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To, Dated: Sunday 9 June, 2019

Federal Finance Minister Sr. No. IPK -19(Pakistan Think Tank)


Ministers& Chairman Planning & Development Federal and Provincial
Chairman, Federal Board of Revenue

Subject: “Sustainable Debt” or “Nation Debt Dilemma” way forward

Sir,

Now a day’s most critical subject is mounting national debt. Ineffective utilization is presumed, in the past, owning to massive
repayments without sufficient revenue generation or cost reduction i.e. Loans are not utilized effectively. We have to analyze
ground realities and plan accordingly.

Debts status and its trajectory:

Total debt and liabilities have risen Rs.35.1 trillion or 91.2% of the size of our economy including government direct responsibility
of Rs.28.6 trillion. The depreciation of one rupee adds to Rs.105.8 billion to the public debt. Similarly, even increase of just one
percent raises the cost of debt servicing roughly by Rs.180 billion. On May 20, 2019, SBP interest rate by 1.5% will enhance debt
servicing cost by over Rs.260 billion. Since December 2017, currency weaken by over 40%. (Source: Daily Times Breaking deadly
debt trap by Dr. Ikramul Haq Monday 27, 2019)

Loans utilization impact analysis –WBG Pakistan Revenue Mobilization Project (P-165982)

The Federal Board of Revenue (FBR) has sought $400 million in loan from the World Bank, despite a similar program that
badly failed a few years ago. Out of $400 million, $320 million will be linked with the achievement of certain targets. The $400-
million debt will be added in the name of expanding the tax-to- GDP ratio to 17% by 2023 and increasing the active taxpayers
from 1.8 million to four million. Total loan is USD.1.5 billion including WBG USD 400 Million. (Express Tribune Shahbaz Rana
16/4/2019).

Findings:
Pakistan National debts has increased manifold since 2000 but utilization impacts have lost somewhere leading to national
dilemma now. Following case studies would elaborate as follows:

Case Study-1: How to restructure FBR?


I. Spend USD 1.5 billion as per proposed objectives stated in the WBG Business Plan(P-165982)
II. Do not spend as proposed objectives can be met through existing system &processes up gradation.

FBR Fundamental limitations: Let’s us familiar with real challenges of FBR as follow:

1 FBR IRIS (ERP) system: FBR is unable to measure the impact of any policy change. Hence, changes policies frequently to
increase revenue by hook or crook i.e. if unable to increase revenue under one policy come up with another policy. Once you
cannot measure the impact of your decision it means you have made no decision at all. This fundamental deficiency is not
addressed since independence despite 12 reforms commissions had been made to date. It was most critical, important and
urgent task but remained unattended.

2 FBR Human resource: Big set ups financial manipulation, if any, understanding is not possible due to limited knowledge of
Financial back ground. Basic understanding is developed mostly through on the job training. We need to understand following:
I. How can anyone understand complex financial statements with primitive knowledge?
II. How can anyone conduct audit if unable to understand Pakistan State Oil (PSO), Nestle Pakistan or similar organizations
complex transactions tracking and their impact?

3 Other Tax Professionals limitation: Other professionals also carry similar limitation like FBR human resource except few ones
that have core financial background. Even Chartered Finance professionals mostly do not have tax understanding. Similarly,
Finance Tax professional do not have complex transactions understanding being others domain subject.

4 Audit professionals limitation: Finally, most audit professionals cannot decode financial statements manipulation, if any, un
less they understand production planning deeply and can very well sort out actual production done in a specific period.
Secondly, Financial & Operational management in depth understanding is also necessary to identify gaps, if any. Statutory
audit not much effective with aforesaid aspects as out of domain work. Aforesaid limitations are international not limited to
Pakistan. Money laundering is net outcome across the globe. FATF must think seriously about this limitation of statutory
auditors. Recently, France has proposed 3% Service tax on Multinational like Apple, Amazon etc. to cover up similar limitations
of net profits manipulations.

Case Study-2: World Bank Group (WBG) USD 40 Billion assistance since 1950 till to date:

WBG had spent almost USD 40 Billion on various projects in Pakistan but we do not find Sustainable development like China did
for its people despite WBG had best resources and international exposure. We must evaluate huge capital expenditure impact on
any sector. Capital expenditure must increase profitability or addressed main operational limitation or sustain the sector. If none
of above achievements it means capital expenditure wasted. WBG has also done similar FBR project (as stated above) in the past
but could not make a difference at all. Please refer Annexure-A for more details.

Major causes of non-performances

I. Effective Governance system is key to success: Every project failure either had policy flaws or implementation failure. It
remained a myth to date. In either case neither policy makers nor implementation team clarified its position rather failures
are carpeted under one or other excuses. It is never evaluated what specific tasks were assigned to any specific team. What
were the results either implementation failure or policy failure (tasks were implemented according to directions but result
were not promising being based on flawed policy)? Right person at right position was missing. It is still missing by wide
margins as massive stagnation all across i.e. No structured road maps. Inertia would be devastating if immediate preventive&
corrective measures are not taken.
II. Not focused approach. It seems majority of funds were directed towards non-core issues or challenges are addressed in
isolation instead integration of all related problems. This has led to insignificant or no impact towards Sustainable
development. Focused or interconnected subjects alignments are pivotal for Sustainable development.
III. Think Globally, Act locally: We need to understand local culture and specific limitation. It seems policy maker were/are still
in learning phase. Implementation could not produce desired results due to absence of structured road maps. Sustainable
development is possible only provided we do not repeat mistakes and learn from past experiences. Challenges are as simple
as ABC provided innovative structured approaches/ideas are selected for implementation.

Conclusions:

1 FBR restructuring:

I. FBR above limitation can be addressed by making FBR IRIS system smart in the short term. By default every ERP (IRIS) system
has option to analyze Budgeted VS actual results and to high light discrepancy, if any. Similarly, Financial and operational
discrepancies, if any. It can be done through FBR existing system. However, very specialized expertise required to integrate
production planning with Financial & Operational management i.e. Decode financial data. Smart IRIS system can be most
effective tool to increase revenue manifolds. It would lead to system audit instead human audit. Human audit, business
community real concerns, leading to integrity, transparency and other multiple concerns. All revenue generation ills are
creating due to this deficiency. Please refer Annexure-BB1 (SBC Tax Payer Audit Frame work) to understand concept.

II. Above proposed model detailed working already had been shared with FBR almost one year ego. Financial decoding details
with case studies had been submitted along with strategy to achieve those. To make model inclusive other measures like Tax
rationalization, Base broadening and simplifications were also shared and elaborated. Details also shared with WBG in March,
2019 to reshape Pakistan under WBG 2047 Vision.

III. Special note: Apprehensions of any person including FBR regarding FBR proposed suggestions can be addressed. Just forward
last five years annual financial statement data of any organization. Management data, if provided, would work as catalyst to
predict everything about company. It is proven and tested model. Even no need to have any ERP system to predict. However,
system approach would be adopted to make ERP system smart instead manual working. Interestingly, as per actual experience
to date, Pakistan all most all companies except multinational (Not sure or experienced), ERP system cannot run material
resource planning module to get required business intelligence for effective decision making. Hence, business intelligence
developed to date at very primitive stage as only basic data is developed/reported instead real decision support system.
IV. Validation: To substantiate above details, a comparison is also made with WBG proposed project specific objectives VS
Sustainable Business Consultants (SBC) model to validate above rational. Small amount of USD 10 million only would be
sufficient to meet project all proposed specific objectives. Please refer to Annexure-BB. FBR WBG Project analysis.

V. In view of the foregoing facts, there is no need to spend USD 1.5 billion on FBR restructuring as guidance is already available
as stated above. However, no response due to multiple reasons despite assurance to evaluate the model working. Third
Chairman and change of political regimes might be one of major causes of delay. Now it must be responded along with
“Sustainable Amnesty” model.

2 Other Loans evaluations:


I. Basic yard stick is cost benefit analysis of any loan taken. Carry out analysis to gauge the impact on overall macro situation
related to that loan. Evaluate capital expenditure impact on Organizational/sector Sustainability over the long term period.
If outcome not measurable it means capital expenditure otherwise.
II. Hence, every loan taken in any aspect of economy must be evaluated on similar pattern by relevant independent field experts
to ensure effective utilization. We cannot go into past but can work on WBG existing projects of USD 7.43 billion for 2015-20
Term. These must be evaluated to decide WBG future loans trajectory.

