Order of PresentationINTRODUCTIONHISTORY Vision, Mission & Values PRESENT CULTURERecruitment and Selection SWOT ANALYSIS Current StatusCONCLUSION:

Vision, Mission &Values StatementVISIONTo be a modern, progressive, effective and credible organization for optimizing revenue by providing quality service and promoting compliance with tax and related lawsMISSIONEnhance the capability of the tax system to collect taxes through application of modern techniques, providing taxpayer assistance and by creating a motivated, dedicated and satisfied, professional work forceVALUESIntegrity Professionalism Teamwork Courtesy Fairness Transparency - Responsiveness

Organizational Structure FBRCCFRSecretary General/ ChairmanPRALSupport MembersFunctional MembersDirect TaxesSales Tax & Federal ExciseCustomsTax Policy & ReformLegalAdministration and CoordinationHRMAuditFiscal ResearchInformation Management SystemFacilitation & Taxpayers EducationLine MembersNote: Various DG Positions are also included in the top Management

Strengths of FBRA Critical State InstitutionCollecting nearly 90% of tax revenue of the StateContribution towards federal and provincial total revenue (tax and non-tax) is around 65%Revenue collected is sufficient to meet 75% to 80% of Government expenditure needsGeneration of resources for smooth economic management of Federal as well as Provincial and Local GovernmentsKeeping the economy vibrantMonitor Fiscal Policy through tax incentives to encourage flow of FDI

Tax Reform Initiatives in Chronological OrderMay 2001: Syed Shahid Hussains Committee ReportAug 2001: IMF Mission ReportNov 2001: The Strategy Document on Tax ReformNov 2001: Presentation to the President of PakistanDec 2001:Approval of the Strategy DocumentFeb 2002:Establishment of Supervisory CouncilJul 2002:Establishment of Cabinet Committee for Federal Revenues (CCFR)

RecommendationsCBR to have greater autonomy within the Government structureSupervisory Council (now CCFR) to monitor & review CBR performanceReorganize CBR and its field offices on functional linesMerger of Income Tax, Sales Tax & Excise functions a step towards co-location and integration of internal taxesSeparate handling of Large TaxpayersImprove HRM strategy with respect to induction, promotion, training and compensation of EmployeesImprove physical infrastructure and introduce One-window operationGreater stress on taxpayers education, service and facilitation

Need For ReformsStagnant Tax RevenueNarrow Tax BasePrimitive and antiquated tax administration (cylindrical instead of functional)Complexity of tax laws and arbitrariness in their applicationRelationship between tax payer and tax collector largely adversarial

Objectives of the Reforms Mobilize resources as per budgetary projections for improved economic managementWiden taxpayers baseStreamline tax and tariff ratesImprove voluntary compliance and strive to minimize adversarial relationship between taxpayers and tax collectors through:Simplification of tax laws and proceduresTaxpayer friendly environmentMaking the system more transparent and efficientHonest Tax Administration

Structure of Field Offices Prior to ReformsDirect Taxes (Income Tax Etc.)5 Regional Commissioners with34 Zonal Commissioners Sales Tax and Federal Excise6 Collectorates Customs10 CollectoratesComposite Collectorates3 Collectorates

What had to be done under TARPPolicy ReformsSimplification of lawsUniversal self assessment across all taxes coupled with effective selectivity and risk based audit of taxpayersNo immunities, fixed taxes and amnestiesMinimize dependence on withholding taxesElimination of exemptionsTax Rates and Tariff reduction and rationalizationEffective Dispute Resolution Mechanism

What had to be done under TARPAdministrative ReformsRe-structuring the top structure of FBRTransform HQ and field offices on functional linesRe-organize and upgrade infrastructure of field offices (for domestic taxes Federal excise Duty, Income Tax and Sales Tax) i.e.,-Large Taxpayer Units (LTUs) to deal with major revenue spinner casesRegional Tax Offices (RTOs) in major cities to deal with all other taxpayersMedium Taxpayer Units (MTUs) as pilot projects to test the functional working of Income TaxTaxpayers Facilitation Centers (TFCs) in small towns and cities

What had to be done under TARPAdministrative Reforms - continuedRe-organize and upgrade infrastructure of field offices (for international taxes Import Taxes) i.e.,-Model Customs Collectorates (MCCs)Trade and Passenger Facilitation Centers (TFCs) at international borders and dry portsExtensive Business Processes Re-engineering (BPR)Improved Human Resource ManagementConcept of e-governmentAutomation and optimum use of latest IT TechnologyRestructuring and training of Human ResourcesFacilitation, service and tax education

