Sources said on Wednesday that the WB has raised its observations over the draft FBRA, which would be discussed threadbare in the upcoming visit of WB review mission from November 27 to December 5, 2006.
The bank has raised a number of queries, legal implications, interpretation of law on power disputes between FBR and federal government and apprehended that the creation of CBR subsidiaries would make the system very much complex under the proposed law.
The WB has termed the FBRA draft as 'sketchy and complex' and requested the CBR to clarify the authority who would conduct accountability of the actions taken by CBR. The overall governance arrangement and human resource management (HRM) is also unclear under the draft.
The new law should clarify what the provisions are, which would keep a check on the political interference into the matters of the FBR. Similarly, should the Board have a blank authority to issue regulations or should the rules be approved by the proposed Advisory Board?, the WB said.
Giving its detailed comments on the FBRA, the WB observed that draft FBRA is vague and needs further clarity on the relationships amongst the Board, which would be the executive body responsible for the FBR's operation, the proposed advisory board or the federal government. Both the advisory board and the federal government seem to share responsibility for a number of policy matters and it is not clear where the overall policy authority lies.
The WB is also unclear that the advisory board and the federal government also seem to have a number of executive responsibilities that would seem more pertinent to the Board. It is also not clear which HRM provisions of the existing and very complicated legislative and regulatory framework are superseded by the proposed FBRA and which are not.
It is also not clear that the advisory board is more than advisory in nature and seems to have the overall policy brief (excluding perhaps, tax policy, which remains with the Ministry of Finance?) within which the Board itself (FBR) will operate. In that case, where does accountability lie for the actions of the FBR, acting as a legal entity, in terms of the appointment, promotion, transfer, disciplining and dismissal of staff; in terms of financial management and accounting, and; the creation, management and control of subsidiary entities?, the WB said.
The WB questioned, "Is there not also a possible clash between the Advisory Board and the Federal Government, the latter being also empowered to direct the Board on matters of policy? If this means taxation policy, could the policy be made clearer?"
The WB has expressed hope that the new Act would provide greater autonomy to CBR, both functional and human resource management authorities for effective implementation of the tax reforms and management of tax collection.
The WB has asked the CBR to clarify reason why provincial service officers may not serve on the Board? The term Board in Council is used in the Act but not defined in the document, the WB said.
The WB also raised a query that should the budget not be linked to a three to five year rolling business plan and medium term expenditure (budget) framework? Should the FBR not also be required to report on its performance against its business plan and budget expenditure?
The WB opined that the initial worry, as the staff of FBR will remain civil servants under Civil Service Act, 1973 and its subsidiary rules and regulations and adjunct legislation (including the FPSC, FST, Removal from Service Ordinance, Estacode, Rules of Business, various service rules, etc) needs clarity. In this regard, which provisions of the existing legislative framework are superseded by the proposed FBR Act and which are not (pensions, for instance, under the 1948 West Pakistan Pension Scheme)? Otherwise, it will be left to the Courts to decide and outcomes may not be predictable.
The WB also raised a question there is need for a welfare fund under the proposed FBR when staff will presumably all have pensions and access to the general provident fund as civil servants, and in addition; enhanced salaries and performance related payments?
The WB also expressed serious concern that giving staff a percentage of money recovered from tax evaders as reward, even when 'laundered' through a welfare fund, seems to set a dangerous precedent. Not that the staff should not be rewarded for excellent performance, just this sort of linkage may not reflect a positive correlation between effort and reward. It questioned that should this recovered money be treated in any other way and not be included and deposited in the revenue accounts of the government?
The WB has proposed that a three-year term for chairman's tenure seems too short to lead an organisation in an effective manner. Four to five years would be more reasonable under the FBRA.
Similarly, the FBRA grants CBR responsibility for defining "revenue expenditure". Does this refer to the Federal Government's revenues?
Terming the CBR subsidiaries a risky proposition, the WB is of the view that if the proposed Act is meant to give CBR flexibility, are subsidiaries still needed? If subsidiaries are needed, they should be approved by the Advisory Board under a strong justification of why they are critical for CBR's operations. There is a risk that CBR's structure could become too complex, with the subsidiaries growing too fast (eg, PRAL) and distracting the institution from its core responsibilities.
Why do CBR subsidiaries need be headed by retired officers, former members? CBR should seek to attract most competent professionals from the market to head such companies, the WB opined.
On the issue of Human Resources, the FBRA is not clear as to what provisions will apply to employees and to what extent the CBR with approval from the Advisory Board will be able to improve the incentive regime for its employees, the WB added.