ISLAMABAD: The proposed restructuring of the Federal Board of Revenue (FBR) has heightened uncertainty within the field formation due to escalating tensions among tax groups concerning the nature and extent of the reforms, Dawn has learned from knowledgeable sources.

This uncertainty could potentially affect revenue collection, a concern that is particularly significant given the current political instability that has already strained the country’s economy. The FBR is struggling to recover its revenue collection, yet it remains on track to meet the target committed with the International Monetary Fund (IMF).

On Nov 16, 2023, Caretaker Finance Minister Shamshad Akhtar announced in Karachi that the customs will be separated from the Inland Revenue Services (IRS). This decision came as a big surprise for both tax officials and taxpayers, as they were not previously aware of this significant change.

Last week, the Special Investment Facilitation Council declared that it had authorised the proposal but had formed a ministerial committee to determine its legal obligations. The restructuring plan will receive final clearance in a cabinet meeting, according to a senior tax official, who added that everything is still a suggestion and nothing has been finalised.

Tensions between Customs, Inland Revenue threaten collection

Since the announcement, the divide between the tax groups—Customs and IRS—has deepened over the nature of the reforms. The IRS group believes that the changes have been proposed by a select few customs officers and are being backed by Ms Akhtar.

The proposed reforms are marked by three broad indicators— the establishment of three distinct boards to oversight the functions and policy formulation of the FBR. This reform will create a policy board to develop income tax, sales tax and federal excise duty policies. Private sector members will serve on this finance minister-headed body.

Two oversight and governance bodies will be established for the IRS and Customs. These boards will be chaired by the Finance Minister’s nomination, who may be an ex-tax official or specialist. These boards will also have members from the private sector. There will be no chairman of FBR, but rather a chairman of the boards. Currently, there is a National Tariff Policy Board which is chaired by the commerce minister.

Sources close to the development informed Dawn that the proposed reforms in the FBR structure were kept confidential. Most of the senior tax officials at FBR were not privy to the key features of these proposed reforms.

Dawn made multiple attempts to reach out to FBR Chairman Zubair Tiwana for his feedback but he didn’t pick up calls nor respond to messages sent on his cellphone. The FBR spokesperson also did not answer.

Director generals will replace present FBR members under reforms. Thus, IRS and Customs will have DGs. The tax collection structure and method will not change in the field formation.

An IRS senior official told Dawn that the finance minister had been briefed on the probable consequences of the planned oversight boards. The appointments of private sector members may lead to conflict of interest.

The minister was also warned of serious accountability difficulties. The official wondered who would keep private sector board members accountable.

The FBR Act empowers its members, and the current revisions propose giving board members comparable rights, which could cause governance concerns. No calculation shows that reforms will increase revenues, the minister was informed.

“The minister is not heeding our recommendations,” the official source said, adding that she will make a final decision with the cabinet before Feb 8 as caretaker minister.

The planned revisions also divide customs officials. Some officers feel a separate board will allow them to act independently of the IRS group chairman and board officers. Others support the current system with an emphasis on field formation and revenue collection integrity.

Published in Dawn, January 12th, 2024