Way forward:
Solutions are as simple as ABC like recently done in New Zealand regarding Arms control measures. If we still do not wake up then
others are rightly directing us. Take following measures on immediate basis to ensure best utilization of finances/loans:

I. Now proposed guidelines must be implemented to have strong check and balance system in place. Tax rationalization, Base
broadening and simplifications are open secrets like tax withholding data compilation by Banks. Restructured all sectors on
the pattern China did its textile sector in 19997 around. Viable should continue and non-viable should be shut down. FBR
current measures are not inclusive. Please refer to Annexure-B1 & BB combined.

II. Balance of trade, foreign reserves, FBR revenue generation are function of Foreign Direct investment (FDI). FDI depends
upon innovative, pragmatic and holistic Economic development model. A new idea of “New city development as growth
engines” -on the pattern of China economic growth model of 1978 to establish special economic zones for import substitute
and export oriented goods- is given to repay loans through most structured Economic model. Please see Annexure-C.

III. Pakistan Steel Mill is completely viable provided Russian company MOU is given go ahead instead repeated due diligence. It
is beyond understanding MOU is still kept in abeyance. Similarly, Circular debt is arising on account of weak Governance at
top level and non-accountability at grass rout level. Billions of rupees are being spend instead addressing basic issues. Even
solar power system on favorable credits terms to nation would create significant impact keeping in view coming budget. For
details please refer to Annexure-D.

IV. Agricultural complete turnaround is possible. A complete structured road map is ready to kick start. It can reverse huge annual
subsidies Rs.136 billion (2017-18) of Punjab province within the next three to five years completely provided provincial
government facilities private sector.

V. Loans Effective utilization past and future Tracking: It is current government as well as previous regime responsibility to
clarify the past and current loans tracking. Please see Annexure-E.

In nutshell, Pakistan all challenges are myth only not reality. Leadership can gather ability and capacity but not integrity and
courage. To cover up severe brain drain and weak governance at national level, small prototype models -for others to imitate-
must be developed as suggested above through private sector for the time being as most structured road maps for critical
challenges of Pakistan. In all most all above projects, only government facilitation is required which is lacking severely due to
unknown factors leading to worst situation day by day.

Private sector alliances

All above stated models are applicable all across Pakistan not limited to any individual. Basic frame work has been established and
would be refined more over the time. Like UK Tony Blair speech, private sectors all across Pakistan should develop alliances to
come forward and take up subjects around their jurisdiction otherwise stop crying meaninglessly i.e. Actions speak louder than
words. Government can only be compelled through strong alliances- individuals do not matter at all, to facilitate and maintain
good governance. Taxations and circular debt would be dealt through finance professionals and New city development &
agricultural would be dealt though business community. All specific working approaches/details are given in respective
Annexures. Private sector as well as Government must not delay any more.

Kind and best regards

Mubasher Ahmed (FCA)

Cc:
Prime Minister of Pakistan

A professional developing innovative, pragmatic and holistic business models to achieve “Sustainability “. Developing
“Integrated Pakistan” model to address Economic ills. I8 year’s professional experience comprises Audit, Tax &
management consultancy A. F. Ferguson & Co. (PWC) & Taseer Hadi Khalid & Co. (KPMG) Lahore. Corporate
sector Governance, Risks management & Controls (GRC). Special expertise comprises Strategic, Financial and
Operational performance management along with Governance, Risks management and controls (GRC). Current
engagements, among others, includes: Memebr Fiscal Laws Committee Institute of Chartered Accountants of Pakistan
(ICAP). Think Tank new cities sub-commitee w.r.t. “Five million Housing Provincial Task Force. Member “Economic
Advisory and Government Relationship Committee” ICAP.
Annexure-A
Real Case Study-2: World Bank Group assistance of USD 40 Billion since 1950 till to date:
Pakistan has been a member of World Bank since 1950. Since then, the World Bank has provided assistance of $40 billion. Current
portfolio FY2015-2020 has 40 projects with a net commitment of $7.42 billion with four priority areas of engagement like energy,
private sector development, inclusion, and service delivery.

Loans Strategic analysis:


1) In the recent past basic cause of terrorism in Pakistan was horrific poverty in less privileged areas. Innocent people become
part of terrorist organizations once they do not have basic meal. Once you have basic necessities of life you would not become
tool for others. By Default any foreign assistance (Like WB USD 40 billion) was supposed to be made available to less
developed/privileged segment of society/locations. It seems every foreign assistance is not spend prudently due to multiple
reasons leading to terrorism. Lender of last resort also did not help out otherwise above situation would have been much
different.
2) Most of the projects ,especially, Foreign assisted, in Pakistan had been concluded as follow:
This means increasing and improving human capital investment, boosting productivity, promoting social and environmental
sustainability, ensuring good governance, and leveraging its location to connect more with neighbors and the world beyond “There
are steps Pakistan can take today to boost its economic performance and thereby ensure a better future for its people

At the end of the projects, nation only gets above generic achievements (unlike China impact on its nation) nothing tangible or
measurable in any form neither lasting impact on their life. Nation has not experienced any real impact on their personal life.
However, all stakeholders of the projects, except the real beneficiary project meant for, get plenty of relaxation after project
completion in one or other from.

All foreign assistance, especially, World Bank Group of 40 Billion USD since 1950 is not measureable as Sustainable development
like China. Why they fail, especially, in Pakistan? It is not understandable that foreign donors have best expertise pool with all
aspects of management and resources owing to Global exposure as well as world performance track record.

A recent case is Peshawar Bus project. Gross mistakes are observed in basic design document. Loan is being extended day by day.
No one there to accept responsibility i.e. Patient is being administered by two doctors instead one.

Pakistan Loans utilization impact analysis –Pakistan Revenue Mobilization Project (P 165982)

The Federal Board of Revenue (FBR) has sought $400 million in loan from the World Bank, despite a similar program that
badly failed a few years ago. Out of $400 million, $320 million will be linked with the achievement of certain targets. The $400-
million debt will be added in the name of expanding the tax-to-GDP ratio to 17% by 2023 and increasing the active taxpayers
from 1.8 million to four million. Other so-called goals include reducing the hours required to pay taxes from 293.5 hours a year
to 197.

The investment in new equipment and software development is needed by the FBR to utilize taxpayers’ data effectively in order
to detect the increase in tax evasion by unregistered persons and under-declaration by the existing taxpayers, claimed the FBR.
However, the planning ministry was of the view that the FBR should have first provided the analysis of the impact of the last
World Bank-funded tax reform project, which had badly failed. It also urged the FBR to undertake the reforms without taking a
loan from the World Bank. (Source: Express Tribune Shahbaz Rana April 16, 2019)
FBR restructuring: Annexure-B
FBR has started to take actions but still lacking structured approach to get desired output as incomplete as well as netting all
approach instead few ones based on business intelligence (80:20 approach). This time FBR failure would be A.F. Ferguson &Co.
failure not IK or Pakistan if prudent/inclusive decisions are not taken. First budget 2019-20 (conventional or out of Box) would
reveal all secrets. Last FM net outcome was predicted in September, 2018 after reviewing mini budget 2018-19. Current measures
taken to date brief analysis:

I. FBR recently through letter no FNo.6(33)S(IR-Operations)/2019 dated 31 May, 2019 had directed Banks CFO to report
withholding tax related data. Undersigned earlier through its Sustainable Amnesty letter no IPK-13 dated 15 April 2019 had
already stated that:
Interestingly, tax withholding details, especially high value transactions, are highly valuable but no effective measures are
taken to bring people into tax net despite people do not have NTN. It is also worth noting that higher tax withholding rates are
still considered most effective tool despite no effective results to date.

Above measures are not inclusive because:


There was a legal binding to identify “Suspicious Transactions” by all regulatory authorities but no results to date. FBR
Chairman has disclosed through media that 30% Bank Accounts are Suspicious/Benami. Mr. Asif Zardi Ex-President of Pakistan,
in money laundering case, declared these as normal business practices. Sustainable Amnesty requested following measurers:
a) Strictly disciplinary actions against regulatory authorities to be proposed (not like in the recent past famous JIT case w.r.t.
Sind Bank and Summit Bank) for any future lapses by following World best practices.
b) Furthermore, declared reward to any bank branch manager (20% Whistle Blower reward) along with establishment of fund
out of confiscated money to provide future income stream to whistle blowers. Only branch manager very well understands
each customer.

