Federal Board of Revenue (FBR) has recently announced creation of a new post of Member Internal Revenue Service and abolishment of the post of Member Sales Tax. The new Member IRS shall deal with both Income Tax and Sales Tax and hence Sales Tax and Income Tax have effectively been merged. It has been propagated that the same has been done under the pressure from multi-lateral donor agencies. However this hasty step of the FBR appears to have far reaching consequences in terms of its legal, administrative and financial implications and it seems that the Board has not bothered to consider these ramifications at a time when country is already facing financial crisis. First of all, the decision appears to be based on an IMF working paper and study conducted in 2004 for middle-eastern and north-African countries. The study itself claims in its preamble not to be representative of IMF views and IMF has recently started advocating 'Best Fit Model' rather than 'International Best Practices' model realising that each country has its own peculiar circumstances and it is not appropriate to import and copy paste foreign models in host countries. Interestingly the decision makers in the FBR failed or did not bother to look around the local models like India, Bangladesh or Malaysia where indirect taxes are administered by one agency and the direct taxes by the other. Even in the United States the IRS (FBR has been quick to copy the name) does not administers the sales tax that is actually a state subject. United Kingdom has tried to do this experiment but without any success. So why is merger necessary? The proponents' claim that merging the domestic taxes facilitates the tax payer as the tax payer has to come to one office for his taxes and functions like audit, registration and enforcement can be unified. It is interesting to note that while sales tax has some 80,000 registered persons, Income Tax has some 2 million registered tax payers so even if we accept the argument of facilitation, it would be to the extent of only the overlapping 80,000 tax payers. Sales Tax and Income Tax are inherently two different taxes and any effort to merge them for ulterior motives shall be detrimental for the financial health of the country at this precarious time. Interestingly, the letter of intent signed by the Government of Pakistan in November 2008 talks about integration and not merger as FBR backed by the Income Tax lobby has tried to propagate. It may also be of interest to understand why Customs and Sales Tax are so well-integrated? In a country like Pakistan where Sales Tax on import constitutes more than 50% of the sales tax revenue and majority of the sales tax payers are manufacturers, the sales tax audit starts from analyzing the import documents like goods declaration and the audit ends with either home consumption proofs or export where again the auditors need to analyze export documents. The attempts to hijack Sales Tax from Customs and Sales Tax group are not new and have been continuing for quite some time now. The former Chairman FBR Abdullah Yusuf is privy to these conspiracies from one group to rob the other group of its rights. Interestingly all of this is being done and sold in the name of reforms. The vested interest groups have taken the advantage of a new Chairman who despite being competent in many ways, does not know the history of FBR reforms. So what should be done if the Government is really serious in its declared objectives of tax payer facilitation and increase in Tax-GDP ratio? The following steps may be worthy of consideration in this regard: The utopian idea of merger of Sales Tax and Income Tax should be shelved once and for all so that the two groups can concentrate on their respective arenas rather than indulging in turf wars. All the contentious notifications should immediately be withdrawn. If the Government thinks that the integration of Sales Tax and Income Tax is really important, the Chairman should constitute a committee comprising the representatives of the two groups as was earlier suggested by Abdullah Yusuf and the committee should take a decision in this regard keeping in view the wider national interest. If at all, IRS is deemed necessary by the Government due to IMF pressure, a two streams approach may be devised where by there would be one Member IRS of Grade 22 under whom one DG Sales Tax and one DG Income Tax should be working supervising their respective departments independently. Although the benefits of co-location in LTU are yet to be analyzed by any study, considering that LTU deals with only a couple of hundred top tax payers, it may be a good experiment however it would be much more plausible if the two groups are located in close proximity but totally independent of each other. Co-location in RTOs is however a totally non-sensical and wasteful idea. The idea is an administrative nightmare with income tax people reporting to Custom people and vice versa. Rather the friction among officers shall be detrimental to the very tax payer in whose name the reforms are being done, without even getting his input. Government should concentrate on Agriculture income tax as being a tax on income, only rich agriculturists shall be taxed under this regime. Government should concentrate on bringing service sector e.g. retail sector, marriage halls, beauty parlors, designor shops, restaurants etc under sales tax net. There should be a balance between tax payer facilitation and enforcement and the tax evaders should be dealt very strictly. The data regarding all posh localaties like DHA schemes should be made available to the tax authorities for better assessment purposes. Tax should be imposed on real estate transfers beyond a certain threshold. All properties to be assessed at market values during filing of returns and the Government should have the right to buy any property by paying 25 % excess, if it thinks that the property is under-valued. This single step shall tremendously boost the tax collection.