Transcript Document
South Asian Tax Summit, 2008 FBR’s REFORMS PROCESS Presentation by USMAN KHALID MIRZA Member Direct Taxes April 16,2008
Order of Presentation
• Vision, Mission & Values • The Strengths of FBR • Tax Reform Initiatives: A Chronological Review • Recommendations for TARP • Objectives of the TARP • Structure of Field Offices prior to Reform • What had to be done under TARP • Current Status
Vision, Mission &Values Statement
•
VISION
To be a modern, progressive, effective and credible organization for optimizing revenue by providing quality service and promoting compliance with tax and related laws •
MISSION
Enhance the capability of the tax system to collect taxes through application of modern techniques, providing taxpayer assistance and by creating a motivated, dedicated and satisfied, professional work force •
VALUES
Integrity – Professionalism – Teamwork – Courtesy – Fairness – Transparency - Responsiveness
Organizational Structure FBR
CCFR Secretary General/ Chairman PRAL
Line Members
Direct Taxes Sales Tax & Federal Excise Customs
Support Members
Tax Policy & Reform Legal Administration and Coordination Note: Various DG Positions are also included in the top Management
Functional Members
HRM Audit Fiscal Research Information Management System Facilitation & Taxpayers Education
Strengths of FBR
• A Critical State Institution Collecting nearly 90% of tax revenue of the State Contribution towards federal and provincial total revenue (tax and non-tax) is around 65% Revenue collected is sufficient to meet 75% to 80% of Government expenditure needs Generation of resources for smooth economic management of Federal as well as Provincial and Local Governments Keeping the economy vibrant Monitor Fiscal Policy through tax incentives to encourage flow of FDI
Tax Reform Initiatives in Chronological Order
• May 2001: Syed Shahid Hussain’s Committee Report • Aug 2001: IMF Mission Report • Nov 2001: The Strategy Document on Tax Reform • Nov 2001: Presentation to the President of Pakistan • Dec 2001: Approval of the Strategy Document • Feb 2002: Establishment of Supervisory Council • Jul 2002: Establishment of Cabinet Committee for Federal Revenues (CCFR)
Recommendations
• CBR to have greater autonomy within the Government structure • Supervisory Council (now CCFR) to monitor & review CBR performance • Reorganize CBR and its field offices on functional lines • Merger of Income Tax, Sales Tax & Excise functions – a step towards co-location and integration of internal taxes • Separate handling of Large Taxpayers • Improve HRM strategy with respect to induction, promotion, training and compensation of Employees • Improve physical infrastructure and introduce One window operation • Greater stress on taxpayers’ education, service and facilitation
Need For Reforms
• Stagnant Tax Revenue • Narrow Tax Base • Primitive and antiquated tax administration (cylindrical instead of functional) • Complexity of tax laws and arbitrariness in their application • Relationship between tax payer and tax collector largely adversarial
Objectives of the Reforms
• Mobilize resources as per budgetary projections for improved economic management • Widen taxpayers base • Streamline tax and tariff rates • Improve voluntary compliance and strive to minimize adversarial relationship between taxpayers and tax collectors through: Simplification of tax laws and procedures Taxpayer friendly environment Making the system more transparent and efficient Honest Tax Administration
•
Structure of Field Offices Prior to Reforms
Direct Taxes (Income Tax Etc.) 5 Regional Commissioners with 34 Zonal Commissioners • • • Sales Tax and Federal Excise 6 Collectorates Customs 10 Collectorates Composite Collectorates 3 Collectorates
What had to be done under TARP
• Policy Reforms Simplification of laws Universal self audit of taxpayers assessment across all taxes coupled with effective selectivity and risk based No immunities, fixed taxes and amnesties Minimize dependence on withholding taxes Elimination of exemptions Tax Rates and Tariff reduction and rationalization Effective Dispute Resolution Mechanism
What had to be done under TARP
• Administrative Reforms Re-structuring the top structure of FBR Transform HQ and field offices on functional lines Re-organize and upgrade infrastructure of field offices (for domestic taxes – Federal excise Duty, Income Tax and Sales Tax) i.e., Large Taxpayer Units (LTUs) to deal with major revenue spinner cases Regional Tax Offices (RTOs) in major cities to deal with all other taxpayers Medium Taxpayer Income Tax Units (MTUs) as pilot projects to test the functional working of Taxpayers’ Facilitation Centers (TFCs) in small towns and cities
What had to be done under TARP
