BAHRIA UNIVERSITY KARACHI CAMPUS

NAME MALAIKA ASIF

ENROLLEMENT 02-114222-005

PROGRAM BS ECONOMIC AND FINANCE

 ASSIGNMENT#04

Q1. What taxation Reforms are initiated in Pakistan?

ANSWER
ARTICLE ON 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 based on 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 based
on anticipated expenditures. Accordingly, a detailed exercise was undertaken based
on which a revised PC-I with reduced capital cost of Rs. 6,473 million 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 simplified 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.