Shabbar Zaidi: Experienced taxman facing a formidable challenge

Shabbar Zaidi is experienced and widely respected but the challenge of tax collection and reform of FBR to inspire confidence is huge for any man

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The PTI-led government’s recent appointment of Shabbar Zaidi as the new chairman of the Federal Board of Revenue has created soaring expectations on the credibility and competence of PM Imran Khan’s new financial team. Led by Finance Adviser Abdul Hafeez Shaikh, this new team is now expected to fulfill the responsibility of generating revenues and revive the economy.

The appointment of Shabbar Zaidi has been welcomed by many as he has accumulated a great deal of experience and credibility in dealing with federal taxation and the bureaucratic politics of the FBR. A chartered accountant by profession, Mr. Zaidi has served the previous governments as an advisor on various financial issues, including amnesty schemes, taxation tools, and budget drafting.

However, Mr. Zaidi’s current appointment will be a formidable challenge as he is tasked with the responsibility of delivering results and meeting one of the most challenging revenue collection and generation goals that Pakistan has ever had to face in the past decade. Indeed, Mr. Zaidi’s greatest challenge is to generate revenue without further increasing the taxation burden, however, he must also develop a strategy to get a grip on the elements and conflict of interests that are will undermine his appointment as Chairman FBR.

Read more: Government gearing up to approve sweeping reforms in FBR

Pakistan Generating Less than Half its Tax Potential: World Bank

The appointment comes days after the World Bank released a report saying that Pakistan is meeting less than half of its tax potential, this is one of the many challenges Shabbar Zaidi must address.

The report, titled Pakistan Revenue Mobilization Project, presents a rather startlingly picture, stating that there is “substantial potential to increase tax receipts without imposing new taxes or raising tax rates”.  It notes that rectifying the process of tax compliance can increase the revenue generation capabilities of Pakistan from 13% to 26% of the GDP. The report goes onto to deduce that the greatest taxation rift is observed in the services industry as opposed to the manufacturing sector, while the sales tax has a great parity as compared to income taxes.

The World Bank report highlights that lack of moral and legal inadequacies are prime causes that have led to lack of efficient tax compliance. The report highlights these legal inadequacies such as prize bonds, benami transactions and the tradition of not undertaking legal action to ensure compliance. It also highlights that the taxation authorities are unable to access foreign remittances and the fact that lack of substantial taxes on immovable property endorses black money investments in the real estate market.

Read more: Imran Khan lashes out at FBR for failing to make necessary reforms

World Bank Proposes Three Reforms to Pakistan Custom

Another report presented by World Bank, “Governance Notes on Pakistan Custom (PC)”, on Monday put forward three major reforms to improve working of the customs department, which include improvement of the risk management system (RMS), increasing the taxation base to allow Pakistan Customs to establish powerful capabilities of control goods and revenue, and enhancing pre and post-clearance provisions.

World Bank concludes that improvement of the Risk Management System must be the utmost priority for Pakistan Customs in order to equip the system with the efficiency required to identify risk profiles and ensure that unnecessary controls are reduced by selection of only those good’s declarations for physical examination that pose a grave risk to security or revenues. The report stresses that improvements in the RMS will allow customs to effectively manage large volumes of trade with reduced dependence of physical inspections.

World Bank also suggests improvements in the pre and post-clearance facilities and implementation powers. Improving the RMS and post-clearance audit and its successful implementation will bring about significant reductions in physical and documentary inspections conducted at the borders. An innovative and strategic RMS will equip Pakistan Customs to innovate its procedures and drift away from the traditional time-consuming practices of clearance to adopt efficient strategies that facilitate trade by ensuring timely release of imported goods.

Read more: FBR modifies tax amnesty scheme

Mr. Shabbar Zaidi brings a formidable experience in all of these areas and he has been accredited for extensive research on many of these factors. He is accredited for amending the Section 111(4) of the Income Tax Ordinance that provides tax relief for foreign remittances. Mr. Zaidi possess sound knowledge and experience, with a deep understanding of how the state must extract revenue without depriving its people or reducing living standards. His extensive writings, published in many national dailies, reveal a person who is well aware of the task ahead of him: raising revenues without burdening the existing taxpayers and the poor, and of course, avoiding controversies and political confrontations.

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