Dearly Needed Tax Reforms

Federal Board of Revenue (FBR) has signed an agreement with Karandaaz Pakistan to completely Digitalize the Country’s Tax Administration and Internal Revenue Service (IRS). According to the details, Karandaaz will collaborate with the FBR to develop a comprehensive digital strategy for realizing the digital transformation of the FBR system to reduce the cost of compliance of taxpayers, document the economy, expand the tax base, and lead FBR on a sustainable path to revenue growth. Pakistan’s taxation system faces several legal and regulatory issues that cause diverse problems relating to the administration and collection of taxes. The informal economy, a lack of regulation, and institutional corruption are major challenges together with Tax evasion wherein taxpayers conceal or misrepresent their income to avoid paying taxes.

At the same time, the Country’s tax system is complex and difficult to understand for taxpayers due to intricate tax laws, vague language, and difficult legal terms used on online Tax portals. Such complexities create opportunities for corruption and bribery wherein FBR officials take advantage of taxpayers’ inability and generate bulk illegal money in reward for resolving minor technical issues. Meanwhile, the lack of transparency and accountability within the tax administration rendered the entire system user-friendly and troublesome.Pakistan’s tax base is very limited. The country heavily relies on indirect taxes, tariffs, and customs duties. The limited tax base reduces government revenue and restricts the pace of economic development and growth.

There is a need for digitization and simplification of the Federal Board of Revenue (FBR) including the Internal Revenue Service (IRS) to make it simple and instantly usable. Appropriate reforms in tax policies, tax administration, and enforcement mechanisms to make the system agile and user-friendly are crucial to broaden the tax base and increase revenue. Tax regulations should be transparent and understandable for taxpayers, as simplification reduces confusion and encourages compliance.

Modern Technology can help facilitate taxpayers’ needs relating to filing tax returns, tracking payments, and managing tax records. The government must also educate citizens about their tax obligations and rights. Awareness campaigns can help dispel myths, promote voluntary compliance, and foster a sense of duty in the public. The FBR has now kicked off the digitization and reformation campaign, hopefully, this endeavor will benefit both the tax regulator and the taxpayers in the days to come.