Above stated measures must be part of preventive measures otherwise directions in isolation would lead nowhere.
Furthermore, State Bank (SB) must control money related all activities directly instead referring FBR to deal individually with
each bank. SB through letter dated BRD/SLD-05/FBR/2019/12891 dated 31 May 2019 made it most complex for FBR. Similarly,
ICAP and SECP should perform their due role. These are supporting organizations. FM should directly look into these affairs.

II. FBR recently through another letter no C.No.1 (2) Chief (IR-Operations.1)/2019 dated 3 June, 2019 had directed All chief
commissioners, IR RTO, and director general (BTB), FBR (HQ) to collect details about properties, bank accounts, Luxury vehicle
and foreign Travels etc. FBR had also stared similar exercise in recent past in Islamabad regarding houses but no outcome
reported. Following suggestions
a) It should be controlled at FBR head quarter level as all data can be assessed through NADRA, Provincial Excise department,
Banks , Civil Aviation Authority/ FIA.
b) Field formation should be used to corroborate or provide further evidence if required otherwise people declared results are
already at FBR level to match data and validate discrepancy, if any.
c) An independent monitoring units must be established as most of the times cases are covered up at field level. This risk must
be addressed.
d) How it should be done?
i. First prepare all details at central level regarding Vehicles, Houses, Banks and Travels
ii. Match these details through CNIC as luxurious style would be reflecting all across.
iii. Cross match data with declared versions as per returns filed
iv. Only mismatched data persons should be asked to clarify the discrepancy not everyone asked to explain like suggested above
as it would create harassment all across.
v. It might be the case assets not registered in one person own name. In that case direct field formation to evaluate their living
style physically as substance would differ over form in most of the cases. Only last three to five years data should be evaluated.
Picture must be taken of Houses along with parked vehicles etc.
vi. If no explanation of sources of assets then summary trail to send directly behind bar.
vii. To bring more transparency, integrity, best performance and future effective model involve private sector all across Pakistan
as stated in Annexure-BB3 “SBC Tax Base Increase strategy”
Growth Centric new cities development: Annexure-C
Most structured way to Economic Kick start is to follow world Economic development standards like China did in 1978 to attract
foreign direct investment (FDI) by establishing Special Economic Zones. It would be most structured approach under PM 5 million
Houses Model of economic kick start as 40 Industries are directly related to this activity. Punjab Government have five potential
sites. Any suitable site can be selected. Work can be started to develop first prototype model. First prototype model can be
developed through following mode or mix of these:

I. China and America trade war can be leveraged by Pakistan by inviting Chinese investors to invest here in Pakistan to export
to America. Chinese investors in Vietnam are doing exactly the same since the start of trade war. Due to CPEC Pakistan has
most advantageous position.
II. Sialkot Airport model can be replicated by private sector to develop new city. Even 50 million (equivalent to 20 Marla two
plot of any businessman) joint contributions in each by 100 businessman in any city can contribute as project seed money.
Project would generate rest money automatically. Members would be able to create, shift or maximize their capacities by
utilizing in development activities of new city as their material would be utilized directly at construction activities.
Furthermore, every businessman already knows and can make contract with China or other country how to develop import
substitute industry.

“Economic Growth centric new city” would address all society segments with reference to their peculiar needs as follows:

I. To meet 5 Million houses target new cities development having moderate as well as modern end housing with world best
living standards of Singapore/ Dubai for foreigner, expatriates and locals.
II. Special Economic zones manufacturing & agro based import substitute goods and subsequently for Export oriented to
manage foreign trade deficit especially due to import. New set up or existing capacities would be relocated. These would
be established at a distance from Modern Housing to manage environmental and other challenges.
III. Low Cost Housing/Economical adjacent to special economic zone to manage social and other challenges like transportation
etc. Slums area people should also be transferred at a distance from main city as their current land is like ordinary stone
but for businessman these are diamond places (wherever applicable). Slums people are living in abject property. They need
basic necessities of life like reasonable earning, medical, education and housing. They would prefer structured living
providing all under single roof.
IV. Knowledge Park comprising world best organizations professional and technical education campuses like China distinction.
Professional qualification, Vocational training and economic zones work force development.
V. Hospitals, private and charitable, comprising state of the art facilities as well as addressing all segments of the society
according to their specific needs.
VI. Business District: For multinational and local companies to establish their offices like in modern cities of world.
VII. Theme Park (where applicable) to create recreational activities for locals as well as Foreigners to attract Tourism in most
structured way.
VIII. New cities location can be around CPEC routes, Motor Ways, Main GT roads and near established cities keeping in view
particular needs.

Work done to date:


Idea is given to Punjab Government being most structured approach towards Economic revival under Five million Houses target.
Government has accepted the model as well as site offered by private sector for further deliberation. However, inordinate delay
in expediting the subject. Punjab own four sites are also ready to implement the model. New sites are being suggested as FDI
cannot be structured and facilitated at old sites.

Way forward
Recently, Rs.20 Billion support fund (Pakistan Stock Exchange assistance) allocation would lead nowhere rather would work like
catalyst to debt trapping. These funds (as it has nothing with Economic revival) must be directed towards new cities sites to
develop infrastructure to facilitate private investors. Import substitution industries to be established in proposed new cities
immediately by Pakistan Industrialist before asking FDI to increase foreigner’s confidence level.
Circular debt/ Energy crises (November, 2018) Annexure-D
Please note that once upon a time WAPADA was also in profit. Circular debt basic causes weak governance, mismanagement and
non-accountability, especially, at grass route level.

Work done to date:


I. A simple case study was developed by analyzing Izmir cooperative Housing canal road, Lahore electricity distribution system.
It was showing zero distribution losses for LESCO as 100% units distributed recovery. Society also recovered 100% bills from
its members.
II. In gated communities like Bahria, DHA and Model Town Lahore etc. LESCO has to deal with society management where as in
other open areas - Allama Iqbal Town, Faisal Town etc.- each LESCO staff have to deal with individual house. Dealing with
individual leads to mal practices.
III. Idea- also validated by Mr. Asad Umer in the past- forwarded to power ministry/secretary not only by undersigned as well as
by FM. If plan A is not implementable (privatization of state owned enterprises) like energy distribution companies “Plan B”
can be applied instead stagnation leading to worst situation day by day.
IV. No response over it till to date despite visits at Islamabad ministry office 30 March 2019. However, billions of rupees are being
spend to control it by buying new smart meters and current crack down on energy distribution staff as well as local people as
crisis management instead preventive measures.

Way forward
Pakistan cannot afford smart meters cost for the time being once simple solutions are available. Even smart meters would also
lead to such state of affairs unless Governance system is not made good along with strict accountability at grass root level. Every
area need to be distributed in small segment and let the people control their theft losses themselves or give to private sectors
small distributions immediately. A LESCO ex chief Briefed in a meeting that this proposal is under consideration. Delay is not
understandable. New Punjab local body system can also cater this. So many solutions. Furthermore, let this study should also be
completed by allowing access to data and other working. Case pending with Federal Power ministry.

Pakistan Steel Mill revival:


A Russian company, who established similar mills in Iran, Turkey, India and Sri Lanka at that time, has offered to revive Pakistan
Steel Mill by USD 1 Billion loan (repayable by them within 15-20 year time through management of Pakistan Steel Mill). This MOU
since 2011 is pending even till to date due to unknown reasons. This company have increased Steels Mills capacities in other
countries to 3 Million ton per year and have all the technology. A government to Government Level contact can be negotiated to
kick start project tomorrow. Still completely viable project. Facts can be slightly different but crux is stated.
Loans movement analysis: Annexure-E
Sr. Loans analysis Formula Military PPP PML(N) PTI Comments
No. regime
1999- 2008 to 2013 to 2018-
2008 2013 2018 2019
1 Opening balance A
2 Loans taken during B X
the period
3 Loans paid during C Y
the period
4 Net loan position D=B-C
during the period
5 Closing Balance of E=A-D
loans

X=
I. Each project wise details. Normally, loans are taken project specific like FBR above project of USD 1.5 billion. If it is not possible
then details of projects completed during the period in each sector of economy like energy, roads infrastructure, agricultural,
health or education etc.
II. Each project wise impact analysis i.e. whether inclusive development or not like China in any field leading to Sustainable
development.
III. If we cannot measure the impact of any loan upon Pakistan it means no investment but otherwise.
IV. similar details about project completed during the relevant period
V. Nation wants to know what ground realities are. Otherwise nation has total confusion till to date. What actually happened
during the last ten years? Following structured details and analysis is due:
To bring more transparency and integrity in the subject .Following is being suggested:
I. Analysis must be available online at Finance ministry web site for General public analysis along with each project complete
details. It must be updated on quarterly basis.
II. To bring more transparency every completed and ongoing projects details must be available online.
III. There must be complaint registration system. Complaint against any project must be available online even after resolution of
complain.
Subject: FBR WBG project analysis (P165982 dated 22 April 2019) Annexure-BB
Each intended objective (DTL) price range is between USD 30Million (M) to USD 35M total USD 320M, in total 10, with average
USD 32M. Most critical are 4 to 6 related to Tax payer obligation of audit. Other are just change of reporting or new data
entry/development. Each component must be elaborated how USD 32 million would be spend i.e. Budgets basis of USD 32 M of
each objective.

