Robust taxation system need of the time by MAHMOOD S

ARTICLE (March 02 2010): Pakistan tax reforms strategy documents are in furtherance of Shahid Hussain's taskforce reports. The taskforce report, contained exhaustive analysis of different FBR business process. It, inter alia, advised to devolve the business processes on functional lines, remove extra tiers and simplify procedures. It further advised for separation of adjudications from audit.These reforms strategic documents did not refer to any input indirect t taxes as is evident from in para 10. In para 3.7, it provided for the integration of different taxes as a long-term measure. In short-term measure, it stressed the need for training and development and it also noted that FBR technology is foot loose and further noted that technology has been driven by the IT management. The different mission reports stressed the need for the development of the Integration Taxes Management System (ITMS). It advertised the bidding documents. The reforms were somewhat on track till the arrival of Carlos Silvani on scene.The government of Pakistan, in its letter of intent dated 22.11.2008 undertook to ensure the integration of administration of different taxes at para 15 of the letter. It further asked for the harmonisation of different taxes. In the name of harmonisation of the different taxes, through amendment ordinance, the provision of sales tax were aligned on the pattern of income tax laws.Departing from Shahid Hussain's taskforce, it has done away with separation of adjudication from audit and opted for old obsolete pattern of investing both adjudication and audit in the same person. In present reforms modal, all the administrative as well as financial powers in the field have been centralised in the person of Chief Commissioner. The field formation has no space to deliver effectively tax management and instead for every step the approval of the Chief Commissioner is mandatory.Without developing the integrated IT, the Board has initially integrated local domestic taxes and further departure came in Istanbul where the government of Pakistan agreed to create one or two occupational groups as noted at para 5b. This is a blatant departure from not only the reforms strategic documents, but is also a clear unnecessary addition to the letter of content November 2009.The commission report of September 2008 provided for the development of 2009 system, which is nowhere in sight even in 2010. Best practices in the systems development field place significant emphasis on the development of business ownership by the staff. Obviously, the business does not code or design the system. However, their ownership comes from taking the lead role in determining system requirements and acceptance testing.It should be stressed that until the business units within the FBR develop staff that are truly reform oriented, committed to the implementation of a functionally integrated FBR, and have the experience that gives them a good understanding of the FBR objectives, the lack of effective business input to the system design process will continue to be a problem.However, in its report of 2009, it has assigned all the IT development to PRAL which is an IT organisation. This organisation keeps on experimenting with different businesses and as a result there are different applications for different businesses. It is Carlos Silvani, who initially suggested the integration of administration of different taxes and it is the same person, who without evaluating robustness of the sales tax system, advised to create different occupational groups or services.Integration on functional models in no way means creation of new service or services. At present, the whole taxation system under the FBR is foot loose the compliance ratio of returns filers is at the same level where it was reforms was the initial integrated.The e-portal points out that income tax, apart from salaried person, there are only 13,537 payment filers where total number of taxpayers are 961,762 are NTN holders. Developing any taxation and aligning sales tax on income tax pattern will thus be disastrous where compliance per se does not exist.Sales tax could operate functionally on sectoral basis where in IR has been deployed on territorial basis. This will destroy whole VAT in case it is introduced if is assessed on geographical basis. It is also interesting to note that Carlos Silvani has found that local zero-rating has an abbreviation of VAT, but at the same time, suggested to introduce withholding taxes in VAT, which is something nowhere prevalent in developed economy. Withholding concept is alien to VAT laws.As a consequence of Carlos Silvani reports and recommendations, there exists now different IT application for different business processes. The government has not released sales tax refund after creation of IR. Further the discontentment is a galore in the strike of sales tax auditors and strike by the income tax inspectors against the posting of auditors.The whole edifice is being in under demolition and all the assets of the excise field formations are being occupied by the income tax group. Despite the fact that legally IRS is yet to be notified. Without an integrated IT even functional deployment of domestic taxes will serve hardly any purpose and this is the reason that tax to GDP ratio has further deteriorated.The way forward is in the first instance to develop business driven IT. Income tax is totally manually operated and heavily dependent upon withholding tax. There is dire need to automate their business processes. There does not exist any provision in income tax law to check withheldees' withholding agents and consequently it cannot be ascertained whether or not withholding agents are depositing withheld tax.Further, the separation from audit from adjudication is very essential to fortify equity and justice. The administration needs to be devolved at least at collector/ commissioner level. Re-engineering of the business processes is of utmost importance that after Carlos Silvani has come to grinning halt and whole emphasise is now to create new service.Taxation system is in disarray as decrease in imports causes a slump in the revenue. There is need to develop in the first place a robust taxation system supported by an integrated IT and motivated workforce as noted in the Maxwel Stamp report. Creation of new service if at all should only be undertaken once all the pre-requisite have been achieved.

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