Personal Taxes

IMF seeks reforms to extend revenue and corporate taxation: FBR chairman

ISLAMABAD: The fund requires reforms to increase personal and corporate income taxes, remove GST inefficiencies, and provide sustainable revenue collection mechanisms, said Dr. Ashfaque Ahmed, Chairman of the Federal Board of Revenue (FBR), underscoring the need for the IMF program.

Ashfaque Ahmed spoke here on Wednesday at the Pakistan Prosperity Forum 2021: “The reform of the income tax is one of the demands of the IMF, as the country is currently under the fund program. We will soon introduce reforms to income tax and remove distortions in the GST. “

He also said that he is not personally in favor of receiving $ 400 million in loans from the World Bank (WB) under the Pakistan Raises Revenues (PRR) project to reform the FBR, but the Treasury Department requested Foreign exchange, so they extended to support.

The FBR chairman said the tax machinery was used to obtain rupee components as the Treasury Department needed foreign exchange to meet its obligations.

He said the rupee component was given through additional grants and Rs 2.5 billion in the FBR’s final fiscal year in May 2021. The FBR is still resource hungry, he added.

He said the FBR faces numerous challenges due to its fragmented financial base, with the center and the provinces having different competencies under constitutional obligations.

The provinces are responsible for collecting agricultural income tax (AIT) and GST on services, he said. The FBR has offered the provinces to share the data and asked for permission to collect the AIT on behalf of the provinces and is still awaiting a response from the federating units.

He outlined various other challenges the FBR faces, including a lack of automation, low compliance rate, data compartment approach, complicated tax laws, retail rigidities, inability to capture supply chains for taxation, false invoicing, smuggling, and financial and administrative autonomy of the Tax administration.

He also said the National Tax Authority was also in the pipeline, but tax harmonization was one of the government’s top priorities.

The FBR chairman said the tax authority’s tax rate is 10 percent, while the spending rate is over 20 percent.

He said there are 7.1 million registered tax collectors, of whom only 3.1 million have filed income tax returns, and there is still a 4 million tax collectors gap. Although the number of applicants rose from 1.4 million in 2015 to 3.1 million in 2021, the tax revenue per applicant that had to be reversed decreased.

FBR envisages a 10-point plan for the introduction of the intelligent tax model

He said the FBR has a 10-point plan to put in place a smart tax model with an emphasis on centralized planning and monitoring, which will automate, align revenue streams, realign the jurisdiction, restore the tax administration’s credibility, Fight against smuggling, internal complaint procedures, regional taxpayer offices (RTOs) free of tax targets and relief.

He said FBR’s administrative costs accounted for 0.6 percent of total revenue collected, of which 80 percent was used to pay staff salaries. He also said the FBR’s collection remained at Rs.3.8 trillion in three years from 2017 to 2019, but increased to Rs.4.734 trillion in 2020-21. In the first four months (July-October), he said the FBR collection exceeded its target by 235 billion rupees and raised 1.842 trillion rupees in the first four months of the current fiscal year.

When asked, he replied that Pakistan had never violated the OECD confidentiality rules for information exchange. When asked who was responsible for maintaining flat sales growth from 2017 to 2019, he declined to answer, but stressed that the FBR needed a better system and control to get the results it needed.

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