Page 70 - Jan-Mar 2016 The Pakistan Accountant

Signature Qualification CA that Empowers to Lead PAKISTAN The primary goal of a revenue authority is to collect the taxes and duties payable in accordance with the law and to do this in such a manner that will sustain confidence in the tax system and its administration. a. to register for tax purposes; “Pakistan’s fiscal crisis is deep and cannot b. to file tax returns on time (i.e. by the date stipulated in the law) or at be resolved easily. Taxes are insufficient all; for debt service and defense. If the tax to c. to correctly report tax liabilities (including as withholding agents); GDP ratio does not increase significantly, and Pakistan cannot be governed effectively, d. to pay taxes on time (i.e. by the date stipulated in the law). essential public services cannot be delivered and high inflation is inevitable. The tax payer compliance is a primary goal for any revenue authority and to Reform of tax administration is the single quote: most important economic task for the government. Consequently, in June 2000 “The primary goal of a revenue authority is to collect the taxes and duties the chief executive appointed a Task Force payable in accordance with the law and to do this in such a manner that to review the tax administration and will sustain confidence in the tax system and its administration. The make recommendations to improve it. action of tax payers, whether due to ignorance, carelessness, recklessness, or deliberate evasion, as well as weakness in a tax administration means “An effective revenue organisation must that failure to comply with the laws is inevitable. Therefore, the tax comprise trained and dedicated persons administration should have in place strategies and structures to ensure with integrity, transparent processes, that non-compliance with the tax law is kept to the minimum.” a comprehensive information system, and taxpayer education. This report Analysis of Existing Situation suggests radical reform of recruitment, training, compensation, and performance There is a broad consensus amongst various stakeholders that one of management. It recommends self- the major reasons plaguing the national tax system is stemming out of assessment, selective audit, and expansion the failure of FBR to ensure the tax payer compliance. A lot of efforts and upgrading of information management. have been made in past to improve and modernise this function, but It emphasises reduction of discretion and despite these efforts it has not been able to deliver the desired objective direct contact between tax collector and of satisfactory tax payer compliance which is also evident from lower taxpayer. Indicative transitional measures tax to Gross Domestic Product (GDP) ratio. This has resulted in non- are suggested for most issues. availability of enough resources for the Government of Pakistan to finance its expenditure. The tax to GDP ratio at 9% is one of the lowest “The current management of Central in the region and is having a devastating effect on the economy and Board of Revenue (CBR) has taken people of Pakistan. creditable initiatives on process and reform. However, much more is needed The tax system is marred by menace of tax evasion, under reporting, and on a sustained and comprehensive tax fraud, corruption, smuggling, and under invoicing to name a few. basis. The Task Force’s recommendations This inequity in the system is also hitting hard to compliant tax payers, for tax administration go far beyond as there are no level playing fields and they have to compete with tax what can be done for the rest of the civil dodger’s/evaders, which is making their businesses unfeasible. administration. Yet, improvement in the collection of taxes is crucial and the The failure of FBR to collect the right taxes and meet the budget targets government cannot wait, nor will half results in resort to ways and means by the field formations which measures do. has negative impact on economy and businesses as well as trust of taxpayers. The honest tax payer has to bear the brunt of excesses by “The measures suggested will the department and the burden of those who connive and get away in substantially reduce the adversarial the system. The examples of the same are stoppage of tax refunds due relationship between taxpayers and tax including Value Added Tax (VAT) refunds, raising of arbitrary demands, collectors, improve the efficiency and collection of advance and undue taxes, etc. morale of the tax administration. There is a high probability that these measures Following are few excerpts from executive summary of reform report will increase tax compliance and reduce issued by Commission headed by Shahid Hussain in 2001 which is still leakage. There should be significant relevant to date: increase in the tax to GDP ratio.” 68 The Pakistan Accountant January - March 2016