http://www.geekmcq.

com/economics/pFinance/8

277/2016 Inspector Inland Revenue

(BS-16), Revenue Division,

Federal Board of Revenue.

Second Class or Grade C Bachelors

degree with Economics/ Business

Administration/ Commerce/ Statistics/

Law from a university recognized by

HEC.

Objective Type Test (MCQ)

Part-I

English = 20 marks

Part-II

Professional Test = 80 marks

Part-I

Grammar Usage, Sentence Structuring

Part-II

Functions of Federal Board of Revenue.

Fiscal Policy of Pakistan

Tax Administration/Reforms in Pakistan

Sales Tax Act 1990 as amended upto July 2016

Federal Excise Act 2005 as amended upto July 2016

Income Tax Ordinance 2001 as amended upto

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Introduction to FBR

The Central Board of Revenue (CBR) was created on April 01, 1924 through enactment of the
Central Board of Revenue Act, 1924. In 1944, a full-fledged Revenue Division was created under the
Ministry of Finance. After independence, this arrangement continued up to 31st August 1960 when
on the recommendations of the Administrative Re-organization Committee, FBR was made an
attached department of the Ministry of Finance. In 1974, further changes were made to streamline the
organization and its functions. Consequently, the post of Chairman FBR was created with the status
of ex-officio Additional Secretary and Secretary Finance was relieved of his duties as ex-officio
Chairman of the FBR.

In order to remove impediments in the exercise of administrative powers of a Secretary to the

Government and effective formulation and implementation of fiscal policy measures, the status of
FBR as a Revenue Division was restored under the Ministry of Finance on October 22, 1991.
However, the Revenue Division was abolished in January 1995, and FBR reverted back to the pre-
1991 position. The Revenue Division continues to exist since from December 01, 1998.

By the enactment of FBR Act 2007 in July 2007 the Central Board of Revenue has now become
Federal Board of Revenue.

Function of FBR / Revenue Division

In the existing setup, the Chairman, FBR, being the executive head of the Board as well as Secretary of the Revenue
Division has the responsibility for

(i) Formulation and administration of fiscal policies,

(ii) Levy and collection of federal taxes and

(iii) Quasi-judicial function of hearing of appeals.

His responsibilities also involve interaction with the offices of the President, the Prime Minister, all economic Ministries as
well as trade and industry.

Chairman, FBR
In the existing setup, the Chairman, FBR, being the executive head of the Board as well as Secretary of the Revenue
Division has the responsibility for

(i) formulation and administration of fiscal policies,

(ii) levy and collection of federal taxes and

(iii) quasi-judicial function of hearing of appeals.

His responsibilities also involve interaction with the offices of the President, the Prime Minister, all economic Ministries as
well as trade and industry.

The names of Secretaries/Ex-officio Chairmen, full time Chairmen Secretary, Revenue Division/Chairmen and Vice
Chairman, who headed the FBR/ Revenue Division from August 14, 1947 are given below:

Article on Reforms

Tax Reforms
Pakistan continues to face deep fiscal crisis which cannot be resolved easily. Taxes are insufficient to
meet Pakistan's debt servicing and defense needs. The tax-to-GDP ratio does not enable Pakistan to
counter inflation or improve governance, deliver quality public services or improve human resource
to reach a take-off stage for economic development. To address these issues, GoP initiated a Tax
Administration Reforms Program (TARP) in FBR in the year 2005 to achieve objectives to include
overall increase in the revenue collection for achieving fiscal targets; increase in tax to GDP ratio
through broadening of the tax base; strengthening audit and enforcement procedures through
professional capacity building of FBR officials; ensuring more equitable & transparent application of
tax laws through provision of high quality tax services. By completing TARP in 2011 FBR has
substantially achieved the desired objectives despite various obstacles in the existing operational
environment. The successful completion of TARP rests upon Government's firm resolve to reform
FBR's Tax Administration

In June, 2000 when GoP appointed a Task Force on Reforming the Tax Administration. This Task
Force presented its report in May, 2001 which was shared with stakeholders to include trade bodies,
accounting institutes, tax bar associations and donor agencies for framing an implementation strategy
in the light of viable recommendations from the concerned stakeholders.

