Reforming state institutions, particularly those responsible for revenue collection, is a delicate task that demands a nuanced understanding of their functions, challenges, and potential for improvement. In Pakistan, the ongoing changes within the Federal Board of Revenue (FBR) have triggered intense debate, with the proposed separation of the Customs and IRS emerging as a particularly contentious issue.
This decision, made by a caretaker government, coupled with concerns about the constitution of the oversight board, has sparked unrest among officers of the Revenue Service of Pakistan, which constitutes nearly half of the entire bureaucracy.
The reform’s current trajectory appears to lean towards fragmentation rather than integration, a departure from global trends and best practices. The efficient collection of taxes necessitates a comprehensive grasp of economic transactions, both domestic and international. The separation of Customs and IRS could lead to double taxation on the same transactions, impacting revenue collection and introducing conflicts in their approaches.
Beneath the surface, this division represents more than just an administrative reshuffle at the headquarters level. Its repercussions are likely to filter down to the grassroots level of revenue collection, risking confusion and conflict between the two service groups. Particularly concerning is the potential for conflicts during crucial transaction stages, such as the import phase, where transactions may be taxed simultaneously for customs duty and withholding taxes.
Tax officers have voiced their concerns, highlighting the lack of clarity, implementation mechanisms, and ownership by relevant stakeholders. While reforming the FBR is undoubtedly essential in the face of an ever-evolving economic landscape, the timing of such reforms, especially when the institution is striving to meet ambitious revenue targets, raises questions.
Internally, the FBR grapples with challenges such as inadequate investment in information technology and training. Comparisons with institutions performing similar roles reveal disparities in financial and non-financial compensation, hindering the FBR’s effectiveness. The solution lies in comprehensive internal reforms encompassing modern training, the incorporation of emerging technologies, market-based compensations, and autonomy of work, rather than subjecting the institution to an oversight board.
The proposed appointment of a secretary not affiliated with Customs or IRS is deemed discriminatory and potentially unconstitutional. Such decisions risk alienating experienced professionals, leading to a potential brain drain and exacerbating the challenges faced by the FBR. The imposition of non-professionals on the board may create chaos at the top, as professional tax officers may resist guidance from those lacking expertise in their field.
As Pakistan navigates these intricate changes in its tax administration, the demand for clarity, transparency, and adherence to global best practices cannot be overstated. The decisions taken today will shape the long-term health of the country’s economy and governance. The reform process must be guided by wisdom, expertise, and a clear vision for the future of Pakistan’s tax administration system, ideally led by a duly elected parliament of Pakistan. Striking the right balance between reform and continuity is crucial for ensuring a smooth and effective transition that benefits the nation as a whole.
(The article is written by Dr. Muhammad Irshad, who served as Chairman of the Federal Board of Revenue (FBR) from January 19, 2017, to June 30, 2027.)
