Pakistan, World Bank Negotiate $400MN FBR, Tax Reform Program

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“Our present tax revenue potential, provided that the monstrous black economy is dealt with an iron hand, is not less than $60 billion (Indonesia collected $38 billion in 2018).

PKONWEB Report (Islamabad) — Pakistan and the World Bank are negotiating a reform program worth $400 million to modernize and bring the Federal Board of Revenue (FBR) in line with the provincial governments, the global body’s country chief said on Thursday.

“We are right now in discussions with the FBR and the federal ministry of finance and provincial authorities. We are also doing similar programs with provincial governments. With the FBR we hope that, within the next three to four months, we will complete this whole program,” Illango Patchamuthu, WB Country Director, told Arab News in an exclusive interview.

The global lender intends to help Pakistan achieve three goals with the reformed FBR. “Our first goal is to strengthen the tax administration in the country as a whole as you know the tax to GDP numbers in Pakistan are low as compared to many other countries,” he said.

He added that some of the systems in the FBR are “outdated so we need to bring in new one technology software and supporting capacity automation.” “This can improve the interface between the public and private sector to make paying tax much easier. This is our second goal,” he said.

The third goal is to help the FBR and the federal and provincial governments have a more coordinated and coherent approach to tax management. “As you know, there are many challenges in the way taxes are implemented and collected between federal and provincial governments. For example, in the general sales tax, the goods are with the federal government vis-a-vis the provincial governments and that needs to be in harmony for bringing in better coordination,” he added.

It may be recalled that a similar program was introduced in 2004 with the objective of improving the integrity and fairness of tax administration in the country for which the WB had extended $125.9 million to Pakistan, for the Tax Administration Reform Project.

Pakistan is among the countries where the tax to GDP ratio is very low at 11.2 percent. This is often blamed at a flawed tax collection and disbursement system.

Direct taxes dropped to 1.8pc of GDP during current fiscal year against 1.9pc of same time last year. Taxes on goods and properties also declined to 2.1pc of GDP compared to 2.2pc. The share of sales tax also dropped to 1.8pc of GDP from 1.9pc last year.

According to Dr. Ikram ul Haq, an expert on taxation matters, “Our present tax revenue potential, provided that the monstrous black economy is dealt with an iron hand, is not less than $60 billion (Indonesia collected $38 billion in 2018). [Additionally, we need to ensure] that the existing tax base is made wider and equitable, tax machinery is completely overhauled and exemptions and concessions available to some privileged sections of society are withdrawn.”

The premier on Tuesday ordered FBR to flex its muscles against big tax evaders and make them cough up nearly Rs200 billion in the next four months amid his annoyance over poor show of the tax machinery.

On Wednesday, he reviewed the ongoing efforts being made to check money laundering which he said posed a serious threat to the country, calling for drastic measures.

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