1

Individual Research Paper

“Tax Collection- Has The Restructuring in FBR

Being Effective”By

Tauqeer Ahmed IRS

2

Introduction Statement of The Problem Research Methodology FBR Structure Functions Need of Reforms Reform Process-structural and Legal Reforms Effects of Reforms Conclusion Recommendations

Scheme of Presentation

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Tax is to a country as is blood to the body Revenue provides sustainable funding

essential for long term planning. Tax revenue reduces aid dependency Dependence on citizens’ tax revenues for

social and public services strengthen the accountability of governments

Current dependency on non-tax sources of funding – has put our country on the back track

Introduction

4

Narrow Tax base has been the hall mark of our performance in the past

Most of the common measures is tax to GDP ratio

Introduction Contd..

5

What is the effect of restructuring of the FBR on tax collection?

What may be the course of action of the FBR to improve its core activities?

Statement of The Problem

6

Primary Data ◦ Survey Reports◦ Interviews

Secondary Data◦FBR ◦Research Papers◦World Bank Report on Reforms

Data Analysis

Research Methodology

www.fbr.gov.pk 7

FBR collects nearly 90% of tax revenue in the country

FBR Taxes◦ Inland Revenue Direct Taxes

Income Tax Withholding Taxes

Indirect Taxes Sales Tax

Federal Excise Duty◦ Customs Duty

Federal Board of Revenue-Facts

FBR Year Book 2010-11 8

Formulation and administration of taxation policy

Levy and collection of federal taxes Quasi-judicial function of hearing of appeals Enter into double-taxation treaties with

other countries Liaison with all Ministries as well as

Chambers of Trade and Industry Prepare reports on FBR activities.

Functions of FBR

www.fbr.gov.pk 9

FBR Year Book 2011-12

Staff Position

Officers: (BS 17-22) 1,538

Mid-level Officials: (BS 11-16) 7,761

Junior level staff: (BS 1-10) 14,996

Total: 24,295

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11

Low Tax to GDP ratio Poor Management Information System Trust Deficit between the taxpayer and the

taxman Narrow tax base in Pakistan Need of Taxpayer Facilitation Model Combating Corruption Reforms to enhance the professional

capability of the workforce

Why Reforms

12

Task force under the chairmanship of Syed Shahid Hussain was appointed in 2001

IMF also submitted its report in August 2001 Afterwards the Government started negotiating

with the World Bank/IMF and FBR developed Strategy Document in November, 2001 with the help of M/S Max Stamp Well.

The Tax Administration Reforms Program was formally Launched in 2005

Reform Initiatives

TARP( Tax Administration Reform Program) Funding

S. No Description of

TARP Heads

Total Budget (Rs.

Million)

GOP Component (Rs.

Million)

Share (%) World Bank/ DFID

Component

(Rs. Million)

Share (%)

1 Technical Assistance 938.9 112.7 4.9 826.3 11.5

2 Customized Software 3,177.6 381.3 16.5 2,796.3 38.9

3 Hardware and Allied Equipment 2,059.2 411.8 17.8 1,647.3 22.9

4 Infrastructure Development 1,406.0 351.5 15.2 1,054.5 14.7

5 Automobiles 175.5 35.1 1.5 140.4 2.0

6 Training 585.2 - 585.2 8.1

7 Program Management 178.9 35.8 1.6 143.1 2.0

8 Sub-Total 8,521.2 1,328.2 57.6 7,193.0 100.0

9 Cost Escalation 979.4 979.4 42.4 0 0.0

10 Total 9,500.6 2,307.58 100.0 7,193.0 100.0

Source TP&R wing FBR

www.fbr.gov.pk 14

To be a modern progressive, effective, autonomous and credible organization for optimizing revenue by

providing quality service and promoting compliance with

the tax laws

Vision of Reformed FBR

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Pursuing twin track reforms of tax policy and tax administration to meet medium –term revenue targets

To boost the tax to GDP ratio by around 3.5% in five years time

Make the tax base as broader as possible Keep tax rates as low as possible; and Make compliance cost simple and non

compliance expansive.

Reform Objective and Strategy

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Improve compliance with the tax laws Develop a customer centered focus Foster organizational renewal and an

efficient, ethical and adaptive organization Increase productivity and cost effectiveness

Maintain community confidence Steps to improve Voluntary Compliance Ensure revenue is available to fund

government programs

Strategy Contd..

World Bank Reprt 2013 17

Ensure people receive payments they are entitled to i.e. Refunds

The Pakistan Revenue Automation Limited( PRAL) to play a key role in automation of the whole system from filing of the returns to the selection of the cases through computer ballot.

Strategy Contd..

World Bank Report 2013 18

Restructuring of FBR along functional lines and integration of income, sales and excise taxes

Reengineering and automating business processes and work flows

Establishing database for reporting and audit purposes

Improving services for taxpayers Strengthening the human resource base

Reform Process

world bank reprot 2013 19

Recruitment and maintenance of quality professionals

Comprehensive audit selection plans were given by the professionals appointed from the private sector

Reconstituting FBR on functional as against cylindrical basis

Merging Inland Revenues- Income Tax, Sales Tax and Federal Excise

Contd..