Objectives area 1: Simple and Transparent Tax system (USD 96 million)


1 DL1: Scope of withholding regime reduced (USD 30 million)
Scope of withholding regime reduced: This DLI requires a reduction in the types of transactions subject to income tax
withholding. It contributes directly to transparency of the tax system, given that the withholding regime transforms income
taxes into indirect taxes, which are less visible to taxpayers. It will also greatly reduce compliance costs for firms that have to
act as withholding agents.

SBC feedback:
This was most effective tool to identify transactions having material information of persons not registered with FBR. However,
It is not utilized accordingly to increase the tax base instead providing tax evaders a save passage by increasing tax withholding
rates by classifying into filer and non-filer.

Suggestions:
It must be applicable to every type of transaction subject to exemption to certain amount let’s say up to Rs.100,000 Or limit
can be agreed with reference to nature of transactions to focus 80:20 rule to save time & efforts of FBR/ Business community.

Similarly, withholding agents limit must also be increased like persons having annual turnover of Rs.500 million will be
withholding agents not every person like every company is withholding agent. It will also encourage documentation of sector
as tax deduction is suffered by buyer as seller get payments net of taxes. Furthermore, withholding tax compliances audit
must be a learning process instead prosecution leading to penalty. Details are attached as Annexure-BB4-B2 at next pages.

Conclusions: It is not understandable where 30 USD would be spent to meet above objective like new hardware or tax/ ERP
system consultancy. It is as simple as ABC. There is no need to spend single penny as current system has all such functionalities
(by default it should have).Simply inactive system functionality if not required. Allocation of USD 30 million need to be
reviewed by keeping in view above suggestions.

2 DLT2: Transparent tax system (USD 32 Million)


Transparent tax system: This DLI requires detailed reporting of tax expenditure in the annual budget documentation with
disaggregated information about the cost and beneficiaries of each exemption and concession. It is important to broadening
the tax base because it exposes the revenue foregone due to each exemption/concession, and the industries that benefit.

SBC feedback:
Basic limitation of FBR IRIS system: Any FBR policy change impact is not measurable. This central deficiency is not covered up
since independence. When you cannot measure the impact of any decision it means you have not made any decision at all.
Basic limitation of FBR Human resource: To understand any big company financial statements is not possible due to limited
knowledge of accounting and finance as only basic understanding is developed mostly through on the job training. How with
primitive knowledge you can understand complex financial statements in not understandable.
Suggestions:
Every system has basic option of Budget VS Actual outcome analysis. Each industry base data can be developed and every
registered taxpayer budged data can be developed by inserting key information. Please refer main letter to understand how
FBR smart IRIS system would work. Maximum USD 10 million required to achieve this objective along with all others and
Annexure-BB1 Audit Frame work.

Conclusions: The above two limitation to be covered up as these would also be addressing all challenges w.r.t. to tax evasions
as well as system Audit instead human based audit. No need to allocate amount of USD 32 million as system has already such
functionality by default.

3 DLI 3: Coordination with provinces(USD 34 million)


This DLI requires the FBR to reach agreements with the provinces on automated sharing taxpayer information, the
methodology for calculating GST input adjustments, and common updated property valuation tables. This coordination will
enable the FBR and the provinces to broaden their respective tax nets. Coordination can be facilitated through the newly
established Fiscal Coordination Committee, comprising the federal and provincial governments.
SBC feedback:
It is just synchronisation of FBR IRIS system with Provincial Government systems. Provincial Government of Punjab had already
digitize property data of urban and rural areas along with provincial property tax.
Suggestion: Already established organisations like Urban Unit Lahore, NADRA and Punjab IT board services can be coordinated
to meet this objective. Please synchronise data through their services instead new set up.
Conclusion: No need to spend USD 34 million.

Objectives are 2: Effective control of tax payer’s obligation (USD 96 million)

1 DTL4: Track & trace and electronic monitoring of production in key # of sectors (USD 30 million)
This DLI requires the FBR to implement—through licensed agents—electronic production monitoring for high-risk sectors (e.g.,
sugar, cement, fertilizer) and electronic tracking of production, distribution, and sale of final products (tobacco, beverages). It
will increase compliance by reducing the risk of under-declaration of output, sales, and corporate profits.
2 DTL5: New taxpayers with taxable incomes/sales identified through automated data sharing and ICT-based BI (number):
This DLI ensures that the FBR will use the new ICT equipment and software that enables the BI and data mining tools acquired
under Component 2 to identify unregistered or non-compliant taxpayers. It directly contributes to PDO indicator #2 (increase
in the number of active taxpayers). It also dis incentivizes the registration of individuals and firms without taxable income or
sales, thereby avoiding inefficient use of FBR resources and negative impacts on micro firms and economically weaker
households.
3 DTL6: Risk-based audit: This DLI requires the FBR to conduct tax audits on cases selected through an automated risk-based
tool, informed by analysis of integrated data from multiple sources. It sets targets for detailed field audits of large taxpayers,
thereby making an efficient use of resources for the highest impact. Risk- based audit is essential to deterring tax evasion and
increasing compliance, especially for large taxpayers who use complex tax evasion techniques. It also benefits compliant
taxpayers, as it spares them the hassle and cost of ineffective mass audits and reduces the discretion of FBR officials to pick
cases for audit.

SBC Feedback:
All above three stated objectives are basically key challenge of FBR. These need to be focused only. Central challenge is
advance level data integration to high light gaps if any. It is basically financial decoding of reported results to know what
actually happened at tax payer premises.

Currently, very basic data is considered as Business intelligence whereas advance level integration is possible on quarterly
basis. Production volumes can be predicted once data is integrated like energy consumption, capacity utilization to correlate
declared sales accordingly after stock adjustments. This is not possible unless you can understand the production planning
of any segment like sugar, cement or textiles. Once sector wise bench marks are updated in a system there can be no
challenge. SBC has suggested more advance level data integration at each tax payer level in IRIS. For details pl. see
Annexure-BB1. Similarly, if increase in purchases (major raw material as per Sales tax return) why decrease in tax withholding
by each specific company and overall basis in a quarter analysis can also be made. Designated Bank accounts (Supplier &
customers separately) would indicate the cash flow positions with reference to Sales and Purchases as per sales tax returns.
System would report exception only on quarterly basis once past history is inserted in the system. Past history being updated
regularly by system itself not manually. This requires to cover up following two deficiencies as follows:
A. Basic limitation of FBR IRIS system: Any FBR policy change impact is not measurable. This central deficiency is not covered up
since independence. When you cannot measure the impact of any decision it means you have not made any decision at all.
B. Basic limitation of FBR Human resource: To understand any big company financial statements is not possible due to limited
knowledge of accounting and finance as only basic understanding is developed mostly through on the job training. How with
primitive knowledge you can understand complex financial statements in not understandable.

Suggestions:
Every system has basic option of Budget VS Actual outcome analysis. Each industry based data can be developed and every
registered taxpayer budged data can be develop by inserting key information. Please refer main letter to understand how FBR
smart IRIS system would work and Annexure-BB1. Audit Frame work.

Conclusions: The above two limitation to be covered up as these would also be addressing all challenges w.r.t. to tax evasions
as well as system Audit instead human based audit. No need to allocate amount of USD 32 million as system has already such
functionality by default. Maximum USD 10 million required to achieve this objective along with all others.
Objective area 3: Facilitation of compliance (USD 65 million)

DTL7: GST filing simplification (USD 32 Million)


This DLI requires standardized tax returns for the FBR and provincial tax authorities, and a single portal for filing and paying
GST/GSTS with automated processing of refunds. It therefore makes a direct contribution to PDO indicator #3 on reducing the
time it takes for firms to file and pay GST, the most time-consuming tax for firms.