• Administrative Reforms - continued Re-organize and upgrade infrastructure of field offices (for international taxes – Import Taxes) i.e., Model Customs Collectorates (MCCs) Trade and Passenger Facilitation Centers (TFCs) at international borders and dry ports Extensive Business Processes Re-engineering (BPR) Improved Human Resource Management Concept of e-government Automation Technology and optimum use of latest Restructuring and training of Human Resources Facilitation, service and tax education IT
Current Status Of Policy Reforms
• Simplification of Tax Laws New Income Tax Law – Income Tax Ordinance, 2001 and Income Tax Rules, 2002 introduced New Federal Excise Law – Federal Excise Act, 2005 and Federal Excise Rules 2005 introduced Customs and Sales Tax Law and Rules updated and improved Introduction of GST in VAT Mode to minimize cascading Zero-rating of five major export oriented sectors to address the problems of processing of sales tax refund claims and settlements and governance
Current Status Of Policy Reforms
• Universal Self-Assessment Successfully implemented in Income Tax and Federal Excise Further streamlined in Sales Tax Partly implemented in Customs • Effective Risk Based Taxpayers Audit All corporate and non-corporate taxpayers (income above certain threshold) are subject to Desk Audit and if warranted by the facts followed by a detailed audit • Elimination of Exemptions To a large extent exemptions have been eliminated and is an on-going process
Current Status Of Policy Reforms
• Tax Rates reduction and rationalization – Income Tax Uniform Corporate tax rate of 35% for Public, Private and Banking Companies (From 35%, 43% and 47% respectively) Introduction of low tax rate of 20% for small companies Personal tax 3.5% to 30% rates for salaried individuals reduced and rationalized to 0.25% to 20% from Non-corporate tax rates reduced and rationalized to 0.50% to 25% from 7.5% to 35%
Current Status Of Policy Reforms
• Tax Rates reduction and rationalization – Income Tax Introduction of fixed/final tax of 5% and 10% on rental and interest income Withholding tax rates rationalized Gradual enhancement of tax-free threshold to Rs.
150,000 for salaried taxpayers and Rs. 100,000 for non-corporate taxpayers
Current Status Of Policy Reforms
• Tax Rates reduction and rationalization – Sales Tax Additional Sales Tax of 3% on sales made to un-registered person withdrawn Threshold of turnover subject to Sales Tax raised from Rs.0.5 million to Rs.5.0 million Aberrations like turnover enlisting scheme abolished scheme and
Current Status Of Policy Reforms
• Tariff reduction and rationalization – Customs Maximum standard rate reduced to 25% Number of slabs reduced to five 20%, 25% –0% 5%, 10%, Clear distinction between primary and secondary raw materials, semi-finished and finished goods Special incentives for capital goods including plant, machinery, and equipment – reduced rate of duty of 5% Tariff protection to locally produced goods
Current Status Of Policy Reforms
• Dispute Resolution Mechanism – All Taxes & Duties Withdrawal of all frivolous Supreme Court of Pakistan appeals by the department before Tribunals, High Court and All first level appeals (within the department) disposed off within two years (80000 appeals).
Now only (3000 appeals) are pending At the Apex Court level special benches were constituted at the request of FBR and a large number of appeals on legal issues decided (1650 out of 1950) and the remaining are under process (300)
Current Status Of Policy Reforms
• Dispute Resolution Mechanism – All Taxes & Duties At the High Court level the cases are being grouped by issues and taken up for hearing for speedy disposal of appeals Alternative Dispute Resolution Mechanism - Introduced A unique system for speedy disposal of disputes between the taxpayers and tax collectors in an un-conventional manner; By honorary professionals and related business experts Without any cost; and Without foregoing the right of regular appeal process
Current Status Of Policy Reforms
• Others Gradual phasing-out of Federal Excise Duty on goods Bringing services into tax net (Sales Tax) through Excise Duty, due to constitutional constraint
Current Status Of Administrative
• Functional Members
Reforms
Five Members from Private Sector engaged specializing in their respective fields i.e. Audit, Facilitation and Tax Education, Fiscal Research and Statistics, Human Resource Management and Information Management System • Re-structuring the Top Structure of FBR First Phase has been completed and Second Phase is to be completed by December 2009
Current Status Of Administrative Reforms
• Transformation On Functional Lines FBR (HQ) is working on functional lines i.e. Line Members of Custom, Income Tax and Sales Tax/Federal Excise and Support Function Members of Audit, IMS, FRS, FATE, HRM and Legal since 2001 Income Tax department has also started working on functional lines since July 2006 Audit & Inspection, Training, Intelligence, and Valuation Directorates have also started working on functional lines Sales Tax department is also working on functional lines
Current Status Of IT Initiatives
