ISLAMABAD: The federal government is considering establishing dedicated sales tax zones within the Federal Board of Revenue’s (FBR) Large Taxpayer Offices (LTOs) and Corporate Tax Offices as part of its ongoing efforts to reduce the tax gap and improve revenue collection.
According to sources, the FBR chairman and his team briefed Prime Minister Shehbaz Sharif on the progress of reforms aimed at restructuring the tax authority. The proposed dedicated sales tax zones are intended to address significant revenue leakages and strengthen sales tax administration and enforcement.
Sources said the sales tax gap was estimated to be larger than the gaps in income tax and federal excise duty (FED), as well as revenue losses associated with smuggling. They attributed the situation partly to what they described as insufficient attention to sales tax administration within the FBR over the past several years.
The government is also considering enhancing the powers of the FBR chairman to improve the organisation’s operational efficiency and accelerate institutional reforms.
Under the proposal, the chairman could be given greater authority to hire and dismiss officials, as well as appoint professionals from the private sector. The proposed changes may require amendments to the relevant civil service rules.
Sources said the Prime Minister’s Office would soon establish a committee to examine and advance the proposed reforms.
Action against officials who announced strike under consideration
Sources said the prime minister also expressed displeasure over the pen-down strike announced by the Inland Revenue Association in response to the ongoing reforms.
The association subsequently withdrew its strike call following a meeting with the FBR’s Member Administration and Member Operations.
Sources indicated that the FBR may initiate disciplinary proceedings against officials who announced the strike, although no formal action has been confirmed.
PM directs acceleration of FBR reforms
Separately, Prime Minister Shehbaz Sharif chaired a weekly review meeting on FBR affairs and directed the tax authority to accelerate the implementation of its ongoing reforms.
The prime minister described the initial results as encouraging and stressed the need to strengthen the FBR’s capacity to address the tax gap.
He called for greater emphasis on technology, effective training, transparency and accountability to ensure that the reforms produced tangible results. He also directed the authorities to expedite the introduction of a faceless system across tax collection functions.
The prime minister said FBR officers had a responsibility to improve their performance in line with public expectations, adding that the reform process was in the broader national interest and would continue.
He directed the authorities to take action against corrupt officials without discrimination. Officers and staff demonstrating improvements in their conduct and performance should be given an opportunity to reform, while those continuing corrupt practices or persistently demonstrating poor performance would have no place in the organisation, he said.
Tax gap estimated at 5% of GDP
During the meeting, the FBR briefed the prime minister on progress in technological, operational and human resource reforms.
According to the briefing, the estimated tax gap had declined from 6% of gross domestic product (GDP) to 5% over the past three years as a result of the reform initiatives.
Officials said the effective use of technology had significantly reduced the discretionary powers of FBR officers, helping improve transparency and strengthen controls over tax administration.
The meeting was also informed that newly recruited FBR officers were receiving training at the Lahore University of Management Sciences (LUMS), while in-service training programmes had been introduced for existing personnel.
A peer-rating system had also been implemented to assess officers’ performance.
Audit capacity expanded fourfold
The FBR has hired 957 third-party auditors on merit-based contracts to strengthen its audit capacity, according to the briefing.
Officials claimed that the deployment of these auditors had increased the organisation’s audit capacity fourfold, enabling it to expand scrutiny of tax compliance and identify potential revenue leakages.
The board is also undergoing extensive technology-driven restructuring, with specialised technical personnel being recruited and a performance-linked incentive system being introduced.
These measures are intended to improve institutional efficiency, strengthen compliance monitoring and enhance the FBR’s ability to identify and recover unpaid taxes.
The meeting was attended by Federal Ministers Ahsan Iqbal, Azam Nazeer Tarar, Ahad Khan Cheema, Muhammad Aurangzeb and Attaullah Tarar, along with Minister of State Bilal Azhar Kayani, Attorney General Mansoor Usman Awan and senior government officials.
The proposed sales tax zones, together with wider administrative powers and technology-led restructuring, form part of the government’s broader effort to improve tax compliance, curb revenue leakages and strengthen Pakistan’s tax collection system.