Simplification of Tax LawsNew Income Tax Law Income Tax Ordinance, 2001 and Income Tax Rules, 2002 introducedNew Federal Excise Law Federal Excise Act, 2005 and Federal Excise Rules 2005 introducedCustoms and Sales Tax Law and Rules updated and improvedIntroduction of GST in VAT Mode to minimize cascadingZero-rating of five major export oriented sectors to address the problems of processing of sales tax refund claims and settlements and governanceCurrent Status Of Policy Reforms

Universal Self-AssessmentSuccessfully implemented in Income Tax and Federal ExciseFurther streamlined in Sales TaxPartly implemented in CustomsEffective Risk Based Taxpayers AuditAll corporate and non-corporate taxpayers (income above certain threshold) are subject to Desk Audit and if warranted by the facts followed by a detailed auditElimination of ExemptionsTo a large extent exemptions have been eliminated and is an on-going processCurrent Status Of Policy Reforms

Tax Rates reduction and rationalization Income TaxUniform Corporate tax rate of 35% for Public, Private and Banking Companies (From 35%, 43% and 47% respectively)Introduction of low tax rate of 20% for small companiesPersonal tax rates for salaried individuals reduced and rationalized to 0.25% to 20% from 3.5% to 30%Non-corporate tax rates reduced and rationalized to 0.50% to 25% from 7.5% to 35%Current Status Of Policy Reforms

Tax Rates reduction and rationalization Income TaxIntroduction of fixed/final tax of 5% and 10% on rental and interest income Withholding tax rates rationalized Gradual enhancement of tax-free threshold to Rs. 150,000 for salaried taxpayers and Rs. 100,000 for non-corporate taxpayersCurrent Status Of Policy Reforms

Tax Rates reduction and rationalization Sales TaxAdditional Sales Tax of 3% on sales made to un-registered person withdrawnThreshold of turnover subject to Sales Tax raised from Rs.0.5 million to Rs.5.0 millionAberrations like turnover scheme and enlisting scheme abolishedCurrent Status Of Policy Reforms

Tariff reduction and rationalization CustomsMaximum standard rate reduced to 25%Number of slabs reduced to five 0% 5%, 10%, 20%, 25%Clear distinction between primary and secondary raw materials, semi-finished and finished goodsSpecial incentives for capital goods including plant, machinery, and equipment reduced rate of duty of 5%Tariff protection to locally produced goodsCurrent Status Of Policy Reforms

Dispute Resolution Mechanism All Taxes & DutiesWithdrawal of all frivolous appeals by the department before Tribunals, High Court and Supreme Court of PakistanAll first level appeals (within the department) disposed off within two years (80000 appeals). Now only (3000 appeals) are pendingAt the Apex Court level special benches were constituted at the request of FBR and a large number of appeals on legal issues decided (1650 out of 1950) and the remaining are under process (300)Current Status Of Policy Reforms

Dispute Resolution Mechanism All Taxes & DutiesAt the High Court level the cases are being grouped by issues and taken up for hearing for speedy disposal of appealsAlternative Dispute Resolution Mechanism - IntroducedA unique system for speedy disposal of disputes between the taxpayers and tax collectors in an un-conventional manner;By honorary professionals and related business expertsWithout any cost; andWithout foregoing the right of regular appeal processCurrent Status Of Policy Reforms

OthersGradual phasing-out of Federal Excise Duty on goodsBringing services into tax net (Sales Tax) through Excise Duty, due to constitutional constraintCurrent Status Of Policy Reforms

Current Status Of Administrative ReformsFunctional MembersFive Members from Private Sector engaged specializing in their respective fields i.e. Audit, Facilitation and Tax Education, Fiscal Research and Statistics, Human Resource Management and Information Management SystemRe-structuring the Top Structure of FBRFirst Phase has been completed and Second Phase is to be completed by December 2009

Current Status Of Administrative ReformsTransformation On Functional LinesFBR (HQ) is working on functional lines i.e. Line Members of Custom, Income Tax and Sales Tax/Federal Excise and Support Function Members of Audit, IMS, FRS, FATE, HRM and Legal since 2001Income Tax department has also started working on functional lines since July 2006Audit & Inspection, Training, Intelligence, and Valuation Directorates have also started working on functional linesSales Tax department is also working on functional lines

Current Status Of IT InitiativesPakistan Customs Computerized System (PaCCS)After Extensive Business Process Re-engineering, the pilot project of (PaCCS) has been launchedPaCCS is a fully automated (state of the art) system whereby WEB based electronic goods declaration is processed and cleared without any human interfaceAverage clearance time reduced to four hours from five days for imports and one hour for exportsPaCCS at present is handling clearance of imported containerized full cargo load onlyPaCCS fully operational and functioning smoothly at KICT, the pilot site of MCC Karachi

