Goals and challenges for FBR

Internationally accepted, the primary role of tax authorities is to ensure compliance with tax laws; its effectiveness, however, depends on a variety of external factors including the state of the economy, public support for government priorities and taxpayers’ willingness to comply with tax rules. In a dynamic environment, it is, however, imperative that the revenue authorities have a clear focus on their goals and continually review their operating approaches and procedures to ensure they are making the most effective and efficient use of available resources. By adapting and adopting appropriate technologies as well as by being open to the benchmarking and testing of their operations to achieve “best practice”, revenue authorities can improve both their public image and the organisation of work processes.

The Finance Minister in his 2014/15 budget speech has more than once emphasised on improving the revenue resources with better taxpayers’ compliant. The revenue target has been fixed at over Rs 2.8 trillion. The Minister wishes to double/quadruple the number of income and sales taxpayers in the next year; facilitate the international trade through simple and transparent duty regime; withdraw the discretionary SROs and selective tax exemptions – thus effectively broadening the tax bases. Against this backdrop, promotion of voluntary compliance should be a major concern of the tax authorities. They need to understand and carefully evaluate the ways by which they interact with taxpayers and employees as it seriously impact the public perception of the tax system and the degree of voluntary compliance. Taxpayers who are aware of their rights and receive a fair and efficient treatment are more willing to comply. Skilled and committed employees who are valued and treated equitably are more likely to act fairly and professionally in all their dealings with taxpayers.

It is international experience that the ‘voluntary compliance’ is promoted not only by an awareness of rights and expectations of a fair and efficient treatment but also by clear, simple and ‘user-friendly’ administrative systems and procedures. It is enhanced when it is easier for taxpayers to do so. It is maximised when revenue authorities are aware of the major developments and trends in the business and legislative environment, and are responsive to their implications on tax administration and compliance. FBR must therefore identify and assess compliance risks and develop strategies targeted at addressing those risks. FBR may carefully look at strategies including taxpayers’ education, service, and marketing, profiling risk, auditing, general anti-avoidance efforts, prosecution and proposals for legislative change. On top of it, tax authorities must have in place a transparent and speedier taxpayers’ grievance resolution framework and support parallel organisations engaged in providing redress to the taxpayers.

A major challenge for the FBR is to be responsive to the individual circumstances of taxpayers while at the same time being consistent. Responsiveness translates into accessible, dependable and timely information service as well as accurate and timely treatment of requests, dispute resolution; complaint handling and appeals. FBR can achieve these goals by constructing systems and procedures that are aimed more towards the needs of the taxpayers than those of the tax administration.

FBR can facilitate links with taxpayers through single points of contact to ensure that services are available when and where needed. It may also initiate developing enhanced electronic means of communication between taxpayers and the revenue authority. These may include strengthening the present system of electronic submission of returns, electronic payments and online access to account balances. FBR may also engage in consulting with taxpayers and other stakeholders on changes to, and the development of, significant policies and procedures; as well as co-operating with other regulatory bodies in designing appropriate ‘whole of government approaches’ to lessen compliance costs with due regard to the interests of all levels of government.

FBR could improve its consistency in taxpayers’ handling by having policies and procedures that are transparent and conform to the tax laws and norms; ensuring that the rights and obligations of taxpayers, complaint procedures, and redress mechanisms are outlined and communicated through guides, forms, and public information and education programs.

There is little doubt that the skilled and committed personnel who are valued and treated equitably are more likely to act fairly and professionally in all their dealings with taxpayers. They can be instrumental in creating an attractive work environment. Employees’ skills must be matched to their tasks. There should be a high standard of support and development programs for employees. Effective training programs at the FBR training institutions should address the impact of globalisation and related complex taxation issues. Transparent and appropriate controls over the recruitment, promotion and dismissal of public officials contribute to the integrity of the administration. The community trust in the administration of the tax system is further enhanced by administrative standards such as codes of conduct and rules on conflict of interest. Most importantly, FBR without further delay introduce a comprehensive ‘performance management framework’ at strategic, operational and individual level with appropriate system generated ‘key performance indicators’ with clearly measurable and objective rewards and punishment system.

FBR has a great challenge to face in the next year. The budgetary target of Rs 2.8 trillion plus is not easy to achieve particularly given the historical trends in revenue collections. FBR must take bold steps in improving its systemic weaknesses – both in its systems as well as personnel, to meet the challenges it faces.

FBR must encourage its field formations to: apply tax laws in a fair, reliable and transparent manner; outline and communicate to taxpayers their rights and obligations as well as the available grievance redress mechanisms; consistently deliver quality information and treat inquiries, requests and appeals from taxpayers in an accurate and timely fashion; provide an accessible and dependable information service on taxpayers rights and obligations with respect to the law; ensure that compliance costs are kept at the minimum level necessary to achieve compliance with the tax laws; where appropriate, give taxpayers opportunities to comment on changes to administrative policies and procedures; use taxpayer information only to the extent permitted by law; and develop and maintain good working relationships with trade bodies and the wider community.

In its ‘relations with its employees, FBR is advised to communicate and uphold high ethical standards in employees; identify and resolve conflicts of interest between the public duties and private affairs of its employees; recruit and promote employees on the basis of merit and equal opportunity and protects them against arbitrary dismissal; communicate and uphold high professional standards by providing effective training opportunities to enable them to address the complex taxation issues; and remunerate employees at a level sufficient to attract and retain competent individuals.

Given its long experience in tax policy and administration reforms, FBR is familiar with managing and adapting to changes. It is yet not out of place to advise that the FBR may review its administrative practices on an on-going basis and take actions appropriate to changes in the domestic and international taxation environment; develop approaches to compliance and enforcement issues and set international standards; manage issues relating to tax competition and tax avoidance by identifying risks and elaborating administrative strategies; monitor compliance with domestic and international administrative standards and take corrective measures whenever necessary; and effectively manage its own performance at all levels through a well -articulated ‘performance management framework’.

(The writer is former Member Tax Policy FBR)