Govt urged to revisit legal framework to broaden tax base

KARACHI: The government should appoint district taxation officers, revisit legal framework and implement value-added taxation to broaden the tax base, a veteran expert said on Tuesday.

“Legal framework needs to be re-visited to remove anomalies and encroachments on the customs and IRS (Inland Revenue service) authority for fair and transparent accountability in future,” Muhammad Irshad, ex-chairman of the Federal Board of Revenue (FBR) said.

Irshad told The News that schools of finance and taxation and customs should be set up to create human capital. The application of value added tax is essential to broaden tax base.

Muhammad Irshad served as the chairman of the apex tax authority between January 19, 2017 and June 30, 2017.

On proposed assets’ declaration scheme, Irshad said the tax amnesty should be used as a trade-off with traders for accepting the VAT against the prevailing general sales tax. “If they listen to sane voices they are going to be benefited more than anyone else,” he said, referring to the present policymakers.

The former FBR’s chief said tax officers presently are worried about their future and career. The FBR is a big national institution and has important functions to perform. “The job of this organisation is time bound, with deadlines, and also quantifiable at the end of each financial year.”

Irshad said the present government has formed a team consisting of some past and new members, but most of them have no background knowledge of the working in the FBR. “Anything done so far has been done in the closed doors, without the participation of the FBR, which is the major stakeholder.”

On new policy wing at the ministry of finance, he said the separation of policy board was an act in right direction and it was enacted in the FBR in the previous reforms. “Frankly, policy always remains with the finance ministry,” he said. “FBR is only the secretariat for doing the spadework for them (finance ministry).”

Asked why he did not raise voice during his tenure for making tax reforms growth-oriented and increasing tax-to-GDP ratio, Irshad said the tax collection sharply increased after the integration of direct and indirect taxes to Inland Revenue during his tenure.

“This integration resulted to historic one trillion rupees addition to the revenue, which was the sufficient justification for the ongoing reforms.”

Irshad said the drop in the tax-to-GDP ratio was brought to the notice of the bosses of that time, but the recommendation was brushed aside on the grounds that the issue would be resolved with the passage of time. “However, it is not corrected till today despite all efforts and the collection is still low when compared with the world and region.”

The FBR’s former chief said informal cash economy makes 45 percent of the economy. “Documentation is fundamentally a government job outside the preview of the FBR and a number of actions are required to be taken by the government.”

Irshad said frequent introduction of amnesty scheme is an admission to the failure of ongoing reforms, which failed to tap all domestic resources.

On maladministration and harsh treatment of the taxpayers by the tax officials, Irshad said it is because of unrealistic tax collection targets assigned to the tax offices. “Trust deficit between the taxpayers and collectors is due to chasing of wildly-fixed target, which is most of the time not based on available tax and supporting resources.”