Before establishing NTA, all the four provinces should be consulted and consensus must be reached for establishing an All Pakistan Unified Tax Service (APUTS) as suggested and elaborated in 'Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms', Business Recorder, August 31, 2018, and 'Doing business under scattered taxation', Business Recorder, September 7, 2018.
One major hindrance towards optimizing revenue collection is the scattered and haphazard tax collection through multiple authorities at the federal and provincial levels. The trend was further strengthened consequent to the 18th Constitutional Amendment after which the provinces established their own tax collection agencies at the provincial level. However, these provincial tax authorities still lack skilled manpower, tax collection expertise and other necessary human capital and paraphernalia to collect taxes. To meet these objectives, the services of FBR officers were requisitioned by the provincial authorities for their posting at provincial tax collection agencies on deputation basis. Resultantly, many of the FBR officers were sent to provincial tax agencies such as Sindh Revenue Board (SRB) and Punjab Revenue Authority (PRA). Although the 18th Amendment was widely appreciated by the provinces, it created fissures in the revenue collection authority of FBR, resulting in further decline in tax collection because tax on services fell in the provincial domains. On one side, the move was hailed by the provinces, but on the other, the taxpayers immediately started raising their eyebrows because they had to now face both federal and provincial tax authorities. All major chambers of commerce expressed their concerns and showed reservations on the scattered tax collection in the aftermath of the 18th Amendment. It is important to mention that Excise and Taxation (E&T) departments are already working as a separate entity under the provincial governments. The E&T departments have no formal administration connection with SRB, PRA and other provincial tax collection agencies. Unless, all federal and provincial tax agencies are unified and harmonized, the dream of optimum tax collection cannot be materialized.
The PTI-led coalition government, if really serious in moving towards "New Pakistan" [New and reformed Pakistan] must address the administrative issues of tax collection necessary for optimizing revenue collection as per the country's potential. In this regard, the formation of APUTS is the first major step towards harmonizing the tax system and culture in Pakistan. The proposed APUTS will function similar to All Pakistan Unified Group (APUG) services such as Pakistan Administrative Service (PAS) and Police Service of Pakistan (PSP).
The proposed APUTS will initially harmonize three main tax agencies: (1) FBR; (2) provincial tax authorities such as SRB & PRA; and (3) provincial Excise and Taxation departments. The officers will be posted anywhere in Pakistan, both at federal and provincial levels, directly from the FBR headquarters. An officer of the rank of Joint Secretary from Establishment Division may also be posted in FBR who would keep liaison with FBR over administrative issues of posting and transfers of officers. Officers performing better may be given station of their choice while the corrupt and inefficient may be posted outside the province as punishment. The provinces will continue to enjoy the benefits and power under the 18th Amendment as is the case of working of the PAS and PSP officers. The formation of APUTS will be a win-win situation for the federal government, the provincial governments and taxpayers. The proposed APUTS will have following advantages towards maximizing revenue collection at the federal and provincial levels:
1- The officers will be posted anywhere in Pakistan, both at federal and provincial levels, through centralized postings/transfers.
2- The taxpayers will feel better that they are in fact dealing with only one organisation, the IRS, for paying taxes and redressal of their grievances.
3- The formulation of APUTS will better handle tax matters all over Pakistan as a unified service just as PAS and PSP. There will be better coordination among federal and provincial tax authorities that will eventually increase badly needed revenue.
4- Inland Revenue Service (IRS) will emerge as a strong but accountable government service spreading over the federal government, all four provinces, Gilgit-Baltistan and Azad Jammu & Kashmir.
5- APUTS will better help the PTI government achieve its tax vision and targets.
