FBR to separate audit, enforcement, legal functions in LTUs

KARACHI: The Federal Board of Revenue (FBR) has finally decided to spin off three core functions of its revenue-generating machines seven years after completing a World Bank-funded project on tax reforms to increase revenue through expanding taxpayers’ base, informed sources said on Saturday.

Sources said this is a major policy shift as the FBR is going to bring in a functional system in large taxpayers units (LTUs) to separate three core functions – enforcement, audit and legal – to enhance efficiency of workforce. These functions will be dealt separately by commissioners of Inland Revenue under the new system.

The sources said the FBR is introducing changes under the guidelines of the World Bank-funded program for enhancing the number of taxpayers and increasing tax revenue.

Ironically, the functional system, under the tax administration reform program (2003 to 2013), has been operational on paper.

The sources said presently the commissioners at LTUs have jurisdiction over various sectors and are responsible for all the three functions.

A senior official of the FBR said under the World Bank’s system each function of audit, enforcement and legal would have a dedicated commissioner.

“The functional system is in vogue in many economies for facilitating taxpayers and avoiding malpractice in the tax system,” the official said, requesting anonymity.

“Under the present system a commissioner conducts assessment and then audit on the basis of declaration of a taxpayer. The taxpayer has the same commissioner to contest an adverse order.”

On the flip side, the functional system happens to end one-window operation for taxpayers. After the end of the existing system, the taxpayers will be required to provide documents before three different commissioners for a similar case.

However, the new system appears to improve accountability and transparency in the tax system.

When a commissioner opens a tax case in the new system, the taxpayer is required to provide evidence to the commissioner who can request enforcement from the next commissioner for recovery, the official explained.

“The taxpayer has a leverage to lodge an appeal against the enforcement order before the commissioner legal,” he said.

However, officials said sudden policy shift may hamper the revenue collection efforts of LTUs that are the major revenue collecting arms of the FBR. The revenue collection partly grew 3.9 percent in the last fiscal 2019/20 to Rs3.9 trillion compared to Rs3.8 trillion in fiscal 2018/19.

Meanwhile, the FBR is introducing other policy changes under which all regional tax offices will be functional to broaden the tax base.