Subsequently, on the request from the GoP for input on FBR's reform effort, an IMF Mission visited
Pakistan in August, 2001 which carried out in-depth discussions with various stakeholders including
Ministry of Finance, Establishment Division, Federal Public Service Commission and trade bodies.
The Mission presented its draft report in August, 2001 which was condensed with other similar
studies to extend recommendations for a tax system having simpler laws and efficient procedures for
promoting self-assessment, reducing physical controls and creating reliance on audit & risk
assessment.

Consequent to these reports and discussions with various opinion makers FBR prepared a tax reform
strategy, which was approved by GoP in November, 2001. The reform strategy had three main planks
(a) policy reforms, (b) administrative reforms and (c) organizational reforms. Policy
reforms included simple laws, universal self-assessment, elimination of exemptions, less dependence
on withholding taxes, effective dispute resolution mechanism. Administrative reforms aimed at (I)
transforming income tax organization on functional lines (ii) re-engineering of manual processes of
all taxes with the aim to reduce face to face contact between taxpayers and tax collectors, increasing
effectiveness of FBR and improve skills and integrity of the workforce and facilitation of taxpayers.
Organizational reforms also included re-organization of FBR on functional lines, reduction in
number of tiers and reduction in workforce.

With a view to supplement the level of skills in FBR for meeting the above said objectives, the
Government in March-April, 2002 appointed professional Members from private sector for (i)
Human Resource Management (HRM), (ii) Information Management System (IMS), (iii) Audit, (iv)
Facilitation and Taxpayers Education (FATE) and (v) Fiscal Research & Statistics (FR&S). FBR
prepared new recruitment policy (with greater emphasis on skills that match FBR needs), incentive &
merit based remuneration, promotion mechanism and extensive training.

In 2002, FBR received a Project Preparation Facility (PPF) of US $ 2.9 million from World Bank
which was used for hiring of international consultants, namely M/s Maxwell Stamp PLC, UK, and
establishing Large Taxpayer Unit & Model Sales Tax House at Karachi and a Medium Taxpayer Unit
at Lahore. M/s. Maxwell Stamp prepared a Comprehensive Medium and Long term Tax Reform
Strategy including an implementation time-table defining the precise reform steps and their time
frame.

To bridge the financial gap between the PPF and the funding for main phase of Tax Administration
Reform an amount of US $ 6 million was also allocated out of World Bank funded "Public Sector
Capacity Building Project" which was later utilized for completion of Pilot Projects i.e. Large
Taxpayers Unit at Lahore, 5-Medium Taxpayers Units at Karachi, Peshawar, Rawalpindi, Quetta and
Faisalabad and a Dispute Resolution Complex (DRC) & Model Customs Collectorate at Karachi,
capacity-building & training of FBR's employees, Taxpayers Education Programs, introduction of
Universal Self Assessment Scheme (USAS) and holding of Change Management Workshops. Part of
this funding was also utilized for appointment of M/s. NESPak Pakistan as Consultants for
preparation of design layouts, procurement support and supervision of works at sites for LTU Lahore,
5 MTUs at Karachi, Quetta, Peshawar, Rawalpindi & Faisalabad, DRC and Care Pilot Project
Karachi.

To achieve Reforms objectives, FBR established Large Taxpayer units (LTUs) and Regional Tax
Offices (RTOs) to test the re-organized structure of income tax & Sales Tax and various Taxpayers
Education and Facilitation Centres to improve voluntary compliance. Customs processes were also
re-engineered by initiating Customs Administration Reform (CARE) which aimed at minimizing the
clearance time of goods and reducing the cost of doing business. Re-engineered business processes
were automated for e-filing of Income Tax returns and Goods Declarations, followed by
establishment of an FBR website for information dissemination and a helpline for taxpayers.

Executive Committee of the National Economic Council (ECNEC) in its meeting held on 25.02.2005
approved the main phase of TARP with a capital cost of Rs. 9,501 million. Completion period of this
main phase of TARP was five years starting from 01.01.2005. During the World Bank Mid-Term
Review Mission in August-September 2007, the Bank reviewed the implementation progress of this
project in detail and on the basis of slow utilization of funds mainly due to problems in development
of Information Technology Systems during first two and half years, recommended restructuring of
TARP budget for remaining life of the project on the basis of anticipated expenditures. Accordingly,
a detailed exercise was undertaken on the basis of which a revised PC-I with reduced capital cost of
Rs. 6,473 millions was prepared and submitted to the competent forum i.e. CDWP/ECNEC. Revised
PC-I was approved by the CDWP on 30.04.2009 and ECNEC on 20.08.2009.