DTL8: Goods declaration subjected to custom inspection at the boarder (USD 33 Million)
This DLI requires Customs to progressively reduce the share of GDs inspected at the border (i.e., GDs going through the red and
yellow channels), as its risk management systems become more robust. This DLI is supported by the procurement of contactless
scanning equipment and weighing stations under Component 2. The DLI directly contributes to PDO indicator #4 on reducing the
time it takes for cargo to clear customs at the border. The final target reduces the share of GDs inspected at the border by more
than half (from 65% to 30%).

Objectives area 4: Institutional development for efficiency and accountability

FBR core business processes simplified and automated: This DLI requires the FBR to simplify, redesign, and automate its core
business processes. The sequence of targets ensures that automation follows business process mapping and re-engineering. It
also requires the FBR to put in place essential elements for successful automation: regulations to give electronic documentation
legal validity and eliminate the previous paper-based processes, and adequate training of staff. In addition, given that processes
will be defined in functional terms (e.g., taxpayer registration, audit, arrears management), business process automation will help
entrench the FBR's transition to a function-based organization, which is the organizational model used by modern revenue
administrations.

SBC Feedback:

Simplification does not require any rock science. You just have to do following simple measures. Current system can also do
(assuming basic feature of any system). Furthermore, we also have to decide what is meant by simplification. Now a days tax
expert means who has complete knowledge of thousands of SRO on tips instead understanding tax policy/procedures rationale
and its implications. Whatever is sated in this DTL can also be done by existing system. Additional strategic simplifications
measures as follows:
Every nature of business like sugar, cement and textiles etc. & allied services separate portal like currently one for all types like
I. Separate Income tax and sales tax returns for sugar with all details of all SRO issued related to that nature of business. It would
develop specialisation of area as well as specialised training of FBR staff.
II. Non-compliance should be a learning activity not penalisation activity. Penalty only once proved repeated wilful defaults.
III. Allocation of jurisdiction/transfers all across Pakistan must be on the basis of area specialisation as specialisation era not jack
of all trade and master of non

Detailed are attached as Annexure-BB4 regarding sales tax as well as Income Tax strategic suggestions like simplification ,
minimum litigation , policy making basis and sales tax refunds and evasion controls etc.

Performance management: This DLI requires the FBR to publish regular reports on its performance based on KPIs that capture
the main areas of the FBR's performance (revenue receipts by tax instrument, taxpayer segment, geographical area; share of
receipts from direct taxes collecting through withholding agents; number of tax audits completed; number of active taxpayers by
tax instrument; timeliness in resolving claims for tax refunds; number of consignments processed by Customs through the red,
yellow, and green channels; dwell time of cargo at the border until customs clearance). The indicator therefore supports the FBR's
transparency and accountability to the Government and the citizens, which is needed to justify more financial and managerial
autonomy for the FBR and to increase public trust in the tax system.

SBC feedback: To ensure transparency and accountability, developing and communicating following most basic data is as simple
as ABC.
1 Revenue receipts by tax instrument, taxpayer segment, geographical area; share of receipts from direct taxes collecting
through withholding agents; number of tax audits completed;
2 Number of active taxpayers by tax instrument; timeliness in resolving claims for tax refunds;
3 Number of consignments processed by Customs through the red, yellow, and green channels; dwell time of cargo at the border
until customs clearance
Basic challenge is advance level data integration high lighting gaps if any. SBC has suggested more advance level data integration
at each tax payer level like if increase in purchases (major raw material as per Sales tax return) why decrease in tax withholding
by each specific company and overall basis in a quarter.

Designated Bank accounts (Supplier & customers separately) would indicate the cash flow positions with reference to Sales and
Purchases as per sales tax returns. System would report exception only on quarterly basis once past history is inserted in the
system. Past history being updated regularly by system itself not manually. Currently, very basic data is considered as Business
intelligence whereas advance level integration is possible on quarterly basis once smart electric meter are installed to predict
production volumes in a month and correlate declared sales accordingly after stock adjustments. This is not possible unless you
can understand the production planning of any segment like sugar, cement or textiles. Once sector wise bench marks are
updated in a system there can be no challenge.

Conclusion: undersigned is of the view such basic data accumulation do not require any more expertise.
Mubasher Ahmed &Co. Chartered Accountants
Sustainable Business Consultants (SBC)

FBR Tax Payers Audit Frame work Annexure-BB1


``You cannot cure Malaria or Typhoid through Panadol even in thousands years”.
Self- assessment schemes are being grossly mis-utilized in the absence of proper audit frame work. There
need to be effective deterrents live developed economies.
What is SBC Data Integration Model: FBR auditing techniques to be integrated with advance Data Base
analytical techniques:

I. This model would create Smart Data Base (Predict future results by best utilization of ERP/Iris system)
of each tax payer (Already in practice normal data base). Industry segment wise analysis would be
carried out by selecting three companies of high , medium and low performance to understand that
particular industry segment dynamics like textile , cement or sugar sectors etc. etc. Each company
Business model would be studied in depth. It would take 8 to 10 months depending upon availability
of data.
II. Under this model projected/budgeted operational results of each tax payer would be developed and
would be updated at each year end by inserting fundamental changes in business operations. External
auditor and internal auditors would updates these details as per their routine work scope like capacity
and actual production reconciliations with stocks etc. Any data mismatch at each year end would be
high light and future action plans accordingly.
III. Strategic analysis: Business Cash Flows, Operational profitability analysis to judge financial and
operational management w.r.t. to Business Growth and Efficiencies
IV. Operational analysis: Integration of Financial and Non-Financial data to identify operational
inconsistencies in resources utilization like per unit material and energy utilization analysis to match
total material and energy usage etc. etc.

Selection criteria
Tax payers having significant business volumes but declaring losses or lower profits or actual tax charge
less than 5% of turnover would be subject to Data Integration model (SBC model) for detailed verification
to justify their losses or lower net profit or lower tax charge rationale. Companies with heavy Fixed
assets/Plant & machinery investments would also be selected.
Rationale:
I. It would help tax payer to identify financial and operational inefficiencies and take corrective
measures accordingly. This will help increasing profitability in future leading to increase in FBR
revenue.
II. It would be data manipulation due to one or other reason If data inconsistencies are not business in-
efficiencies
III. Impact of data analysis: Any year identification of mismatch data would keep them away from data
manipulation in future. Hence increase in FBR revenue.

Data Integration Approach: “Business Analysis” Step wise systems review:


I. Step One-Effective Reporting development -Inconsistent financial and operational trends analysis,
leading to current sub-optimal performances;
II. Step Two- Resources effective utilization validation - Rationalize resources w.r.t. business Volumes -
Material, Labor and Energy related production processes review to identify inefficiencies with
reference to Capacities, Budgets, Efficiency standards and Cost Budgets among other things etc.
14

III. Step Three: Financial and Operational Controls gasp implementation: Standardized all areas processes
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i.e. “Basic Controls gaps lead to Operational Gaps culminate into Financial Gaps”.

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IV. Step four: Each Company Dash Board Development: Model implementation through ERP/IRIS system
to have permanent Check and Balance
Over all time Frame: Three to Five years would be required to train FBR on modern auditing
techniques and get excellent results.
I. Four to six months each sector to complete step One and Two subject to data limitations;
II. All over country FBR would be trained over the next two to three years once each segment two to
three company business model are reviewed and finalized.
III. Once such model are applied these would create deterrent for selected companies and others as well.
IV. Limitations: Data limitation either due to non-availability of data or Relevant data not in required form
or Delay in providing required data from relevant quarters.

