ISLAMABAD: The federal cabinet on Tuesday formed a new inter-ministerial committee to come up with final recommendations on restructuring the Federal Board of Revenue (FBR) within a tight deadline of four days to minimise differences among different tax groups.

The proposed reforms were developed in closed-door consultation with a select group of people led by Caretaker Finance Minister Shamshad Akhtar. Instead of selecting a new minister to oversee the evolved plans, the federal cabinet reappointed Ms Shamshad to chair the inter-ministerial committee, sources in the tax machinery told Dawn.

Tax officials have already expressed worries about the caretaker finance minister’s quick and selective intervention in the overhaul of the tax administrative mechanism. As a result, the ‘establishment’ intervened to mitigate the damages and allow for the submission of a summary to the federal cabinet, said the sources.

The reforms will not produce the expected outcomes unless there is a political commitment to tax agricultural income, the retail sector and services. Previous experiments show that changes were undertaken to create posts and benefit specific persons while ignoring the underlying challenges of integrity and implementation.

New ministerial committee tasked with finalising tax system overhaul

Federal Policy Board

The Federal Policy Board (FPB) will be reconstituted to be led by the finance and revenue minister. FPB will comprise tax policy and administration experts, economists, and industry experts with no conflicts of interest. The revenue division secretary will report to FPB. The revenue secretary will be appointed from the Customs or IRS service cadre.

The FPB and revenue division secretary will develop tax policies, assign revenue targets, and coordinate all strategic issues with stakeholders. Policy formulation will be moved back to the FPB from the finance division.

Splitting customs, inland revenue

Customs and the Inland Revenue Organisation will be split. Each organisation will be led by a director general (DG). The government will nominate DGs from the relevant service cadres based on the FPB’s recommendations. They will lead the organisation for an agreed-upon period. The two establishments will be attached to the revenue division. The DGs will have administrative, financial, and operational control over their respective establishments, including budgeting, posting, and transfers.

Oversight boards

The finance minister will chair the two oversight boards — the Customs Oversight Board (COB) and the Internal Revenue Oversight Board (IROB). The boards will be made up of secretaries of finance, revenue, and commerce, as well as the chairman of the National Data Registration Authority and DGs of customs and IR. There will be four independent board members. The customs board will also include an independent member from the armed forces as a security and border control expert. The DGs will serve as members and secretaries to the board.

The board will be responsible for ensuring that the customs and IR organisations have effective policies and governance. Both DGs will report to their respective boards.

The boards shall develop authorities’ key performance indicators, monitor performance, including target attainment, and adopt customs and IR establishment administrative matters.

Tax policy office

To improve tax policy function and separate it from tax administration, a tax policy office (TPO) with a clear organisation, human resource and data systems, and links will be established. It will be placed in the revenue division. TPO will have a core group of permanent employees. It will conduct sector-specific studies on the economy’s tax potential, solicit policy input from all stakeholders, and conduct frequent tax expenditure analyses to minimise tax policy gaps.

Tax targets

Customs will continue to collect taxes at the import and domestic levels, including customs duty, additional customs duty, regulatory duties, export development surcharge, and other taxes assigned by the government. Customs will operate as a withholding agent, collecting IR taxes at the import stage.

IR targets will include income tax, sales tax, excise duty, WWF, CVT, and any other taxes assigned by the government.

The revenue division handles international taxes, valuation of goods and assets, IT and digitisation, data sharing between the two DGs, integrity, and human resources. Customs and IR DGs will consult on these decisions. A committee with equal customs and IR representation will determine import values under the revenue division.

The finance minister will form asset distribution and implementation committees. The asset committee will evaluate customs-IR asset transfers. The implementation committee will draft legal and regulatory changes and new laws.

Published in Dawn, January 24th, 2024