NTA, having officers from APUTS, will be a competent and effective body, representing all constituents of the federation of Pakistan. NTA having nation-wide data at one place and centralised processing will certainly be able to compel all taxable persons to fulfill tax obligations and pay due taxes under various tax codes. NTA must replace Federal Board of Revenue (FBR) and all provincial revenue authorities that have miserably failed to collect revenues according to their actual potential. For example, provincial Revenue Boards have not been collecting agricultural income tax, imposed since 2000-less than Rs 2 billion collection by all provinces together on this account in fiscal year 2017-18 was highly lamentable. In the same manner, provincial excise and taxation departments are not collecting taxes they are entrusted to administer. Same is the story of Punjab Revenue Authority (PRA), Sind Revenue Board (SRB) and Khyber Pakhtunkhwa Revenue Authority (KPRA) in respect of sales tax on services-their capacity to tax all taxable services is quite inadequate.
FBR mercilessly wasted borrowed funds of millions of dollars given by the World Bank and other donors for implementation of a comprehensive five-year-long Tax Administration Reform Project (TARP) that was extended for another year on the request of Pakistan. During and after TARP, FBR has failed on all fronts-in meeting revenue targets, broadening of tax base, countering corruption and leakages, implementing sales tax, increasing share of direct taxes and improving tax-to-GDP ratio. At the end of TARP, tax-to-GDP ratio nosedived to 8.8% from 9.4% in the year when the programme started! Despite having both money and expertise, FBR could not introduce an effective automated tax intelligence system to bridge the huge tax gap of over 200%. The World Bank in its report, "Implementation, Completion and Result Report" issued on the completion of TARP, observed: "The current narrow base of general sales tax (GST) in Pakistan remained almost entirely unchanged throughout 2005-2012, despite efforts to overhaul the indirect taxation structure by introducing a reformed GST featuring few exemptions and wide coverage of goods and services."
The solution for tax reforms is NTA that would have innovative structure: an independent Board of Management, accountable to Parliament through the Minister of Finance and Revenue. The Minister would have the authority to ensure that the NTA operates within the overall government framework and treats its clients with fairness, integrity, and consistency. The Board of Management would consist of 15, three each to be nominated by the provinces and rest by the central government. The Board would have the responsibility of overseeing the organisation and management of the NTA. Chief Executive Officer of the NTA, being a member of the Board, elected by majority of members, would be responsible for the NTA's day-to-day operations. The NTA Board would have no role in the legislation, which under the Constitution of Pakistan is the exclusive domain of the national and provincial assemblies.
NTA would contribute to the well-being of Pakistanis and the efficiency of government by delivering world-class tax and benefit administration that is responsive, effective, and trusted. It would provide unparalleled service and value to its clients, offering its employees outstanding career opportunities.
The guiding principles of NTA would be:
Integrity: foundation of administration. It means treating people fairly and applying the law fairly.
Professionalism: key to success in achieving the mission. It means being committed to the highest standards of achievement.
Respect: the basis for dealings with employees, colleagues, and clients. It means being sensitive and responsive to the rights of individuals.
Cooperation: the foundation for meeting the challenges of the future. It means building partnerships and working together toward common goals.
At present, both the centre and provinces are not collecting taxes diligently. Our tax potential at federal level alone is Rs 8 trillion - Flat-rate taxation: Alternate solution, Business Recorder, November 20 and 22, 2015. If agricultural income tax and other provincial and local taxes are also collected efficiently, the total figure at national level would be Rs 12 trillion. For harnessing the full tax potential at federal, provincial and local government levels, NTA is a prerequisite as we highlighted way back in 2015. This idea was later borrowed by Tax Reforms Commission and many others without acknowledging and citing the above article and other writings on this subject in these columns. Many writers are posing as if NTA is their brainchild. This is the height of intellectual dishonesty that even the academicians and professionals do not cite the work of others and take credit of ideas not perceived by them.
Through consensus and democratic process, all the parliaments can enact laws for establishing an autonomous National Tax Agency that can facilitate people to deal with a single Revenue Authority rather than multiple agencies at national, provincial and local levels. The mode and working of NTA can be discussed and finalised under Council of Common Interest [Article 153] and its control can be placed under National Economic Council [Article 156].
(The writers, tax lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Professors at Lahore University of Management Sciences)