PAKISTAN:REVENUE

MOBILIZATIONMEASURES&
CURRENTTAXISSUES
By
ShahidHussainAsad
Member(InlandRevenue)
FederalBoardofRevenue,Islamabad
Pakistan
IMF JAPAN HIGH LEVEL TAX CONFERENCE FOR ASIAN
AND PACIFIC COUNTRIES

SchemeofPresentation
A. OverArchingStructureofTaxAdministration
B. RecentReformsIntroduced
C. MajorTaxIssues
D. WayForward/ProposedReforms

A.OverArchingStructureof
TaxAdministration

Pakistan:FederalTaxes
IncomeTaxexceptAgriculturalIncomeTax
SalesTax(VAT)
FederalExciseDuty
CustomsDuty
Petroleumlevy

Pakistan:ProvincialTaxes
Agricultural Income Tax
Capital Value Tax
Motor Vehicle Tax
Land Tax
Property Tax
Cesses like Cotton cess, Sugar Cane cess
Excises on Hotels, Cinemas, Etc.

FederalBoardofRevenue
Apex Body for collection of Federal Taxes
Collects 90% of Federal Revenue
Formulation and administration of fiscal policies,

levy and collection of taxes

FederalBoardofRevenue Continued
Resolving tax related disputesADRC
Conclude Double Taxation and Customs

related Agreements with other Countries

Interaction with different Ministries and

executive authorities of the State.

Chairman/SecretaryRevenue
Division
Member
Inland
Revenue
Member
Administ
ration

Member
Legal

Member
FATE

Member
Customs

Member
SP&S

Member
Member
Taxpayer
E&C
Audit

FederalTaxes AdministeredbyFBR
InlandTaxes
IncomeTax
SalesTax
FederalExciseDuty
CrossBorderTaxes
CustomsDuty
9

FBRVision
Tobeamodern,progressive,effectiveand
credibleorganizationforoptimizing
revenuebyprovidingqualityserviceand
promotingcompliancewithtaxlaws.

FBRMission
Enhancethecapabilityofthetaxsystem
tocollectduetaxesthroughapplication
ofmoderntechniques,providing
taxpayerassistanceandbycreatinga
motivated,dedicated,professional
workforce

FBRValues
Integrity
Teamwork
Fairness
Professionalism
Courtesy
Transparency

B.RecentTaxReforms
Introduced

NeedForReforms
Low Tax : GDP Ratio
Narrow Tax base
Outdated Processes
Corruption & Administrative excesses
Complexity of tax laws and arbitrariness in their

application

Relationship between taxpayer and tax collector

largely adversarial

NeedforReformsContinued
Lack of transparency
Inadequate HR Skills and Capabilities
Management of human resources severely

deficient

Undocumented economy
Lack of automation

FBRTaxReformProgram

Objectives:
To increase revenue
To widen taxpayers base
To simplify tax laws
Taxpayer friendly environment
To develop an honest and efficient tax
administration

Strategy
PolicyReforms
SimplificationofLaws
Reducingrelianceonwithholdingtaxes
EliminationofExemptions
EffectiveDisputeResolutionMechanism

ProceduralReforms
UniversalSelfAssessment
ReengineeringofProcesses
Automation

AdministrativeReforms
OrganisationofFBRonFunctionalLines
EstablishmentofLTUs/RTOs
ReformedHRMProcess

PolicyReform
SimpleLaws&Procedures
(i)NewsimplifiedIncomeTaxLaw
(ii)NewIncomeTaxRules
(iii)RecordKeepingRequirements
(iv)RevisedSalesTaxRefundRules
(v)TaxRatesandTariffreductionandrationalization.
(vi)EffectiveDisputeResolutionMechanism

ProceduralReforms
UniversalSelfAssessment
All income tax returns filed are treated as

assessment orders
No Returns are audited unless selected by the

System or on the basis of specific information

Contact between tax officials and Taxpayers

minimized substantially.