20

Assigning functions/responsibilities to specialized divisions

Trade/industry specialization in tax audit with support systems

Providing pre-audit anonymity of tax auditors

Establishing LTUs and RTOs Capacity Building- all levels Reducing taxpayer/tax collector interface

Contd..

21

Creation of Inland Revenue Service( IRS) Replacing the Income Tax Ordinance 1979

with ITO 2001 Selective audit based on risk management

analysis A well skilled professional workforce Electronic Filing of Tax Returns and

statements

Contd..

FBR Year Book 2011-12 22

13 Model Customs Collectorates 18 Regional Tax Offices (RTOs)6 Large Taxpayers units (LTUs)76 Taxpayer Facilitation Centers (TFCs)

Structural Improvements

FBR Revenue Budget wing 23

Effects of ReformsTax Mix – Historical data

49 -

5052

- 53

55 -

5658

- 59

61 -

6264

- 65

67 -

6870

- 71

73 -

7476

- 77

79 -

8082

- 83

85 -

8688

- 89

91 -

9294

- 95

97 -

9800

- 01

03 -

0406

- 07

09 -

10Cu

rren

tCu

rren

t

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Customs DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms Duty

Customs DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms Duty

Financial Year

% a

ge S

hare

in R

even

ue

Inland Revenues

FBR Revenue Budget Wing 24

Effects of ReformsTax Mix – Historical data

49 -

5052

- 53

55 -

5658

- 59

61 -

6264

- 65

67 -

6870

- 71

73 -

7476

- 77

79 -

8082

- 83

85 -

8688

- 89

91 -

9294

- 95

97 -

9800

- 01

03 -

0406

- 07

09 -

10Cu

rren

tCu

rren

t

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Income TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome TaxIncome Tax

Sales Tax

Sales TaxSales TaxSales TaxSales TaxSales TaxSales TaxSales TaxSales Tax

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Federal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise Duty

Federal Excise DutyFederal Excise DutyFederal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise DutyFederal Excise DutyFederal Excise DutyFederal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Federal Excise Duty

Customs DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms Duty

Customs DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms DutyCustoms Duty

Financial Year

% a

ge S

hare

in R

even

ue

FBR Revenue Budget wing 25

Effects of ReformsIncome Tax- Collection Mix

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)

Out of Demand (Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand

(Current & Arrear)Out of Demand (Current & Arrear)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)Voluntary Payments (With Return + Ad-

vance Tax)Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)Voluntary Payments (With Return + Ad-

vance Tax)Voluntary Payments (With Return + Ad-

vance Tax)Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)Voluntary Payments (With Return + Ad-

vance Tax)

Voluntary Payments (With Return + Ad-

vance Tax)Voluntary Payments (With Return + Ad-

vance Tax)

Withholding TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding

TaxesWithholding TaxesWithholding

TaxesWithholding Taxes

Financial Year

%ag

e sh

are

of In

com

e Ta

x Co

llect

ion

The world Bank Report 2012 26

The underlining development objective in terms of FBR tax to GDP ratio was not achieved

Despite progress in key intermediate outputs and substantial investments in IT, physical and human infrastructure at FBR.

Notwithstanding moderate gains during 2004/2005 to 2008/2009, FBR tax to GDP collection has dropped substantially to reach 8.6 percent of GDP by the end of FY 2011, the lowest level in more than two decades

Conclusion

world bank report 2013 27

Slow integration of FBR organization along functional lines

Underutilization of IT related systems due to poor integration of the new systems

Continued weakness of the audit function Replacement of time tested law did not pay IT system existed with manual legacy Professionals from private sector were not

effective Change in mind set still a far cry

Contd..

FBR Year Book 2012-13 28

Collection Profile

www.google.com 29

Tax-GDP Ratio - 2012

Turke

yJap

an

Uzbekis

tan

Mauriti

usInd

ia

Thaila

ndChin

aEg

ypt

Malaysi

a

Sri La

nka

Singa

poreTa

iwan

Indon

esiaNep

al

Pakis

tan0

5

10

15

20

25

30

35

Tax

as a

per

cent

age

of G

DP

SDPI 30

Survey Reports

Declining real incomes

Corruption in tax administration

Lack of trust regarding tax utiliation

Cumbersome tax filing

Others

18%

51%

20%

2%

9%

Why we do not pay taxes

SDPI 31

Why people don’t register with FBR

Registration will curtail growth Afraid of Intrusion Compliance is costly Lack understanding on tax matters

3%

30%

27%

37%

Why we do not register with FBR

32

Full autonomy to FBR Gradual reduction in reliance on withholding

taxes Amendment in law to do away with USAS Broaden the tax base Further simplification of electronic tax filing Effective taxpayers audit plans Enhancement of professional capabilities- use of

IT skills Strong enforcement mechanism of tax laws vis-à-

vis audit, recovery, integration of laws

Recommendations

33