Government considering restructuring FBR or establishing new tax body

Proposals under consideration to increase tax collections, Prime Minister directs to present comprehensive plan

Islamabad: Government is considering establishing new tax collection institution or further reorganizing existing machinery to increase national revenue, this alternative has come under consideration due to Federal Board of Revenue's performance not being satisfactory despite several reform efforts, according to official officials for first time idea of establishing completely new institution was presented in high-level meeting last week.

After that consultation also started inside FBR, Chairman FBR Rashid Langrial has assigned responsibility to few officers to prepare plan for presenting before Prime Minister Shehbaz Sharif.

According to instructions issued by Prime Minister Office on Thursday, FBR has been directed to present comprehensive proposals regarding human resource reforms, improvement and reorganization of FBR before Prime Minister on 19th October.

On question regarding proposal of establishing new institution being under consideration, spokesperson of FBR said on Thursday that reforms in institution is a strong and continuous ongoing process, during which dozens of ideas and proposals come under discussion. In another reply on same matter FBR confirmed that Prime Minister has directed institution to present comprehensive proposals regarding human resource reforms and restructuring and reorganization of FBR and work is underway in this regard.

Institution clarified that focus is on reforms in FBR. Spokesperson declared reports of handing over tax collection work to a private company as completely baseless.

According to sources consultation is still in initial stage and no final proposal has been approved regarding future structure of FBR or new revenue collection institution.

Matters under discussion also include establishment of National Tax Agency. If it is decided to transfer powers of FBR to a new institution, then amendments will have to be made in several laws, including FBR Act 2007 and at least four tax laws.

According to a government official, thinking under consideration so far is that FBR will not be completely abolished, officers who will not choose to go to newly established institution will be able to serve in existing institution till their retirement.

According to sources, failure to expand tax net, failure to achieve desired level of tax collections and stagnation in tax-to-GDP ratio are important reasons for considering establishment of new institution.

On question regarding results of FBR's transformation plan, spokesperson said that under this plan tax collections increased from Rs 9,200 billion to Rs 13,000 billion in two years.

However this answer does not fully reflect ground realities, because spokesperson while crediting transformation plan for increase in tax collections also included effects of additional taxes and marginal growth rate of economy in it.

Government had imposed heavy taxes under IMF program, which also played role in increase in tax-to-GDP ratio in first year. On other hand Economic Coordination Committee of Cabinet had approved first expenditure package of Rs 32.5 billion for six months in November 2024.

Out of this amount Rs 5.6 billion were allocated for purchasing 1,087 new vehicles, FBR is also facing difficulties in expanding tax net.

Out of 19 million people holding National Tax Numbers only 6.9 million people had filed tax returns till Thursday evening, while 8.5 million returns were filed in last tax year.

Government had also launched scheme to bring traders into fixed tax system, whose aim was to include 3.7 million retailers in tax net.

Out of them target of bringing one million traders into tax net this year was fixed. Real-time monitoring of business transactions is being done by integrating digital invoicing and Point of Sale (POS) system.

Artificial intelligence-based risk management system is being used for selection of cases for audit and clearance.