Economic & REVENUE Policy Making on Real data Annexure-BB2


Business Restructurings. Once you have actual data of companies operationally not viable that data can
be used to restructure that business segment. Textile Sector: China Restructuring model: Evaluate all
companies with reference to operational viability. If certain businesses has operational viability continue
them with more funding and close rest of the companies to save people money. This way you can make
major sector viable. Similar approaches to be adopted by evaluating all other sectors companies declaring
losses or negligible income.
Strategic: Identify overall deficiencies to know fundamental mistakes with reference to system,
technological obsolescence, funds or lack of vision or other bottle necks of that specific industry
Operational: what are specific reasons with reference to operational expertise of material, energy, labor
and overheads and capacities underutilization. Once these are identified you can make next decision
whether to continue that company or not. If business/company deficiencies are recoverable continue that
business otherwise close that as any additional losses just extra luggage for government .Hence you can
invest in viability companies through creating a government fund. And rest to shut down as not viable
operationally i.e. Cost Benefit analysis for further investment.
15
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SBC Tax Base Increase Strategy Annexure-BB3


Tax base is not increasing due to one or other reasons. A more practical approach is being suggested to
be done by FBR and must be outsourced partially in metro cities to develop over all model. This approach
would also clarify major bottle necks and development of any future model:
Partial out sourcing would help to understand all apprehensions with reference to Government and FBR
developed to date as it would establish:
I. Any deficiency on the part of Government or FBR would be identified like lack of ability & capacity,
integrity and courage or leniency with certain selected tax payers.
II. It would address/understand real challenges at ground level to assess policy flaws (Government) or
implementation failure (FBR) or mal practices at field formation.
III. Tax advisors and Economist would get real data for discussion or valid feedback or future suggestions
i.e. Whom to blame FBR or Government for persistent problems
To whom to select:
I. Select any big organizations like Nestle and verify all supply chain partners of raw material& other
material and services suppliers to sales distributor , whole seller and retails being filers or not .
Initially, Pakistan stock exchange Top hundred companies.
II. Commercial area like MM Alam Road or DHA Y Block Defense Lahore doing business through taxed
money and Tax filer status etc. and registered Sales tax filer if applicable. Also property ownership
and rental income.
III. Any residential society like Model Town or EME DHA sector Lahore. Verify last three years plots/house
buying or selling through taxed money, filer or valid source of income of each transaction. Also
property ownership and rental income.
IV. Frequent air travel data for the last three years through taxed money. 1000 passenger only.
V. Motor vehicle registration for the last three years through taxed money 5000 vehicles only.
Other methods:
I. Undocumented sector. All urban (Domestic & Commercial land) and agricultural properties, vehicles,
Bank accounts data is available online. We just have to tag with relevant CNIC or NTN whatever is
relevant to justify taxed money.
II. UK Connect system integrating data of different departments with tax return of any tax payers. In
mismatch of declaring is high light through UK connect system like properties whether on rent or not,
Purchase of vehicles to justify tax losses.
III. Every consumer to be given tax credits (income tax credit and sales tax refunds for every type of
spending to document every transaction. Seller sales invoice must have CNIC/NTN, sales amount and
quantity for subsequent upload by buyer through FBR data base App like any app today.
Legal process:
I. One month notice to evaders to justify taxed money
II. Within 15 days recovery unless appeal filed with special courts
III. Special courts should finalize the cases on daily basis
IV. Maximum one month to finalize the case
V. Appeal can only made in Supreme Court special bench not High court to save time.
VI. Decision at Supreme Court special bench maximum one month
How to be effective?
I. It should be tested on trial basis in all major cities like Lahore, Karachi and Faisalabad etc.
II. 80:20 Rule should apply i.e. High end places selection, initially.
III. Initially free of cost services to FBR or Government by out sourced parties.
IV. International donor like World Bank or IMF should support this activity or Service provider would get
16

20% (PM announcement) of extra revenue/tax evasions detected/generated through the exercise.
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V. Initially, human resources for field work to be hired under Government internship program by
interested out sourced parties.
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Tax simplification: Income Tax Annexure-BB4


I. Pakistan annual Budget deficit of Rs.2200 million is leading cause of complex tax system as no other
means to raise revenue except increase in indirect taxes and different types of additional direct taxes.
Transactions taxes/ withholding taxes are gain momentum all across despite majority of transactions
are not taxable like mobile phone subscribers & banking transactions. In view of foregoing, FBR need
revitalization based on real medicine instead fake one (Vested interests or Hit &Trial). Most of
taxation issues are of operational nature as Pakistan policy making always focus operational alignment
in the form of additional taxes or new/changed policies to raise revenue instead strategic alignment.
Holistic and pragmatic model can be developed provided cause & effect relationships are center
points to structure future policy to prevent crises.
II. WE are doing crises management instead prevention to meet budget deficits. Everyone is aware of
real problems but no one is ready to speak the truth or to take responsibility. Now time has come that
Business community, documented and undocumented sectors both, needs to pay due taxes. Low
taxes collection has led to vicious circle as rational of any new tax policy or old policy change is hard
to establish being crises management to raise taxes. Business community needs to be regularized
now instead penalize by providing best alternative/safe passage (instead Amnesty schemes) by
addressing their real concerns in structured way. Strong deterrents are required to control tax
avoidance/ evasions through robust tax system.
III. Till to date 11 Tax Reforms commissions had been made latest being “Tax Reform Commissions
2016(12February). Report does not highlight the specific failure causes of any last commission to learn
from past mistakes. However, non-implementation is stated major cause but results of implemented
subjects were also not shared. No innovative idea was given catering all stakeholder needs except
conventional measures which earlier could not be implemented due to one or other reasons. Keeping
in view foregoing facts, New Tax Code 2018(NTC) is being proposed for open debate as strategic
alignment in the first phase. Once policy making system is structured/refined all operational issues
and complex tax system would be resolved. Over two to three year time significant breakthrough
would be possible provided lessons are learned from past mistakes and correction accordingly.

Direct Tax Reforms- Income Tax Annexure-BB4A


Subjects are discussed with reference to strategic view point as operational issues would be catered
automatically once strategic alignments are agreed and implemented. Income tax and sales tax few
subjects are being discussed to convey message. Income tax major issues already discussed earlier.
Income Tax simplification:
Pakistan annual Budget deficit of Rs.2200 million is leading cause of complex tax system as no other means
to raise revenue except increase in indirect taxes and different types of additional direct taxes.
Transactions taxes/ withholding taxes are gain momentum all across despite majority of transactions are
not taxable like mobile phone subscribers & banking transactions. In view of foregoing, FBR need
revitalization based on real medicine instead fake one (Vested interests or Hit &Trial). Most of taxation
issues are of operational nature as Pakistan policy making always focus operational alignment in the form
of additional taxes or new/changed policies to raise revenue instead strategic alignment. Holistic and
pragmatic model can be developed provided cause & effect relationships are center points to structure
future policy to prevent crises.
17
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Head office: 34- A Izmir Cooperative Housing Society, Canal Bank Road, Lahore.
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Mubasher Ahmed &Co. Chartered Accountants
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WE are doing crises management instead prevention to meet budget deficits. Everyone is aware of real
problems but no one is ready to speak the truth or to take responsibility. Now time has come that Business
community, documented and undocumented sectors both, needs to pay due taxes. Low taxes collection
has led to vicious circle as rational of any new tax policy or old policy change is hard to establish being
crises management to raise taxes. Business community needs to be regularized now instead penalize by
providing best alternative/safe passage (instead Amnesty schemes) by addressing their real concerns in
structured way. Strong deterrents are required to control tax avoidance/ evasions through robust tax
system.

Till to date 11 Tax Reforms commissions had been made latest being “Tax Reform Commissions
2016(12February). Report does not highlight the specific failure causes of any last commission to learn
from past mistakes. However, non-implementation is stated major cause but results of implemented
subjects were also not shared. No innovative idea was given catering all stakeholder needs except
orthodox measures which earlier could not be implemented due to one or other reasons. Keeping in view
foregoing facts, New Tax Code 2018(NTC) is being proposed for open debate as strategic alignment in the
first phase. Once policy making system is structured/refined all operational issues and complex tax system
would be resolved. Over two to three year time significant breakthrough would be possible provided
lessons are learned from past mistakes and correction accordingly.

Whether Policy flaws or implementation failure? Annexure-BB4A1


We never go out of business unless we do repeated mistakes. Existing and Future Tax policies basis and
implementation must be evaluated to know the causes of failure i.e. either policy flaws or implementation
failure. Every tax reforms commissions to date never sort out specific failure causes of any previous
commission suggestions w.r.t. policy flaws or implementation failure. It means we are making repeated
mistakes. FBR every policy making decision must follow:
I. Policy making basis: Decision must be based on specific data originating from ground realities. Most
of times reliance is placed on other people working or generic statements instead digging out actual
data to know the real facts. We must evaluate each policy basis given in the last commission report
and its subsequent impact on revenue collection to evaluate success and failure factors. This specific
exercise would help us sound decision making in future. If results are not favorable it means
something critical was missing in decision.

II. Commission/policy time Frame: If any committee/ commission is made to carry out any study it
should continue till implementation and ultimate outcome of recommendation. Commission should
track the performance. If we cannot measure the impact of our decision we have not made any
decision at all. This approach led to sure failure or ineffectual results. We have to admit something is
wrong somewhere.