TARP has so far gained Stakeholders respect through improved performance and creating business
friendly environment. Imbuing professionalism, integrity & responsiveness, and introduction of
transparent ssimplified procedures have reduced the cost of doing business. Moving towards
optimum use of automation and IT, professional training and better working conditions have further
infused confidence among tax collectors who intend to strive hard for increased taxpayers facilitation
in the areas of Income Tax and Customs.

TARP has been closed by 31.12.2011 at a cost of Rs. 5,528 million against revised project cost of Rs.
6,472.817 million. All the physical progress has been achieved. i.e. (a) establishment of 57 RTOs,
MCCs, TFCs & Transit accommodations, (b) four soft wares i.e., Integrated Tax Management
System (ITMS), Human resource Information System (HRIS), SAP Materials Management (MM) &
Financial (FI) Modules, & Data Warehouse software have been completed and are functional (c)
11,445 machinery & equipment as per PC-I target were procured and distributed. Tax revenue of Rs.
1,558 billion has been collected during 2010-11 against PC-I set target of Rs. 1,350 billion. TARP
PMU, during this process, through professional training and hands-on exposure, has gained sufficient
professional capability to utilize the same for achieving any future project development objectives in
terms of project planning, procurement of works, Goods and services and subsequent monitoring &
evaluation.

FBR has successfully achieved the objectives of reforms. The last five years revenue collection Flow
Chart reflects the greater revenue collection as follows;

Tax Administration Reforms in Pakistan.

On paper, Federal Board of Revenue (FBR) is an autonomous body created by an act of
Parliament, the Federal Board of Revenue Act of 2007, but in practice it is considered
handmaid of the rulers of the day and protector of the tax evaders and non-filers. Since
2007, FBR in view of Article 165A of the Constitution was to file tax returns, even if
earning no taxable income, but it did not bother to abide by the law that it enforces on
the others! FBR must apply for National Tax Number now and file missing returns!!

The saga of FBR's reforms reveals that it mercilessly wasted borrowed funds of millions
of dollars given by the World Bank and other donors. Since the inception of Tax
Administration Reform Project (TARP) and even after its conclusion, FBR has failed on all
fronts-in meeting revenue targets, broadening of tax base, implementing sales tax
obligations across the board, increasing share of direct taxes and improving tax-to-GDP
ratio. At the end of TARP, our tax-to-GDP ratio nose-dived to 8.8% from 9.4% in the
year when the programme started! Despite having both money and expertise, FBR could
not introduce an effective automated tax intelligence system to bridge the huge tax gap.
The World Bank in its report, "Implementation, Completion and Result Report" issued on
the completion of TARP observed that "the current narrow-base of general sales tax
(GST) in Pakistan remained almost entirely unchanged throughout 2005-2012, despite
efforts to overhaul the indirect taxation structure by introducing a reformed GST
featuring few exemptions and wide coverage of goods and services."

The World Bank report, while highlighting the poor performance of FBR, notes: "different
from other sources of tax revenue in Pakistan, administration of GST entails a full-
fledged operation of major FBR functionalities, including registration, monthly tax return
processing, collection, refunds, audit and enforcement. GST operation also integrates
joint effort from both internal revenue administration and customs since GST import tax
is collected at the borders and zero-rating is targeted for export operations, besides
other activities."

For evaluating FBR's overall performance during the TARP, the World Bank used GST
administration as an indicator. The results compiled were highly disappointing-GST
productivity turned out to be only 23 percent, compared to an average ratio of 34
percent world-wide. According to the World Bank, "the estimation covering the project
life reflected an overall decreasing trend during 2005-06 to 2010-11 suggesting feeble
tax administration efforts throughout the reform period." Shockingly, throughout the
reform implementation period, there was "a declining performance in both tax policy and
administration." Even during the economic boom (2005-08) GST productivity index
"showed a rather declining trend despite modest buoyancy gains in FBR revenue
collection, signalling relatively poor tax administration performance amidst relatively
favourable overall economic conditions," says the World Bank.

