After a delay of over two years, Finance Minister Dr Hafeez Shaikh on Thursday approved the establishment of an independent Tax Policy Unit (TPU) in the Ministry of Finance with the objective to take away the policy formation powers from Federal Board of Revenue (FBR) and improve taxation governance.
The job of this TPU would be to detect revenue leakages in the system, suggest rationalizing rate of taxes and propose ways to mobilize higher revenue in tax collections. The establishment of this unit would partially withdraw policy making powers from FBR but would help in improving its function to collect tax revenue. It would work under the Ministry of Finance (Finance Division) and would report to the finance minister.
The decision to set up this unit was taken in the 5th meeting of the FBR Policy Board chaired by Mr. Hafeez. The attendees included Minister for Privatization Mohammad Mian Soomro, Commerce Adviser Abdul Razak Dawood, Adviser on Institutional Reforms Dr Ishrat Husain and Special Assistant on Revenue Dr Waqar Masood.
The Policy Board highlighted the advantages of keeping tax policy function independent of administrative function. The Tax Policy Unit would work out policy recommendations for domestic tax collection on the lines of the Tariff Policy Board, dealing with customs policy issues and operates under the Ministry of Commerce.
The need for an independent Tax Policy Unit
The separation of tax policy from tax administration is to enhance governance and tax laws in Pakistan, according to the FBR’s summary of 2018.
The creation of this unit was approved by Prime Minister Imran Khan in cabinet meeting held on Nov 29, 2018 over two years ago but it took the tax bureaucrats quite some time to separate tax policy from the tax administration. This unit that is now finally being established would have members from different sectors, including businessmen from the private sector, FBR officials, academics, think tanks, fiscal and economic experts, and government officials.
According to the summary approved by the cabinet in 2018, the tax policy unit would be responsible for revenue forecasting, tax expenditure analysis, distributional analysis, economic impact analysis, cost-benefit analysis and tax indicator analysis.
The reason for setting up a diversified tax policy unit was to have well balanced recommendations from all stakeholders to improve taxation governance and revenue collection. The policy recommendations by TPU would first be reviewed by Economic Coordination Committee (ECC) of the cabinet, while the federal cabinet would make the final decision.
The final decision for TPU’s formation also lies with the Federal Cabinet. Once it gets the nod from the cabinet, the unit committee would be formed as soon as possible.
The FBR’s Technical Committee notified the Policy Board about the measures taken to identify anomalies and simplify the taxation system for a better understanding of the business community. The FBR also requested to include senior representatives from the Ministry of Commerce and Ministry of Industries & Production for better coordination and effective policymaking in this regard.
The chairman Complaint Oversight Committee (COC) informed the Policy Board about the working of a newly developed complaint portal which is currently running on a trial basis. The complaint resolution system is designed to facilitate businessmen, traders, small and medium enterprises (SMEs) and large taxpayers. All complaints can be filed in one place. SOPs for complaint resolution and oversight by COC are being finalized and the system would be formally launched soon.
Mr Hafeez directed to disseminate relevant information about the working of complaint registration mechanism and ensure the contact details are readily available for public consumption.