Reformation: Oversight committee formed to implement tax reforms

KARACHI / ISLAMABAD: The government on Saturday constituted an oversight committee to implement tax reforms, particularly proposed by the Tax Reforms Commission (TRC), which have so far been blocked by well-entrenched forces in the Federal Board of Revenue (FBR).

Finance Minister Ishaq Dar constituted the seven-member committee to be headed by Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan. The government made the decision amid the realisation in the International Monetary Fund (IMF) that cosmetic changes in the FBR would not work and that there was a need to bring drastic systemic changes.

Dar constituted the committee after holding a marathon meeting with members of the TRC, who had complained about the non-cooperative attitude of FBR officials. TRC Chairman Masood Naqvi, members Ashfaq Tola and Abid Shaban attended the meeting.

Through an administrative order, the government had constituted the TRC in September last year with a mandate to review the taxation system and FBR’s administrative structure. The commission has already presented an interim report, but no action has been taken so far.

The newly-constituted TRC would oversee and expedite ongoing reforms in FBR and to further improve taxpayers’ facilitation and broadening the tax base, according to a handout issued by the Ministry of Finance.

Recommendations

In its interim report, the TRC made some valuable recommendations, which can increase revenues and plug leakages – however, these are not in the interests of some corrupt elements in the tax machinery, said sources.

In the report, the TRC proposed to replace the existing system of sales tax, which is not only cumbersome and difficult to comply with, but is full of leakages and abuse. The TRC has proposed that a single-stage, single-digit non-adjustable Sales Tax (with provision to cater to special needs of exporters) is a strong way forward.

The TRC has also proposed to amend an existing law to confiscate domestic assets of those who have stashed their wealth in offshore tax havens. It has proposed that the Foreign Exchange Regulation Act (FERA) needs to be amended in order to get hold of the black money held abroad.

Furthermore, the TRC has also proposed that a Benami Transaction (Prohibition) Act 2015 must be promulgated to prohibit holding benami property.

In Benami transactions, the actual owners retain the assets in someone else’s name aimed at evading taxes and hiding ill-gotten wealth. The practice is very common among politicians, bureaucrats and businesspersons.

The government has made a commitment with the IMF that the Benami Transaction Prohibition Bill will be presented to the Parliament by January next year. The IMF has turned this commitment into a condition of the $6.2-billion bailout programme.

The TRC has also suggested that instead of charging tax on ad valorem basis on petroleum products, the government should fix a per-litre tax amount aimed at avoiding revenue losses due to fluctuation in crude oil prices. This option is under active consideration of the government, said the sources.

TRC’s recommendations in interim report

• To replace the existing system of sales tax with a single-stage, single-digit non-adjustable sales tax

• To amend an existing law to confiscate domestic assets of those who have stashed their wealth in offshore tax havens

• A Benami Transaction (Prohibition) Act 2015 must be promulgated to prohibit holding property in benami methods.

• The government should fix a per-litre tax amount on petroleum products

Published in The Express Tribune, October 11th, 2015