‘Taxation problems outcome of FBR weaknesses’

LAHORE: Most of the taxation problems in Pakistan stem from the Federal Board of Revenue’s (FBR) failure in effectively implementing fiscal laws and ensuring compliance to taxation laws.
ICAP Council member and Chairman Committee on Taxation Naeem Akhtar Sheikh said during a pre-budget seminar on taxation on Thursday.
He said taxation was an integral part of the economic policy and planning, and the FBR needed to urgently upgrade the quality of human resource and its governance structure.
The Tax-to-GDP ratio in Pakistan has remained the lowest in the region, and is not sufficient for sustainable economic growth.
The service, wholesale / retail, transport, and the agriculture business sectors are still not fully documented. Hence their contribution to the national exchequer is extremely low, he remarked.
He emphasised introducing structural reforms to get out of the economic vicious cycle.
He proposed that the scope and structure of the policy board, which was formed under section 6 of the FBR Act, 2007 (as amended by Finance Act 2011) should be reviewed. It should act as a forum to debate national tax policy in consultation with all the stakeholders.
Unfortunately, under the existing section, the role of the board is limited and is more for providing guidance in framing fiscal policy.
Moreover, it is also non-functional due to its heavy composition.
ICAP’s view is that the policy board should be entrusted with formulation of fiscal policy making as a support to legislative function.
The board should be headed by the minister of finance and should include the minister for planning, and the chairman of the respective committee of both houses of the parliament, along with the FBR chairman, finance secretary, and members from a cross section of the civil society.
He explained that the primary goal of a revenue authority is to collect the taxes and duties payable in accordance with the law and to do this in such a manner that will sustain confidence in the tax system and its administration.
The action of tax payers- whether due to ignorance, carelessness, recklessness, or deliberate evasion- as well as weakness in a tax administration makes failure to comply with the laws inevitable.
Therefore, the tax administration should workout strategies and structures to ensure non-compliance is kept to the minimum.
The tax system is marred by the menace of tax evasion, under reporting, tax fraud, corruption, smuggling, and under invoicing, to name a few. This inequity in the system is also hard hitting for compliant tax payers, as there are no level playing fields and they have to compete with tax dodgers / evaders.
Examples include, stoppage of tax refunds, including VAT refunds, raising arbitrary demands, and collection of advance and undue taxes, etc.