WB projects FBR tax revenue at Rs12,788 bn in nine years

ISLAMABAD: The World Bank (WB) has endorsed functioning nature of Federal Board of Revenue (FBR) where it has projected that the tax revenues could go up to Rs12,788 billion in nine-year period without any taxation measures.

One senior officer of FBR contacted this scribe this week and argued that the tax machinery should not be portrayed as villain in the process of undertaking crucial reform process because the tax machinery is discharging its national duty of collecting taxes in the presence of hardest ever time in the history of the country.

While quoting the WB report under Pakistan Raises Revenues (PRR), the FBR senior officer said that despite its human and financial resource constraints, the FBR has prevented from upgrading its technical capacity to global standards to generate more revenues.

According to WB, the FBR has around 21,000 staff and a nationwide presence. However, it is under-resourced, with an annual budget equivalent to around 0.65 percent of its receipts – much below the levels of high-performing revenue administrations, which stood ideally at 2.5 percent as a cost of the collection.

The WB states that although it is separate from the Ministry of Finance (MoF), the FBR lacks the attributes of a semi-autonomous revenue authority: fixed tenure for its leadership, a formula-based budget allocation and autonomy to decide how to spend its budget.

Lack of budgetary autonomy has deprived the FBR of resources to replace end-of-life ICT equipment in a timely manner, resulting in frequent hardware failures and interruptions of operations, especially at the Karachi data center where hardware deteriorates faster due to high heat and humidity. In addition, the current active-passive data center configuration does not ensure operational continuity, which is also at risk at the earthquake-prone Islamabad site.

Likewise, it lacks autonomy to train its human resource in accordance with the best international practices. Like most of Pakistan’s government entities, the FBR lacks the autonomy to link the promotions of its staff according to their performance.

Like most of Pakistan’s public administration, the FBR’s productivity is constrained by a traditional bottom-heavy staffing structure, where professional-grade staff account for only 10 percent—a structure that is inconsistent with the needs of a knowledge-based, information-savvy organisation.

“Women account for only 4.6 percent of FBR staff, though they are better represented in professional grades, accounting for 17.6 percent of staff in grades 17-22,” states the WB.

The FBR’s institutional setup is not congenial to efficient operations or effective management. The FBR’s organisational structure does not follow functional lines or provide a clear management hierarchy. In addition, there is a little integration between the Inland Revenue Service (IRS), which accounts for about two-thirds of the FBR’s workforce, and Pakistan Customs Service (PCS). The two services have separate career structures and limited shared services (e.g., accounting). Their audit functions, ICT systems, and field offices are also separate.

The IRS is organised by tax instruments, territorial jurisdictions, and taxpayer segments (e.g., Large Taxpayer Units) rather than functions (e.g., taxpayer registration, assessment, tax audit). A mixed function-based and segment-based structure is more efficient, as it enables technical specialisation of staff, automation of business processes by function, fewer offices, and complete taxpayer profiles – rather than the separate records for each tax instrument that the FBR uses. In terms of management structure, the FBR Act assigns the decision-making functions to the Board, with limited powers for the Chairman. In turn, Board members have functional responsibilities but do not oversee FBR territorial formations, where most FBR staff is deployed. IRS Directors-General report to the FBR Chairman rather than to Board members.

At the provincial level, the structure of the tax administration is more complex. Each province has three revenue authorities: (a) the Excise and Taxation Departments, which collect the UIPT, the tax on professions, the motor vehicle tax, and provincial excises; (b) the Boards of Revenue, which collect the agricultural income tax, land taxes, stamp duty, and other taxes on property transactions; and (c) the revenue authorities that collect the GSTS (Sindh Revenue Board, Punjab Revenue Authority, KP Revenue Authority, and Balochistan Revenue Authority). However, tax policy is clearly the domain of the provincial Finance Departments, the WB report concluded.

While responding to the World Bank’s position on adoption of functional lines in the field formations, various senior officials of FBR have unanimously approved this scribe that during the TARP period, entire field formations of FBR were shifted to functional lines which adversely affected the smooth functioning of the organisation. This was the very reason for declining tax to GDP ratio during the period of reforms. As the idea of functional lines was borrowed from abroad so it cannot be replicated in case of Pakistan.

The manufacturing sector, which was unsuitable to the services sectors like taxation department where complexities of operations are generating overlapping nature of functions. Instead of sector specialisation, tax specialist are more useful for organisation who can handle multiple functions like audit, enforcement, legal and taxpayers’ facilitation, they concluded.