Inter-ministerial body begins discussing FBR revamp

ISLAMABAD: The Inter-Ministerial Committee, led by Finance Minister Dr Shamshad Akhtar, initiated discussions on Wednesday on the restructuring plan of Federal Board of Revenue (FBR) and submitted a summary to the cabinet for reconsideration by next week.

Despite intense efforts to secure a consensus, the committee faced dissenting voices from both ministers and the FBR. Caretaker Minister for Commerce Ejaz Gohar had offered support for the restructuring plan, but others remained unconvinced.

The Inter-Ministerial Committee is scheduled to reconvene on Thursday (today) to continue deliberations on overhauling the tax machinery.

There is speculation that the reform plan initiated by the finance minister may have encountered hurdles with the formation of Inter-Ministerial Committee. However, efforts are underway to proceed with the agenda of dividing the FBR into two major entities

-- Customs and Inland Revenue.

Recent indications suggest that influential quarters, including the military establishment, were pushing for reforms to broaden the tax base and increase the tax-to-GDP ratio. However, the challenges of implementing these reforms smoothly remain a point of concern.

Caretaker Finance Minister Dr Shamshad Akhtar had reportedly prepared a summary for the Special Investment Facilitation Council (SIFC) on the restructuring plan without consulting the entire tax team. This decision led to criticism, and an official from the FBR had mentioned that the minutes of the high-powered committee meeting were not shared with the board, creating a stalemate.

Following the intervention of the establishment, an Inter-Ministerial Committee was constituted and the restructuring plan was referred for further consideration. The federal cabinet meeting on January 23, 2024 witnessed the prime minister forming this committee to deliberate on the restructuring plan by January 29, 2024.

In the summary presented to the federal cabinet, it was highlighted that the tax policy gap stood at approximately Rs2.85 trillion (3.4% of GDP), and the tax compliance gap was around Rs3 trillion (3.5% of GDP), totaling 6.9% of GDP. The low tax/GDP ratio has contributed to high fiscal deficits over the last five years.

The restructuring plan, as approved by the Apex Committee of SIFC, had proposed the separation of Customs and Inland Revenue. Two distinct entities, the FBR Customs Authority (FBR-CA) and FBR Inland Revenue Authority (FBR-IRA), would be created, each with its governance framework.

The Apex Committee had called for immediate implementation of the reform proposals.

However, FBR officers have raised objections, filing a representation before the Election Commission of Pakistan (ECP), stating that the caretaker setup lacks the mandate to make major statutory changes like restructuring a major revenue department. They argue that this action is against various statutes, including the Federal Board of Revenue Act, 2007, the Income Tax Ordinance, 2001, the Customs Act, 1969, the Federal Excise Act, 2005, and the Sales Tax Act, 1990. The election commission has also barred the caretaker government from proceeding with the privatisation of state-owned enterprises, citing the Elections Act, 2017.

The proposed restructuring of the FBR faces legal challenges, with objections raised on the grounds of illegality, unlawfulness, and exceeding the caretaker government’s mandate. The debate continues amid concerns about the implementation of such sweeping reforms just weeks before the general elections.