FBR overhaul proposes technology-driven expansion of tax net

ISLAMABAD To enhance tax collection efficiency, the government has charted out a comprehensive policy to restructure the Federal Board of Revenue (FBR).

The proposed reforms include the establishment of a National Tax Authority with the merger of federal and provincial tax departments, the creation of a separate Tax Policy and Revenue Division, and the transformation of the FBR into an autonomous body under the oversight of a Tax Administration Board.

The cornerstone of the proposed policy is the establishment of a National Tax Authority to streamline taxation processes by merging federal and provincial tax departments. This integration would eliminate issues of double taxation and tax evasion, besides ensuring that taxpayers interact with a single, unified department.

Additionally, the policy recommends the separation of tax policy from administration, granting autonomy to the FBR. The Tax Administration Board will oversee the autonomous FBR, while a separate Tax Policy and Revenue Division will be created.

The latter will include representatives from all relevant ministries and departments, fostering collaboration for effective policy formulation. The draft policy seeks to transform the FBR into an IT-driven digital tax administration. Key initiatives include the digitalization of the entire supply chain, the enforcement of a Track and Trace System across various sectors, and the introduction of new categories in point-of-sale systems.

The adoption of cutting-edge technology promises the eradication of tax evasion and enhanced transparency.

To ensure accuracy and transparency, data acquisition will be facilitated through an IT Common Transmission System, and a Compliance Risk Management System will be established. Artificial intelligence will be deployed for data analysis, and a Synchronised Withholding Administration and Payment System (SWAPS) will link payers, payees, banks, and the FBR through a unified portal.

The policy draft seeks to expand the tax net by incorporating a vast majority of retailers while simultaneously simplifying the tax filing process, and minimizing interactions with tax officials. Currently, the retail sector contributes a significant 18.8pc to Pakistan's GDP, yet its share in tax revenue stands at a mere 4pc. To address this disparity, the policy proposes a new scheme to collect taxes from retailers through their utility bills. This approach aims to streamline tax collection and reduce the administrative burden on both retailers and the government.

The tax base will be determined based on factors such as location, property value, and rental income. To facilitate seamless tax calculation and payment, a mobile application called Tajir Dost will be launched. This user-friendly app will enable retailers to calculate their tax liability and make payments conveniently. The tax will be payable in 12 monthly instalments, and any overpaid amounts will be adjusted at the time of filing annual tax returns.

The proposed policy advocates for the separation of the Customs Department from the FBR, with a focus on trade facilitation and border controls. This strategy would curb smuggling and mis-invoicing, fostering a more efficient and specialised approach to customs-related matters. The government plans to involve the Law Department in vetting the policy draft. Compliance with the new system will be mandatory for all entities and departments, with data transmission coordinated through the National Tax Authority.

The implementation plan sees the establishment of dedicated IT-driven offices at the district level. Approximately 30pc of the current human resources will be integrated into these district tax offices, fostering a seamless exchange of information with the National Database and Registration Authority (NADRA).

Addressing the critical issues of smuggling and mis-invoicing, the policy suggests the creation of joint check posts involving relevant departments and law enforcement agencies. Equipped with surveillance and IT monitoring systems, these checkposts aim to enhance border security and prevent illicit trade. Furthermore, cargo clearance will be separated from anti-smuggling functions, and a specialised workforce will be developed for post-clearance audit procedures.

The proposed policy will reshape the taxation landscape. By leveraging technology, enhancing transparency, and refining enforcement mechanisms, the government aims to foster a more efficient and responsive tax administration system, ultimately contributing to increased revenue collection and economic development.