All the tax collection agencies in Pakistan should be dismantled and merged into National Tax Agency (NTA) which alone can effectively enforce tax laws both at federal and provincial levels. NTA, a competent and effective body, set up on modern lines, should have representations of all constituents of the federation of Pakistan. NTA having national-wide data at one place and centralised processing will certainly be able to compel all taxable persons to file tax returns and pay due taxes under various tax codes. NTA must replace Federal Board of Revenue (FBR) and all ineffective provincial revenue authorities that have miserably failed to collect revenues according to their actual potential. For example, provincial Revenue Boards have not been collecting agricultural income tax, imposed since 2000. In the same manner, provincial excise and taxation departments are not collecting taxes they are entrusted to administer. Same is the story of Punjab Revenue Authority (PRA), Sindh Revenue Board (SRB) and Khyber Pakhtunkhwa Revenue Authority (KPRA) in respect of sales tax on services—their capacity to tax all taxable services is quite inadequate.
FBR mercilessly wasted borrowed funds of millions of dollars given by the World Bank and other donors for implementation of a comprehensive five-year-long Tax Administration Reform Project (TARP) that was extended for another year on the request of Pakistan. During and after TARP, FBR has failed on all fronts—in meeting revenue targets, broadening of tax base, countering corruption and leakages, implementing sales tax, increasing share of direct taxes and improving tax-to-GDP ratio. At the end of TARP, tax-to-GDP ratio nosedived to 8.8% from 9.4% in the year when the programme started! Despite having both money and expertise, FBR could not introduce an effective automated tax intelligence system to bridge the huge tax gap of over 200%. The World Bank in its report, “Implementation, Completion and Result Report” issued on the completion of TARP, observed: “The current narrow-base of general sales tax (GST) in Pakistan remained almost entirely unchanged throughout 2005-2012, despite efforts to overhaul the indirect taxation structure by introducing a reformed GST featuring few exemptions and wide coverage of goods and services.”
This is the sordid story of tax reforms in Pakistan even when enormous funds—over US$100 million—and best professional advice was available. As confirmed by the report of World Bank, FBR not only as an organisation has lost its credibility and usefulness, but has also proved to be counterproductive for the very purpose for which it was established—see figures of collections from 1996-97 to 2014-15 [Table A] confirming over-all poor performance.
