At center stage is now the Federal Board of Revenue (FBR), which has to reform itself and broaden the tax net to make Pakistan qualify for the next Extended Fund Facility of the International Monetary Fund (IMF).

Before the IMF mission visited Pakistan in mid-May to roll out its stringent conditions for doling out the asked financial help, Prime Minister (PM) Shehbaz Sharif took upon himself the task of improving the financial order. On April 26, on the criteria of competence, financial integrity, and public dealing, the PM sought input from three different intelligence agencies to penalize the FBR officials belonging to the Inland Revenue Service and the Pakistan Customs Service. Twenty-five officials were singled out to be an example for the rest. A process is also underway to categorize officers qualitatively from Category A (wanted) to Category D (not wanted). On the way, a challenge would be how to align the whole process with the Civil Servants (Efficiency and Discipline) Rules of 1973.

This is the first time, the FBR is bearing the brunt of an economic crisis hitting the country. Perhaps, the restructuring of the economy begins with the restructuring of the FBR. Nonetheless, never before had the country gone through such a crisis as to necessitate the FBR’s chastening. The classification imposed indicates that the FBR failed to put its house in order, leaving room open for a third-party evaluation, and consequent disgrace. Second, the sorting indicates that the FBR needs clean, competent, and customer-friendly officers to be eligible to seek top managerial positions. Third, the categorization points out that the FBR cannot stay aloof of the financial calamity ravaging the country. The primary input had come from the business community, which was reluctant to avail itself of the recently announced Tajir Dost Scheme. The trader-friendly scheme had introduced a minimal (or token tax) to register businesses which were being run by retailers. The scheme was an initiative to expand the tax base to take the Tax-to-GDP ratio to a double figure (from the existing one of below nine percent). Certainly, more tax has to be collected to match expenditures, which also needs reduction. Whereas enhancing the tax-to-GDP ratio is the prime target, untaxed and undertaxed sectors such as real estate and agriculture cannot stay excluded. Schemes have to be introduced to bring such sectors into the tax net. Similarly, whereas increasing revenue collection is the main objective, the importance of reducing expenditures cannot be overlooked. Indeed, the federal government has to mollify the business community by rectifying the FBR before the announcement of the forthcoming budget (in June) brimming with harsh taxation to meet certain prerequisites of the IMF.

If the mere classification of the FBR officials were not enough, the government has given a nod to McKinsey and Company to initiate the process of digitization of the FBR’s operations to plug loopholes. The archaic method of doing manual profiling of taxpayers would be completely replaced with a digitally empowered taxation system, which would not only be user-friendly but which would also not be exploitative for the assesses (taxpayers). In a way, this would be a fair attempt to shorten the distance between the FBR and the public. If people remain fearful of the FBR (meaning its officials, who could exact undue tax or who could line their own pockets), neither the tax base can be broadened nor can the taxpayers be willing to pay the due tax. This is one of the reasons the government must resort to the imposition of indirect taxes, which are hitting the poor as well. In fact, the current high rate of indirect taxes is prohibitive of expanding the direct tax net.

All these steps would meet the immediate economic needs of the country, but there is a need to take long-term steps such as overhauling the recruitment method of the Federal Public Service Commission (FPSC). A law be made to prohibit professionals like doctors and engineers (especially mechanical, electrical, and civil engineers) from sitting the competitive examination to join financial services such as Inland Revenue and Customs. Perks and privileges attract them to join the civil service. Otherwise, most such professionals remain a reluctant part of the government service, thereby compromising the efficiency of the department. The FPSC is a partner in crime. The FPSC rules be amended to permit candidates with a background of law and financial degrees only to sit the competitive examination to join financial services. Without correcting this fundamental anomaly, all efforts to restructure or revamp the FBR are fleeting and meant to dissipation with the passage of time. The federal government has to put some restrictions on itself as well. For instance, issuing circulars to give tax exemptions to certain business sectors for a limited period of time has marred the functioning of the FBR. Officials of the FBR develop an inkling of who has managed to get the circular issued and who has obtained financial benefits from the circulars. Apparently, time-bound circulars restrict the FBR officials from collecting taxes. The circulars promote corruption when entrepreneurs want the interpretation of their businesses to have fallen squarely in the domain of the exemption offered by the circulars.

The politics of issuing circulars has not only allowed the sitting legislatures to appease their benefactors (who happened to be investors in their election campaigns), the same factor also promotes corruption in the FBR. This is how both the federal government and FBR officials foster a symbiotic relationship to seek illegal monetary benefits. It is not that circulars should not be issued; it is that a uniform policy be made favouring none.

Dr Qaisar Rashid
The writer is a freelance columnist. He can be reached at qaisarrashid@yahoo.com