FBR restructuring and economic stability

The Federal Cabinet has recently okayed a summary put forth by the Ministry of Finance regarding the restructuring and digitization of the Federal Board of Revenue (FBR). According to the details, after a thorough discussion over the proposals with the cabinet members regarding the restructuring and digitization of the FBR, Prime Minister Anwar-ul-Haq Kakar directed the establishment of an inter-ministerial committee under the supervision of the caretaker Finance Minister to plan and oversee the task of restructuring and digitization of Country’s tax authority. As said the committee would comprise federal ministers for privatization, foreign affairs, commerce, energy, law and justice, and information technology.

An effective and transparent revenue system is crucial for a country’s economic growth, sustainable development and prosperity. It provides the government with the funds needed to invest in development, relieve poverty, and deliver services to the public. A well-designed revenue system promotes inclusiveness, encourages good governance, improves the accountability of governments by their citizens, and cultivates social justice and equality among the masses. Revenue System design and delivery are also closely linked to domestic and international investment policies in terms of transparency, anti-corruption, and fairness, and play a vital role in attracting investment and bringing growth to any nation. Pakistan being a low-income country faces serious structural, regulatory, and enforcement/implementation challenges in generating revenue from domestic resources. Pakistan’s economy has been struck into multiple issues that include a small tax base, a large informal sector, misuse of transfer pricing, low per capita income, the least domestic savings and investment plus weak governance, corruption, and capacity problems of the tax regulator and tax collection departments. Meanwhile, spiralling inflation, currency devaluation, higher fuel prices, massive tax evasion, and drying up of foreign reserves are those issues that seriously affect tax collection and undermine national growth.

Historically, other than developed Western economies, several third-world countries in Asia, Africa, and sub-Saharan African nations adopted stringent measures and made significant progress in revenue collection in the past decade by mobilizing less than 17% of their GDP in tax revenues, below the minimum level considered by the UN as necessary to achieve the Millennium Development Goals. Unfortunately, Pakistan lags in achieving its goal because of a lack of political will and persistent resistance from various societal, business, and institutional cartels including the Federal Board of Revenue (FBR).

The caretaker leaders have taken up the dearly needed bulk task even though they are left with limited days at their disposal. There is a dire need to adopt rational measures to broaden the tax base and prevent tax evasion through the inclusion of all applicable direct taxes on privileged segments of society and businesses including polity, feudal, landlords, and top bureaucrats, judges and generals to remove structural fault lines and political settlements at the federal and provincial levels. Meanwhile, no leader and government should sacrify Pakistan’s rightful customs and tariff duties in foreign and transit trade, online sale/purchase and use of Pakistan’s air space, land, and sea routes, and facilities to any foreign nation or firm at any plea that cause fiscal loss to the country. Similarly, the ruling elite must observe economic and fiscal discipline vis-a-vis their politically motivated subsidies and cartels-driven economic policies during their rule by strictly adhering to laid down policies, rules/regulations, and the widely agreed upon Fiscal Responsibility and Debt Limitation Act (FRDLA) to get rid of foreign loans and avoid recurrent financial crisis. Otherwise, no economist, no policy, and no digitization of the system could bring economic stability and fiscal predictability to our economy at any point in the future.