ISLAMABAD: Prime Mini­ster Shehbaz Sharif has app­roved the separation of two revenue collection bodies, Customs and Inland Revenue Services (IRS), a move strongly resisted by tax groups in the past.

The prime minister accorded his approval last month to the recommendation submitted by the task force for overhauling the maritime sector.

The committee had proposed at least 99 measures, ranging from infrastructure rehabilitation to enhanced facilitation at ports, with specified timelines for implementation, according to official documents seen by Dawn.

The bifurcation of IRS and Customs streams will be carried out by March 31.

PM approves recommendation by task force for overhauling maritime sector; plan to be carried out by March 31

Changes to FBR structure

Under the existing structure, the Federal Board of Revenue (FBR) is an overarching body, with IRS and Customs being two of its wings, as per the revenue authority’s website.

The IRS collects sales tax, income and federal excise duty, while Customs imposes levies on goods being traded across borders.

The proposed reforms envision three separate boards to oversee FBR’s functions and policy formulation.

This included a policy board to develop income tax, sales tax and federal excise duty policies. The board, headed by the finance minister, would have members from the private sector.

Two separate oversight and governance boards will be established for the IRS and Customs.

These boards will be chaired by a retired tax official or an expert nominated by the finance minister. These boards would also have representations from the private sector.

If the plan is implemented, the post of the FBR chairman would cease to exist and be replaced by chairpersons of these boards.

The reforms also suggest replacing current FBR members with director generals of IRS and Customs. The tax collection structure and method will not change the field formation.

The two establishments — IRS and Customs — will be attached to the Revenue Division.

The DGs would have administrative, financial and operational control over their establishments, including budgeting, posting, and transfers.

Previous attempts

A similar move was announced by then caretaker finance minister Shamshad Akhtar on Nov 16, 2023.

The decision was later ratified by the then cabinet as well. However, the incumbent government has not implemented the proposed plan as yet.

The plan is again expected to draw the opposition of tax bodies, with officials also questioning the government’s seriousness in seeing through these reforms.

A senior tax official has expressed this scepticism, stating that the government has “no intention of reforming the tax administration”.

The official predicted that the fate of this move wouldn’t be different from the one in the past.

The apprehension stems from the fact that the FBR has yet to appoint a separate member for Customs administration — a recommendation also approved by the prime minister. Currently, a single member oversees the administrative affairs of both tax groups.

The government has unveiled a comprehensive transformation plan to address the substantial revenue gap of around Rs7.1 trillion. Central to this transformation is the deployment of digital solutions for tax collection.

Additionally, in line with the IMF agreement, the government is considering separating the tax policy formulation from collection.

According to sources, the FBR still plays a role in Customs’ policy formulation.

Published in Dawn, January 5th, 2025