ProceduralReformsContinued
Recordkeeping/maintenance

upgraded

through massive IT injection

Electronic Filing rendered mandatory for

all corporate taxpayers, AOPs, refund

claimants,
salaried individuals with
income exceeding Rs. 500,000, Income
Tax withholding statements and sales tax
returns

AdministrativeReforms
NewOrganizationalStructure
Creation of Inland Revenue Service to handle

all inland taxes i.e. Income Tax, General Sales

Tax, & Federal Excise Duty
Restructuring the top hierarchical structure of

FBR
Induction of support & functional members

AdministrativeReformsContinued
Reorganization

of
the
entire
tax
administration on functional lines, consisting
of 3 Large Taxpayers Units, and 18 Regional
Tax Offices across the country

Taxpayer friendly environment

Minimizing contact between taxpayer and

tax collector

ReformedFunctionalStructure Field
Formations
3

1
Taxpayer
Facilitation
5

Legal

7
Information
Technology

Enforcement
Collection

Audit

Information
Processing

HRM

Internal
Control

KeyElementsofLTUs
Integration of all Federal inland taxes i.e.
Income Tax, Sales Tax & Federal Excise Duty
LTUs at Karachi, Lahore, & Islamabad deal with
around 1500 cases of designated large Corporate
Taxpayers
LTUs contribute an estimated revenue of around
70% of total inland revenue annually
Open floor layout & and one-desk operation for
the taxpayer in respect of all inland taxes

TheCollectionEffort:TAXTOGDPRATIOOFPAKISTAN(2000
01To201011)
(%ofGDP)
Direct
Taxes

Indirect
Taxes

Surcharge
/Levy*

Total
Taxes

FBR
Revenue

Shareof
DirectTaxes

200001

2.99

6.89

0.73

10.61

9.42

28.18

200102

3.20

6.41

1.23

10.83

9.11

29.54

200203

3.17

6.94

1.41

11.53

9.57

27.49

200304

2.92

6.84

1.09

10.84

9.25

26.94

200405

2.72

7.01

0.41

10.14

9.05

26.82

200506

2.82

7.06

0.67

10.54

9.36

26.75

200607

3.85

6.41

0.74

11.00

9.76

35.00

200708

3.79

6.47

0.34

10.60

9.83

35.75

200809

3.46

6.00

0.99

10.44

9.08

33.14

200910

3.66

5.83

0.90

10.39

9.05

35.23

201011

3.33

5.28

0.24

8.85

8.6

38.7

Year

*Onpetroleumproductsandnaturalgas

MajorTaxIssues
LowTax/GDPRatio
RoleofLobbies
SectoralImbalances
UndocumentedEconomy
NarrowTaxbase

TAXTOGDPRATIO!WHYLOW?
TaxtoGDPratioalarminglylowat9%ofGDP
DuetoLargeTaxExemptions

~onCapitalGainsonProperties
~immunityonforeignremittances
~WithdrawalofWealthTax
~WithdrawalofExciseDutiesonConsumerDurables
DuetoReductioninTaxRates

~MaximumTariffsonImportsdownfrom35%to25%
~CorporateandPersonalIncomeTaxratesbroughtdown

TAXTOGDPRATIO!WHYLOW?
DuetoSlackeningofFiscalEffort

~SelfAssessmentSchemewithoutAuditsin
IncomeTaxandSalesTax
~NumberofIncomeTaxreturnsfiledatonly2.2
million(oneper75persons)
~Provincialgovernmentscontinuetoslacken
fiscaleffortduetohighdependenceontransfers
Duetohighvariabilityinrevenuefrom

Surcharges

RoleofLobbies
ThereareanumberofformalandinformallobbiesinPakistan,

whichinfluencepolicyformulationincludingtaxreforms.
Someofthemostinfluentiallobbiesinclude:
Agriculturists(largelandholders,strongpresencein
parliament)
BusinessLobby(ChambersofCommerceandIndustries,All
PakistanTextileMillsAssociation,OverseasChamberof
Commerce,Associationsofwholesaleandretailtraders)
Bankingsector
StockMarkets
Someexamplesoftheinfluenceontaxpolicyaregivenonnext
slide:

RoleofLobbies:(Continued.)
Agriculturalincomecontinuestoremainexemptedfromtax
thoughprovinceshaveleviedagriculturalincometaxbut

thecollectionisnegligibleandthetaxismainlybasedon
landholdingandnotonagriculturalincome

Severaleffortsfromgovernmentforgreaterdocumentationof

economyhavefailedduetostrongresistancefrombusiness
lobby.Forexample,surveyforthedocumentationofeconomy
launchedbythegovernmentin2000wasstronglyopposedand
resistedbythebusinesssector

Bankingsectormadehugeprofitsduringlastdecadewhiletax

rateforbankingcompanieswerebroughtdownfrom50%in
2002to35%in2007

RoleofLobbies:(Continued.)
TheStockExchangelobbyresistedsuccessfullytoavoidtaxation

oncapitalgainsuntil201011.CapitalGainsTaxcouldnotbe
leviedatthetimewhenstockmarketswereflourishing.
CapitalGainsTaxonrealestatecouldnotbelevieddueto

strongresistancefromtheconcernedinterestgroups
VATcouldnotbeimplemented.IntroductionofVATwas

delayedduetostrongoppositionfrombusinesscommunityas
wellasfrompoliticalparties
GSTcouldnotbeextendedtowholesaletradeandservices

duetostrongresistancefromtradingcommunity.

IMBALANCEDSECTORALDISTRIBUTION
OFTHETAXBURDEN200910
(%)
Sharein
GDP

ShareinTax
Revenue

Ratio

Agriculture

22.5

1.2

0.053

Industry

23.5

70.4

2.995

Services(andothers)

54.0

28.4

0.526

Total

100.0

100.0

1.000

Source:MinistryofFinance,FiscalPolicyStatement.

OutcomeofReforms
Automatedprocesses(ERS,STARR,

SMART,VERITAX,RECAPetc.)
ReduceddependenceonWHT
IncreasingRevenues
ElectronicFiling
Infrastructureimprovement
GainingStakeholdersrespect
Transparencyandreductionincorruption

WayForward/Proposed
Reforms

RECENTREFORMS(200809Onwards)
PetroleumLevy
IntroductionofFixedLevyonPetroleumProductswith
largerevenueyieldofupto1%ofGDP
SalesTax
Phasingoutofexemptionsandzeroratingof
domesticsales
Rationalizationofrateofsalestax
ExciseDuty
AbolitionofAcrosstheBoardSpecialExciseDutyat
1%throughFinanceAct2011

RECENTREFORMS(200809
ONWARDS) (Continued)
DirectTaxes
Taxationof(ShortTerm)CapitalGainsonShares
ExtensionoftheWithholdingTaxNet(BankCash

Withdrawals,AirTravel)
IntroductionofMinimumTaxonTurnover(@1%)
RandomBallotforAuditwithOutsourcingtoprivate

AccountingFirms
DetectionofNewTaxPayersthroughthirdpartydata

PROPOSEDREFORMS
IntroductionofComprehensiveVAT(orRGST)withthe
followingobjectives
1. Tobroadentaxbaseandreducetaxrateto15%
2. Eliminationofexemptionsongoods,exceptbasicfoodstuffs

andlifesavingdrugs,couldgenerateo.25%ofGDP
3. Enhancedcoverageofservices(excludingeducationand

health)couldincreasetaxrevenuesinthemediumtermby1.5
%ofGDP
4. Reductionintaxburdenonindustry

PROPOSEDREFORMSContinued
Introductiondelayeddueto

~issueofcollectionbyprovincesofthe
salestaxonservices
~lobbies(especiallythetrading
community)

CURRENTSTATUS

39

Thanks