III. Difference of opinion, if any, of commission any member must be part of commission report to judge
subsequently success and failure of any decision. Policy failure assessment: What is status with
reference to success and failure of each policy today with reference to last TRC2016? Were
suggestions holistic and pragmatic or recommendation not followed in letter or spirit? Whatever was
18

suggested need to be evaluated now in the light of above suggestions like 9th schedule for retailers,
.Developer& Builders, Rental Income taxation etc.
Page

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IV. “Think Globally Act locally” principal should be our policy basis. Unless and until we understand
culture and ground realities no holistic and pragmatic model can be developed. Polices based on
accumulation of actual data coupled with detailed analysis with different perspective and subsequent
moderate revision based on actual experience would develop holistic and pragmatic model over the
time. Hence each sector different issues to be evaluated with reference to policy basis and
corrections accordingly. Extensive analysis would open new horizon w.r.t. what is wrong?

(Canon of taxation by Economist Adam Smith “The Wealth of Nations”): Let’s apply basic principal of
taxation: Currently, Real estate developer and builder are being taxed on net profit basis. Earlier, there
was policy to tax according to covered area. Now let’s discuss the basis of policy making, change of policy,
future policy recommendations and specific action plans required.
I. What was the basis of change of policy of taxation to covered area basis instead net profit basis?
II. What was financial impact in respect of net profit basis and covered area basis polices?
III. Why current policy is again changed to net profit basis from covered area basis?
IV. Was all above policy making based on real data of revenue achieved or just generic understanding?

To make taxation most simple and easy to collect we assume covered area basis policy was best due to
following reasons:
I. Predictable Tax at both end: Tax can be collect correctly and exact based on covered area approved
while under net profit basis it was altogether uncertain for both taxpayers and FBR.
II. Cannon of convenience (Easy to collect)-Canon of Economy: It can be collected by Building control
authority at the time of approval of plan in lump sum or instalment as per convenience of
developer/builder w.r.t. project size and other requirements.
III. To reduce cost of doing business if developer/Builder is registered tax payers then transfer cost can
be saved by provisional allotment of land ownership to developer/Builder as subsequently land would
be transferred to actual owners.
IV. For investor also provisional allotment provided registered tax payers. FBR would get revenue from
Developer, Builder and Investors.

Rationale of above policy:


I. Most simple, predictable and easy tax collection
II. Provisional allotment would reduce cost of doing business as well as equitable tax as registration cost
would be reduced.
Conclusion: Rental income to be evaluated on similar grounds. You would find least information available
to evaluate rationale of change of policy basis. Frequent Change of policy make business returns highly
volatile and eventually evasion of taxes even by honest tax payers;
Tax Base: Hardly any builder/developer is registered. Registered would be declaring negligible profits or
even losses on net profit basis. Just select all developers/builders of DHA across Pakistan to evaluate all
above stated facts. You would find surprising results with reference to tax revenue generation under
Net profit or covered area basis.
19
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Tax simplification: Sales tax Annexure-BB4-B


I. Think globally, Act locally. Taxation can be most simple provided suggestions are based on
understanding of prevailing system and results achieved to date. Vision should be broad but action
plans need to be according to ground realities. Rules and regulations effective designing and
subsequent implementation can lead to huge predictable tax revenue collection with minimum
leakages/frauds.
II. Keeping in view 80:20 rule you need to focus on high revenue generating entities in the first phase
and gradually moving downward instead covering whole population (all tax payers) in first go.
Focusing whole population is leading nowhere instead had made uncontrollable and confused system.
III. Only few rules and regulations are required keeping in view Pakistan peculiar circumstances.
Subsequently world best practices can be adopted gradually once maturity and awareness developed
to some extent. Currently, numerous additional rules and regulations, to support original rules and
regulation, have been incorporated to plug the tax leakages but it had made tax system most complex
and unbearable for genuine tax payers, however, Gold mines for tax evaders. Even genuine tax payers
is tempting to tax evasions or ignoring compliances due to one or other reasons.
IV. Keeping in view cause & effect relationships simple(innovative) minor changes are being suggested
with no change management as already in practice just need innovation. Application of these can lead
to most simple revenue system with huge predictable tax revenue.
V. Aim is to cover maximum stakeholder specific requirements with strategic dimensions. Operational
issues would be catered automatically once strategic alignments are agreed and implemented. Please
high light, if any, subject is interpreted otherwise or omitted accidently. Certain subjects might be
over lapping. Finally, one or combination of those whatever appropriate would be accepted as final
course of action. A feedback from every stakeholders would be appreciated.

Annexure-BB4-B1
Sales tax withholdings and Third Schedules applications: To ensure predictable and
complete, simplest tax collection. Initially, it would be applicable to tax payers having declared revenue
of Rs.1 billion as per last tax year.

I. All supply chain partners must be filer to deal with any tax payer {Tax payers means Company
(Listed, Public and Private), Government, Importer, individual and AOP having annual declared turn
over 1 billion rupee}. Supply chain partner means suppliers of raw &other materials &services, Sales
distributors, whole sellers and retailers.
II. Tax payers would withhold 100% input tax paid to suppliers being sales tax withholding agents and
would issue certificate to suppliers of goods and services to update their respect tax record in FBR
system.
III. Companies/Importer would charge sales tax at retails prices as defined under Third Schedule of Sales
Tax Act to manage sales tax at distributer, whole seller and retails stages. This would ensure 100%
sales tax collection at supply stage.
IV. Separate Bank accounts for input tax payments as well as output tax payments for ease of
20

reconciliation subsequently between FBR & Tax payers for Sales Tax (Income Taxes) purposes.
Page

Similarly, FBR designated separate accounts for input and output tax deposit. Each company to use
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its own STRN as pre-fix and name for deposit identification in FBR accounts. FBR all accounts online.
Anywhere deposit can be made. FBR should open its designated input and output sales tax accounts
in all most all banks so that tax payers can transfer electronically from its bank or FBR can ask every
tax payer to open account in a specific bank like National bank etc. It means subsequently
reconciliation should not be any issue.
V. Sales tax compliances would be validated by external statutory auditor through separate certificate
as already done during audit and understand business very well. FBR can conduct special audit on
random basis or in special circumstances only etc. by third party.
VI. Company input and output material standardization through efficient IRIS system by using advance
data analytical techniques of financial and non-financial data integration.
VII. FBR should outsource work in each city LTU tax payers for developing models to be implemented with
more refined feedback based on practical experiences.
VIII. It would be implemented in piece meal like Tax Withholding and Third Schedule application in the first
phase and registration of unregistered person dealing with tax payers in the second phase etc. etc.
Rationale:
I. Currently, FBR is unable to control tax evasions due to multiple factors from suppliers of different
materials and services with reference to purchases and distributor, whole seller, especially, retailers
with reference to sales. In view of for suppliers 100% sales tax input withholdings and for distributors,
whole seller and retailer 100% sales tax recovery under Third schedule. This would lead to 100% input
and out tax sales tax deposits in government treasury to meet budget deficit or increase FBR
revenue or stop Tax leakages.
II. VAT International Best practice is collection of taxes at different stages like starting from suppliers to
end consumers. Best practice means “A practice
which produce desired results in peculiar circumstances” instead international practice to be declared
as best practice for that peculiar circumstances although not producing desired results (Pakistan
peculiar circumstances). China and America used coal as cheap energy resource to support their
economies in spite of severe environmental consequences. Now they can switch over once they have
achieved growth. Similarly, Pakistan should adopt revenue strategy that works. After 20 years we can
change to match world tax best practices.
III. Big organization should focus on business instead tax management of hundreds of supply chain
partners. It is small trader needs to deal with big corporation not big businesses need to deal with
small set ups. Hence big corporation should encourage this measure .Dealing with unregistered must
be justified by big organization.
IV. No change management as Tax withholding and third schedule already in practice.
V. Tax frauds & Input Tax Credits issues would be minimum as verification would be most simple;
VI. Tax refunds realization would become most simple as directly verifiable;

There is wide manipulation of retails prices with ultimate consumers. Third schedule would also address
this subject.