Current Status Of IT InitiativesPakistan Customs Computerized System (PaCCS)PaCCS rolled out to PICT & QICT as additional pilot sitesCustoms automation and business process re-engineering reforms in the rest of the country to be completed by December 2007. Technical Business Requirements and bidding documents for acquiring automated system are being preparedIn the interim period, homegrown automated system by the name of One-Customs has been introduced at major customs stations pending PACCS full implementation to improve the present manual system of clearance

Current Status Of IT InitiativesTax Management System (TMS) A home grown systemDeployed in all LTUs and RTOs in place for efficiency and transparency

Sales Tax Management System (STMS) A home grown systemDeployed in all LTUs and RTOs in place for efficiency and transparency

The two systems TMS and STMS will eventually be taken over by Integrated Tax Management System (ITMS) to ensure international standards

Current Status Of IT InitiativesIntegrated Tax Management System (ITMS)Bidding documents under two-stage bidding procedure forwarded to World Bank for their final approvalIt is expected that the invitation to bid will be floated before the end of the calendar yearThe final delivery of the ITMS is expected by June 2009

e-filing of Returns/W.Statements (Income Tax, Sales Tax ) has been successfully launched

Computerized System of Tax Payment Receipts (CPR) developed in collaboration with NBP and SBP endorsed by MOF, AGPR and CGA and implemented

Current Status Of IT InitiativesOther projects in handData WarehouseHuman Resource Information SystemInventory Management SystemWide Area Net Work (WAN) Independent for FBRProcurement of Hardware

Outcome of ReformsGaining Stakeholders RespectSubstantial reduction of corruption - Transparency International ReportImproved performance Revenue targets not only achieved but surpassedCreating business friendly environmentIntroducing professionalism, integrity, teamwork, courtesy, responsiveness, transparency and fairnessFacilitating and providing service to the taxpayersReducing the cost of doing businessAdversarial relations to mutual trust and confidence

Outcome of ReformsInfused confidence among taxpayers through regular facilitation and tax education which has bridged the gap between taxpayers and tax collectorsCreation of an enabling environment for various stakeholders which is: Promoting Economic ActivityEncouraging InvestmentSpreading Out Commercial ActivitiesExpanding Exports

Outcome Of ReformsIn Terms Of Change In Tax Mix

Direct Taxes %Sales Tax %Customs %Excise %Indirect Taxes %1990-9118.015.445.720.982.01995-9629.218.633.219.170.81997-9835.118.425.421.164.999-20002.533.627.816.167.52000-0131.839.116.612.568.22001-0235.341.211.811.764.72002-0332.942.315.09.867.12003-0431.742.117.58.768.32004-0530.940.619.58.969.02005-0631.041.019.58.569.02006-0739.436.515.68.560.6

Outcome Of ReformsIn Revenue Collection

(Rs. Billion)

YEARS

Budget Estimates

Revised Estimates

Collection

Achievement (%)

B.E.

R.E

1990-91

123.3

120.6

110.5

89.6

91.6

1991-92

149.5

145.0

139.8

93.5

97.8

1992-93

174.8

160.0

153.2

87.6

95.8

1993-94

190.7

180.3

172.6

90.5

95.7

1994-95

259.9

225.0

226.6

87.2

100.7

1995-96

270.5

264.8

268.0

99.1

101.2

1996-97

328.0

286.0

282.1

86.0

98.6

1997-98

324.0

297.6

293.6

90.6

98.7

1998-99

354.0

308.0

308.5

87.1

100.2

1999-00

362.5

351.7

347.1

95.8

98.7

2000-01

430.0

406.5

392.3

91.2

96.5

2001-02

457.7

414.2

404.1

88.3

97.6

2002-03

458.9

No Revision

460.2

100.3

NA

2003-04

510.0

No Revision

518.00

101.7

NA

2004-05

580.0

590.0

591.085

100.2

NA

2005-06

2006-07

690.0

835.0

690.0

835.0

712.6

847.2

102.1

101.5

NA

NA

NA means Not Applicable

Broadening of Tax Base Number of Taxpayers filing the returns up to December, 2007 is 2.04 million.

FBR has already taken some far reaching measurers to expand the tax base, under which number of taxpayers and revenue are continuously increasing such as :

Universal Self Assessment Scheme Reduction in tax rates Enforcement of filing of statements by exporters, importers, contractors, suppliers & salaried class Taxpayers Population

Conducting sectoral studies for the purpose of detecting leakages and for tax gap analysis etc.

Providing incentives / benefits to those who duly pay taxes and file returns to encourage filling. Strategy

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