ISLAMABAD: Tax Reforms Commission (TRC) is examining key policy issues in the taxation system. Through analysis TRC has identified tax policy and administrative issues like complicated tax structures, low compliance, weak enforcement and high compliance cost within Federal Board of Revenue.
TRC is witnessing issues like revenue inadequacy, narrow tax base due to exemptions, preferential treatment of certain sectors generates excess burden, higher tax incidence on some sectors complicated by differential collection effort. While reviewing the aforesaid tax policy issues, the commission may like to examine the kinds of taxes to be used (ie presumptive or adjustable withholding taxes), tax rates and the resource requirements. In doing so, the Commission may keep in mind the widely subscribed principles: (i) Minimum ”cost of tax collection” (to taxpayers and to the government) including leakages from taxes collected through corruption and mismanagement; (ii) Tax structure should not exert unintended influence on the distribution of productive resources across alternative sectors and activities; (iii) Taxes should meet community standards of fairness; simple and easy to calculate; (iv) Broaden the base spreading the burden of taxes among more taxpayers and across a large number of economic activities; and (v) Limited exemptions, deductions and the number of rates.
Sources told Customs Today that the primary objective of the reforms is to build a modern tax system and an effective tax administration that facilitates and improves voluntary compliance with tax laws. The reform programs have sought increased tax revenues by improving the effectiveness, responsiveness and efficiency of the tax administration through, institutional and procedural reforms, transparency and integrity of tax services, performance and merit based systems, strong collection, audit and enforcement procedures and improved taxpayer service and skilled professional workforce.
The tax policy reforms efforts had the following five key features. First, legal and administrative changes were frequent and ad hoc with taxpayers having insufficient knowledge of their obligations and tax collectors substantial discretion. Second, major tax policy changes were not accompanied by adequate changes in the administrative framework except under TARP. Third, the relationship between the taxpayer and tax collector has remained largely adversarial.
Fourth, organisation, business processes, systems particularly Information Management, facilities and budget have not kept pace with the growing demands on tax administration. Fifth, the management/training of human resources has been severely deficient. While primarily focusing on human resources, business process and organisation, corruption and information management, the recommended reforms aimed at achieving significant improvement in the administration of each tax and the system as a whole. Radical reform of recruitment, training, compensation, and performance management was recommended as a pre-condition for a successful taxation reforms. Self-assessment, selective audit, and expansion and upgrading of information management along with reduction of discretion and direct contact between tax collectors and taxpayers were considered as important steps towards improving the tax administration.
