refunds were withheld instead of apprehending fraudulent sellers operating from non-existent addresses. Moreover, the officials responsible for registering such sellers were rarely held accountable.

The success of these reforms hinges on political will, institutional support and sustained efforts to combat corruption. While technology alone cannot address all issues, when combined with accountability, transparency and consistent enforcement, it can significantly improve tax administration and revenue collection in Pakistan.

Robust implementation, oversight and the elimination of systemic loopholes are essential to prevent manipulation. The system must incorporate safeguards such as real-time audits, independent reviews, and automated alerts for delays. By addressing these challenges and learning from past experiences, this approach has the potential to build taxpayer trust and establish a fair and efficient taxation system.