Taxation for National Integration

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Asad Tahir Jappa

Digitization of economic transactions and automation of business processes are the two central pillars of the new strategy being vigorously pursued by FBR

Federal Board of Revenue (FBR) is no longer the same. As the country’s premier and single largest revenue collection organization, it is fast-tracking its total transformation at an amazing speed. With every passing day, it is covering more miles, setting new standards and thereby raising the bar for itself. FBR has become a happening place and is coming up with a wide array of innovative and out- of- the box digital interventions which are aimed at maximizing revenue potential and also, simultaneously, meant to ensure ease of doing business in Pakistan. By a focused and dedicated team effort, it is constantly busy in to reorienting its vision, realigning its mission and reinvigorating its people to achieve far more in too little a time. In other words, it is rising like a phoenix and hitting the headlines in the mainstream print and electronic media. Nothing succeeds like success and actions speak louder than words. With astounding revenue collection numbers behind it, FBR is well on its way to achieving the staggering revenue target of Rs. 5.8 Trillion fixed for the current financial year. Digitization of economic transactions and automation of business processes are the two central pillars of the new strategy being vigorously pursued by FBR. This robust approach minimizes human interaction between the tax collectors and taxpayers on the one hand but also ensure transparency and plugs revenue leakages on the other. In the ultimate analysis, these key interventions endeavor to bridge the trust deficit between FBR and people at large.
Achieving yet another significant milestone towards automation and data integration in order to facilitate the taxpayers, promote ease of doing business and reduce compliance costs, FBR has launched its National Sales Tax Return (NSTR). Finance Minister has congratulated Chairman FBR and his team for making this long-awaited initiative possible in a short period of time. This milestone has been achieved only through a meaningful engagement of FBR with provincial revenue authorities, which is a good example of the cooperation and unity between these organizations. As per the existing constitutional arrangement, Sales Tax on goods throughout Pakistan is collected by FBR for the Federal Government whereas Sales Tax on services was collected by the respective provincial revenue authorities. While this mechanism is according to the Constitution of Pakistan, 1973, it creates many practical challenges for the taxpayers as well as the tax collectors. Due to fragmentation in Sales Tax payment, taxpayers were required to file separate Sales Tax returns every month to each of the different Sales Tax collecting authorities. For example, a telecommunication service provider operating throughout Pakistan has to file returns every month to FBR, Sindh Revenue Board, Punjab Revenue Authority, Khyber Pakhtunkhwa Revenue Authority, Baluchistan Revenue Authority, AJK Council Board of Revenue and Gilgit-Baltistan Revenue Authority. By all means, it was a very tedious and cumbersome task, which often led to errors and disputes. Therefore, it is positively hoped that reforms of Sales Tax regime earlier introduced in the Supplementary Finance Bill-2021 and the new data repository developed by FBR in collaboration with NADRA were a big leap forward towards documentation of economy and completion of VAT chain which remained severed due to distortions. The NSTR will be another pillar in the achievement of this objective and FBR will now be able to assess the indicative income of non-filers with sufficient accuracy and through use of technology.
The pressing need for a single sales tax return was felt long ago and FBR had been engaged with provinces to negotiate an agreed mechanism. Therefore, it is pertinent to remark that the National Sales Tax Return was developed after detailed discussions and elaborate agreements signed with the provincial revenue authorities. Hence, it is acceptable to them as well. The feedback from other stakeholders, including taxpayers and tax practitioners, is also very positive. It will save time and effort, and reduce compliance costs. Furthermore, this was also a key recommendation of international agencies such as World Bank which now stands complied with. One of the greatest benefits of this system is that it encourages harmonization of tax procedures, definitions and principles between the federal government and the provinces, which will promote national unity and cohesion. This innovative initiative comes as a tectonic shift in the way sales tax is collected. Only recently, FBR signed agreements with the provincial authorities to work together and prepare such a return. FBR has obtained inputs from all the stakeholders in developing this return, which will benefit everyone who uses it. Taxpayers will only enter the sales data once. The system will act as a single repository for all domestic transactions and invoice management. The system will automatically apportion input tax, prepare the return, and work out tax payable to each of the relevant authorities.
This will eliminate repeated tedious data entry, manual calculations, and errors.
It is pertinent to share that the new system is based on the IRIS platform, which already has many built in functionalities. For example, notices, assessment orders, refunds, exemptions, and legal management system is already incorporated. The IRIS platform has proved to be very robust over time, and is being further improved. The new system has linkages with POS transactions as well as Track & Trace. It simplifies tax filing procedures, helping taxpayers to save time and effort. Thus, it facilitates taxpayers, promotes ease of doing business and reduces compliance costs. It minimizes data entry, addressing the common issue of data and calculation errors. The system will automatically apportion input tax adjustment as well as tax payments across the sales tax authorities, eliminating the need for reconciliations and payment transfers. It is easily manageable, because managing one system is easier than six. Through this system, officers of all the revenue authorities will be able to make better informed decision regarding tax matters of the taxpayers. It will enable tax collectors to improve revenue potential and tax compliance without audits. It will encourage harmonization of tax procedures, definitions and principles between the federal government and the provinces. This will promote national unity and cohesion. The new system will contribute significantly not only to broadening the tax base but also in ensuring the ease of doing business. It is certainly hoped that these innovative and out-of-box digital interventions are primarily meant to enhance Tax-to-GDP ratio to 15 % over the short term.
FBR was moving fast towards developing a similar National Income Tax Return in order to facilitate taxpayers and, simultaneously, maximize tax compliance. It is so very reassuring to witness that FBR has taken to itself the responsibility to develop digital systems of revenue collection which are reliable, transparent and credible. These are being offered to all federating units in order to promote a uniform culture of tax compliance across the country. Provincial revenue authorities can hugely benefit from these useful digital platforms and capitalize on the data available and thus maximize their revenue potential within their respective jurisdictions. This unique approach promises a truly national outlook which is all set to usher in a new era of national integration and community cohesion in Pakistan. This is far nobler and higher than mere revenue collection. FBR has set an example for all other federal institutions in developing strategies and finding solutions which create a win-win situation for all.