• Pakistan Customs Computerized System (PaCCS) After Extensive Business Process Re-engineering, the pilot project of (PaCCS) has been launched PaCCS is a fully automated (state of the art) system whereby WEB based electronic goods declaration is processed and cleared without any human interface Average clearance time reduced to four hours from five days for imports and one hour for exports PaCCS at present is handling clearance of imported containerized full cargo load only PaCCS fully operational and functioning smoothly at KICT, the pilot site of MCC Karachi
Current Status Of IT Initiatives
• Pakistan Customs Computerized System (PaCCS) PaCCS rolled out to PICT & QICT as additional pilot sites Customs automation and business process re engineering reforms in the rest of the country to be completed by December 2007. Technical Business Requirements and bidding documents for acquiring prepared automated system are being In the interim period, homegrown automated system by the name of PACCS full ‘One-Customs’ has been introduced at major customs stations pending implementation to improve the present manual system of clearance
Current Status Of IT Initiatives
• Tax Management System (TMS) – A home grown system Deployed in all LTUs and RTOs in place for efficiency and transparency • Sales Tax Management System (STMS) – A home grown system Deployed in all LTUs and RTOs in place for efficiency and transparency • The two systems – TMS and STMS will eventually be taken over by Integrated Tax Management System (ITMS) to ensure international standards
Current Status Of IT Initiatives
• Integrated Tax Management System (ITMS) Bidding documents under two-stage bidding procedure forwarded to World Bank for their final approval It is expected that the invitation to bid will be floated before the end of the calendar year The final delivery of the ITMS is expected by June 2009 • e-filing of Returns/W.Statements (Income Tax, Sales Tax ) has been successfully launched • Computerized System of Tax Payment Receipts (CPR) developed in collaboration with NBP and SBP endorsed by MOF, AGPR and CGA and implemented
Current Status Of IT Initiatives
• Other projects in hand Data Warehouse Human Resource Information System Inventory Management System Wide Area Net Work (WAN) FBR – Independent for Procurement of Hardware
Outcome of Reforms
• • • • • • • • Gaining Stakeholders’ Respect Substantial reduction of corruption - Transparency International Report Improved performance achieved but surpassed – Revenue targets not only Creating business friendly environment Introducing professionalism, integrity, teamwork, courtesy, responsiveness, transparency and fairness Facilitating and providing service to the taxpayers Reducing the cost of doing business Adversarial relations to mutual trust and confidence
Outcome of Reforms
• • Infused regular facilitation and tax education which has bridged the gap between taxpayers and tax collectors confidence among taxpayers through Creation of an enabling environment for various stakeholders which is: Promoting Economic Activity Encouraging Investment Spreading Out Commercial Activities Expanding Exports
1990-91 1995-96 1997-98 99-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Outcome Of Reforms In Terms Of Change In Tax Mix
Direct Taxes % Sales Tax % Customs % Excise % Indirect Taxes %
18.0
29.2
35.1
2.5
31.8
35.3
32.9
31.7
30.9
31.0
15.4
18.6
18.4
33.6
39.1
41.2
42.3
42.1
40.6
41.0
45.7
33.2
25.4
27.8
16.6
11.8
15.0
17.5
19.5
19.5
20.9
19.1
21.1
16.1
12.5
11.7
9.8
8.7
8.9
8.5
82.0
70.8
64.9
67.5
68.2
64.7
67.1
68.3
69.0
69.0
39.4
36.5
15.6
8.5
60.6
Outcome Of Reforms YEARS 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 In Revenue Collection
(Rs. Billion)
Budget Estimates
123.3
Revised Estimates
120.6
Collection
110.5
Achievement (%) B.E. R.E
89.6 91.6 149.5 174.8 190.7 259.9 270.5 328.0 324.0 354.0 362.5 430.0 457.7 458.9 510.0 580.0 690.0 835.0 145.0 160.0 180.3 225.0 264.8 286.0 297.6 308.0 351.7 406.5 414.2 No Revision No Revision 590.0 690.0 835.0 139.8 153.2 172.6 226.6 268.0 282.1 293.6 308.5 347.1 392.3 404.1 460.2 518.00 591.085 712.6 847.2 93.5 87.6 90.5 87.2 99.1 86.0 90.6 87.1 95.8 91.2 88.3 100.3 101.7 100.2 102.1 101.5 97.8 95.8 95.7 100.7 101.2 98.6 98.7 100.2 98.7 96.5 97.6 NA NA NA NA NA NA means Not Applicable
Broadening of Tax Base
Taxpayers Population
Number of Taxpayers filing the returns up to December, 2007 is 2.04 million.
FBR has already taken some far reaching measurers to expand the tax base, under which number of taxpayers and revenue are continuously increasing such as : • Universal Self Assessment Scheme • Reduction in tax rates • Enforcement of filing of statements by exporters, importers, contractors, suppliers & salaried class
Strategy
Conducting sectoral studies for the purpose of detecting leakages and for tax gap analysis etc.
Providing incentives / benefits to those who duly pay taxes and file returns to encourage filling.