The World Bank concluded that "during the economic crisis period and subsequent years
(2008-11), GST productivity index declined at a higher rate compared to FBR tax-GDP
despite a swift turnaround in project implementation and concomitant positive trends in
some outputs by the last two years of project life." The report while pointing out weak
compliance levels, lacklustre results in reform implementation, especially those related
to short-term actions aimed at curbing evasion through more effective enforcement
actions by the final year of project implementation, noted "performance from 2008
onwards, far from the project's objectives envisioned at the outset." At the end of TARP,
all indicators of sales tax and income tax were extremely poor. Out of total population of
180 million less than 1.45 million filed returns in 2011-disturbingly the share of business
returns was only 35.5%. In 2014, the number of filers nose-dived to 856,229-a decrease
of 593,771 in just four years! In the same manner, sales tax actual contributors were
about 50,000.

FBR claims that it is broadening the tax base, whereas the reality is that it is trying to
regain the lost return filers. There was a time when FBR used to get nearly two million
returns! They need soul-searching to find out what has gone wrong and where these
taxpayers have vanished. Can FBR stalwarts explain why out of registered companies of
nearly 67,000, only 24,188 filed returns for tax year 2014? For tax year 2013, total
number of companies that filed returns was 25,152. Is it an issue of broadening the tax
base or enforcing tax obligations? Law requires that every company has to file tax return
irrespective of whether or not it is earning any income.

We have been warning about the devastating effects of high indirect taxation and
excessive burden of withholding taxes. Yet the IMF and the government insisted on
these even on low income levels and the result is now before us: there is a tax revolt as
evident from decreasing number of filers and massive tax evasion in withholding tax
regime. Successive governments have been emphasising the importance of increasing
tax revenues, mainly on the dictates of the IMF, but flawed and irrational tax policy has
destroyed our economy. In Pakistan, the financial system is for the rich or to lend money
to the government, thus, small- and medium-sized enterprises (SMEs) do not get credit
for growth. In such circumstances, demanding the businesses to pay huge taxes in
advance through various withholding provisions, ahead of time, before they even know
what their income is going to be, is a sure recipe for disaster. This may be well-intended
to counter tax evasion, but is actually only destroying SMEs.

This is the sordid story of tax reforms in Pakistan even when enormous funds-over US
$100 million-and best professional advice was available. As confirmed by the report of
the World Bank, as an organisation, FBR has not only lost its credibility and usefulness,
but has proved to be counter-productive for the very purpose for which it was
established.

According to reports, FBR is having another engagement with the IMF "to discuss the
crucial tax reforms of indirect taxes including Single Stage Sales Tax (SSST) and
examine possibility to replace SSST with existing standard rate of 17 percent sales tax".
FBR is reportedly seeking "guidance of the IMF experts in implementation of the Single
Stage Sales Tax in Pakistan" as recommended by the Tax Reform Commission (TRC).
This would be another wrong step. We have been suggesting introduction of harmonised
sales tax as in vogue in Canada and elsewhere, but neither FBR nor TRC has considered
it. The real reform agenda, suggested in these columns from time to time, is
establishment of National Revenue Authority and implementation of simple income tax
law and harmonised sales tax to facilitate taxpayers and boost economic growth. But
nobody is listening-the reasons best known to them who are self-styled experts in all
areas of taxation and tax administration!

The performance of these so-called experts is before the entire nation. FBR, despite
imposing additional taxes of Rs 360 billion, is allegedly blocking over Rs 220 billion
taxpayers' refunds and taking advances of many billions; it has failed to meet the third-
time revised target for fiscal year 2014-15, showing a shortfall of Rs 222 billion vis--vis
original target of Rs 2810 billion, which was first reduced to Rs 2691 billion and then to
Rs 2605 billion. According to FBR, net collection for 2014-15 is Rs 2588 billion, whereas
independent sources claim that the State Bank of Pakistan (SBP) has confirmed
collection of only Rs 2581 billion. According to FBR, the difference of Rs 9 billion is due to
book adjustments that SBP had not taken into account. Even if the claim of FBR is
correct, the huge shortfall of Rs 222 billion (the original budgeted target was Rs 2810
billion), will increase fiscal deficit beyond 4.9% of GDP breaching the agreed limit with
the IMF. However, as in the past, there will be no difficulty in getting a waiver to qualify
for the next tranche.

(To be continued) (The writers, tax lawyers and partners in Huzaima, Ikram& Ijaz, are
Adjunct Faculty at Lahore University of Management Sciences (LUMS).)
Copyright Business Recorder, 2015