THE cabinet’s decision to create a Tax Policy Office at the finance ministry has raised hopes that tax policy is finally being separated from revenue administration, which is simply the function of tax collection. The FBR would still have a role in the tax policymaking process, but it will be restricted to suggesting rather than dictating. Why should tax policy be bifurcated from tax collection? The answer is simple. Tax policy should be closely aligned with broader economic and sectoral growth aims rather than focusing on just revenue collection for running day-to-day affairs. The concentration of powers — to frame tax policy and collect revenues — in the hands of the tax bureaucracy brings the entire focus of policy on revenue generation. It defeats the aim of using the policy framework for growing the economy through equitable and fair taxation. Sadly, successive governments’ urgent revenue needs have kept them from divesting the FBR of its policymaking powers at the expense of both GDP growth, and fair tax. The tax bureaucracy, too, has previously resisted moves to take away its policymaking function in order to retain its control over who pays tax and how much, and who does not.

The decision will help the government meet another IMF programme goal ahead of the first biannual review of the ongoing loan by the lender next month. But the separation of policy and collection will mean nothing, nor will it produce the desired results, if the TPO is staffed with another set of bureaucrats rather than tax experts well versed in the latest technology, who can tap economists and business leaders for their input regarding a pro-growth tax policy and a transparent taxation system that is responsive to the needs of the people. It has taken us decades to take this first step. But, as they say, it is never too late.

Published in Dawn, February 17th, 2025