Before formally taking over as finance minister, Asad Umar has announced his intent of separating tax policy and its administration as the first step towards reforming the country’s revenue structure.

He has also promised to appoint a Federal Board of Revenue (FBR) chairman “who is known for integrity, builds a team and is able to deliver”.

The separation of policy and administration was at the centre of the reform programme for which the post of revenue division secretary was created. This was to keep the focus of the FBR chairman on tax administration and away from policy. Over time, however, the two posts — revenue division secretary and FBR chairman — were virtually merged again silently.

The two posts are still separate on paper, but their powers vest in the same person. As such, the same person makes policy and signs it as revenue division secretary with one hand and then implements it with the other hand as FBR chairman.

An appointment clear of past baggage and disconnected from vested interests may prove to be the first step towards creating reformed revenue administration

The post is up for grabs again after the removal of Tariq Pasha, a close confidante of former finance minister Ishaq Dar, by the caretaker government. Runners in the race are many, and their number is increasing every day. Reforms failed in the past chiefly because of limitations of the service groups. Traditionally, the FBR chairman remained mostly under the control of career officers of the Pakistan Administrative Service, Customs Service of Pakistan and Inland Revenue Service. Almost, all of them left behind miserable failure stories.

All these chairmen either made meticulous efforts to preserve the status quo or cared the least to break it and build integrity and efficiency in revenue administration. Each left behind an administration that generally made tax collectors’ fortunes at the cost of the losses in billions to the exchequer.

Six of the well-known seven frauds permeate customs service officers, although there may be some exceptions. These officers entertain, freely and happily, at the customs clearance stations vague and evasive declarations and undervaluation of imported goods to create enough room for underassessment. They allow misuse of the green channel facility to mint millions every day and encourage the import of high-value or high-duty rate items mixed with low-value or low-duty rate items in the same container.

They clear daily imported goods in commercial quantities under the garb of baggage facility causing heavy revenue losses and capitalise on the complexity of tax regimes and extend massive inadmissible tax exemptions and concessions to the ineligible importers.

The seventh fraud and malpractice plaguing Inland Revenue Service officers is pervasive in sales tax and income tax refunds. The magnitude of pain and the quantum of ‘payment’ required to earn eligibility for these refunds is well known to those who go through the process.

No FBR chairman appeared to have touched all these seven revenue-killing techniques and malpractices. None of them stopped customs officers from accepting countrywide vague and evasive declarations of imported goods. No chairman ordered customs officers to stop countrywide violation of Section 156(1)(ii) of the Customs Act, which contains a provision to fight undervaluation of imported goods.

This provision requires customs officers to impose a penalty of Rs50,000 on each import container, which does not contain the actual invoice or packing list instead of a penalty of mere Rs5,000 which promotes undervaluation of imported goods.

Surprisingly, no FBR chairman employed system auditors to gauge Green Channel’s post-clearance performance and behaviour. Only a regular, periodic system audit of the green channel could cut down its misuses. The common practice employed by the customs workforce to mix imports of high-value and low-value goods in the same container continues unhindered.

Systems were never created to contain the daily practice of clearing heavy commercial quantities of imported goods under the garb of the baggage facility. No chairman has attempted to reduce the complex maize of the exemption/concession regime consisting of scores of statutory regulatory orders (SROs) into a single, simple and systematic document that is convenient and easy to understand for taxpayers.

On top of it all, no FBR chairman harnessed the power of automation in the recent past to effectively deprive Internal Revenue Service officers of their most lucrative discretion to grant or refuse refund payments or to change the order and priority of claimants. This has been resulting in accrual of inadmissible refunds in billions and their discretionary illegal payments bleeding the national exchequer.

Customs and Internal Revenue Service officers carry a heavy baggage of vested interest in the status quo. They ensure the status quo willingly or unwillingly when they become FBR chief.

A choice from the Pakistan Administrative Service is no different as evident from recent examples. They become hostage to clever customs and Internal Revenue Service officers.

Federal Board of Revenue Act 2007 does not restrict the federal government’s choices and empowers the government to appoint any person as FBR chairman.

A selection from the private sector, clear of past baggage, disconnected from vested interests, adept in understanding organisational behaviour and having a zeal for reform may prove to be the first step towards creating a new and better revenue administration.

Published in Dawn, The Business and Finance Weekly, August 13th, 2018