How to minimize litigation? Annexure-BB4-B2


Nature of Issue: Normally, disputes arise due to complex tax code due to multiple reasons. By developing
21

simple tax code these can be minimized to great extent. System must support the opportunity of learning
from mistakes instead punishment in the first go, especially, when it comes to rules and regulation
Page

compliances. Rules and regulation takes sufficient time particularly where challenges like lack of
Head office: 34- A Izmir Cooperative Housing Society, Canal Bank Road, Lahore.
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Mobile: +92-302-8459777 What App: +92-320-845-9777 mail:34MubasherAhmed@gmail.com
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education, deficiency of entrepreneur aptitude/environment (narrow vision towards growth unlike


multinational or less believe in system approach), poverty and low threat of law. You need time to change
aforesaid culture along with simplicity and rationality in tax system to be followed later on. In view of the
following few suggestions:

I. Let Tax payers be given opportunity to learn from mistakes: First time non-compliance would lead
to 25% additional taxes and penalty, second time would lead to 50% additional taxes and penalty,
third time 75% additional taxes and penalty and fourth times 100% additional taxes and penalty
instead 100% additional taxes and penalty every time. First time 25% additional taxes and penalty
would become due second time when similar mistakes appear in second time as it would indicate
tax payer non-serious attitude and he should pay for that. If in second time audit similar mistakes
does not appear then first time/previous time additional tax and penalty would be reversed.
However, original tax due would be recovered in equal instalments over whole year to save tax
payers from cash flows crises. as FBR earlier was living without that. Willful fraud or intentional
mistakes would not come under this ambit. Intentional mistakes/fraud can be easily establish not a
rocket science. Circumstances provide evidence like new business, incompetent staff or consultants
etc.
II. Any new tax legislation to be first validated by Supreme Court Special Bench (details as per M. Moin
Khan FCA-Muniff Ziauddin &Co. Chartered Accounts)
III. Advance tax ruling facility for local residents like non-residents to minimize otherwise interpretation
by either party. Binding on all parties once agreed.
IV. Speedy Justice: Delayed decision give temptation for more disputes. Hence make compulsory
appellate forum decisions finalization within one year of development of dispute. Allocating appellate
authority for new disputes since 2016 onward and for before June, 2016 disputes resolutions. If
decisions are expected within one year disputes would be minimize significantly within next three to
four year time. Commissioner Inland Revenue (Appeals) and High court to be omitted from appellate
process to shorten time further.
V. FBR whether to carry disputes or not. FBR responsible for any wrong decision by assessing authority.
Carry out analysis for last three years only to define rules for these wrong decisions by assessing
authority.
VI. Alternative Dispute Resolution (ADR) best option to resolve all past and future disputes by making
it independent and binding on FBR. Its process should be made most effectual by discussion of all
stakeholders.
VII. Any future policy development as well as change must be supported by actual Data and actual cause
of failure of previous policy analysis.
VIII. Complains management by Independent monitoring authority to address genuine complains of tax
payers. Online complains management system. Tracking of each complain subsequent status and tax
payer satisfaction level. Complains generation and resolution as KPI (Number of complains, resolution
time and Tax payers satisfaction level) of FBR each level staff for any further progress in the profession.

Rationale:
FBR revenue are not dependent on legal disputes, additional taxes and penalties. Normally, disputes
22

finally settle in 15 years at least. Hence, such an environment as stated above should be created to
support minimum disputes. Furthermore, FBR revenue generation from litigation is very dismal,
Page

Head office: 34- A Izmir Cooperative Housing Society, Canal Bank Road, Lahore.
City Office: 40-Raza Block Iqbal Town.(Vicinity: New campus road Karim Block),Lahore.
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Mubasher Ahmed &Co. Chartered Accountants
Sustainable Business Consultants (SBC)

however, huge wastage of time and money. Then why engage in futile activity. Resolve all the current
litigation through ADR mechanism instead courts by following above principals.

Focus should be on real habitual culprits. Their cases to be decided through speedy trials by special
benches. Genuine tax payer should not be penalized instead should be provided an opportunity to
learn from mistakes. However, in case of repeated mistakes levy additional taxes and penalties.

Annexure-BB4-B3
Simplification: How to minimize difference of opinion in application of law or
error in filing of return or payment of taxes?
I. Develop separate Sales tax returns for each type of business segment/industry like Textile, sugar,
Cement industry manufacturer including all supply chain partners. Single return to accommodate all
types of businesses had made it most complex. Returns should be online along with all types of Taxes
(Income, Sales, Federal Excise and all other applicable taxes) related SRO and all explanatory materials
at one site to make taxpayer well aware with reference to all types of new legislative development
and applications.
II. Sales tax special procedures for every business/industry segment like currently available for few
segments to bring more clarity with reference to application of law. These should be developed after
studying each industry business real dynamics.
III. Numerical prototype model: All policy changes , new policy impact should be available as a numerical
prototype model to clarify the change and its impact on return filing so that correct return is filed
after change of policy or new policy
IV. Each sector wise all SRO and all other explanatory details should be available on that site so that tax
payers/ consultant carry out working as per law
V. Online any clarity facility by FBR regarding application of law or advance ruling for application of any
change of law or new nature of business to be used as valid application of law even later on proved
invalid by a court of law in any specific case.
VI. Frequency of return filling: Compulsory monthly return filling should be replaced by quarterly or filing
to relieve businessman. Payments can be made on monthly basis on estimated basis as business man
well understand. After four months completely reconciled data to be uploaded.

Rationale:
Specialization Era: An ordinary person cannot fill rerun at all. Even an expert have to read minutely
even then mistakes are possible. Objective is simple, predictable tax collections not strict tax
compliances leading to an additional task to tax payers parallel to normal business along with
increasing cost of doing business coupled with litigation and mal practices to conceal unintentional
mistakes.

Case study: Zero rated sector, especially, Textile related: S.R.O. 1125(I)/2011, Islamabad, The 31st
December, 2011 issued in exercise of powers conferred to Federal Government and Federal Board of
Revenue under different section of the Sales Tax Act, 1990. Complexities of this SRO is stated below:
23

1. Impossible to track SRO:


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Mubasher Ahmed &Co. Chartered Accountants
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S.R.O. 1125(I)/2011 was issued on 31December 2011 in suppression of SRO 1058(I)/2011 dated 23
November 2011 and to date S.R.O. 1125(I)/2011has been amended through series of Notification
and S.R.O. 1125(I)/2011 cannot be found in consolidated on FBR web site, the notifications through
which changes made to the original S.R.O. 1125(I)/2011 are impossible to locate/follow. This creates
lot of ambiguity in practical application for the taxpayers and due this problem Revenue Authorities
misuse these loopholes. Government must issue new SRO which should replace S.R.O. 1125(I)/2011
which should be clear more.

2. Exact identification and clarity missing:


S.R.O. 1125(I)/2011 consists of two tables namely Table I and Table II. Table-I contain the list of goods
specifically used as input against their PCT headings. Serial No. 5 and 6 of the Table-I contain PCT
Heading as “respective headings excluding finished goods” when practically these headings are seen
in Pakistan Custom Tariff it is impossible to locate exact PCT headings. For example serial No. 5 of
Table-I of S.R.O. 1125(I)/2011 is about ‘sports goods excluding those in finished condition’ and serial
No. 6 of Table-I of S.R.O. 1125(I)/2011, is about ‘Surgical goods excluding those in finished condition’
when we practically see these headings in Pakistan Custom Tariff no chapter in Pakistan Custom
Tariff exist in the name ‘Sports Goods’ and ‘Surgical Goods’, these goods are spread in 97 Chapters
of Pakistan Custom Tariff with different headings and sub-heads. In this situation it is almost very
difficult rather practically impossible to locate their exact codes. For example in respect of ‘finished
sports footwear’ this item relate to sports under respective heading but when imported it is charged
to 17% tax (no value addition tax on import stage) and when sold it will be also charged to tax at rate
mentioned in section 3 of the Sales Tax Act, 1990.

3. Practically impossible to apply correct application of law:


I. Presently if any person is importing raw material under S.R.O. 1125(I)/2011 allows to adjust 100%
output against carried forward balance but next month if registered person sold goods from stock
then system did not allowing to do same. Is it possible that all importer sold goods with in the same
months of import/purchase.
II. As mentioned in S.R.O. 1125(I)/2011 supply of electricity, gas, furnace oil, diesel oil and coal to the
registered manufacturer of the five sectors shall be zero rated, but practically getting zero rated to
the registered manufacturers of these five sectors is almost impossible.
24
Page

Head office: 34- A Izmir Cooperative Housing Society, Canal Bank Road, Lahore.
City Office: 40-Raza Block Iqbal Town.(Vicinity: New campus road Karim Block),Lahore.
Mobile: +92-302-8459777 What App: +92-320-845-9777 mail:34MubasherAhmed@gmail.com