Lack of political commitment proved to be one of the major factors affecting implementation on the World Bank (WB) funded Tax Administration Reform Project (TARP) which is going to expire on December 31, 2011; WB observed in its recent report. Federal Board of Revenue (FBR) Chairman Salman Siddique while talking to Profit; on a question of implementation status on TARP programme said, “It is true that FBR could not implement the TARP programme fully due to various reasons but I can definitely say that, TARP programme is implemented 53 per cent on the IT side and 83 per cent on the infrastructure side.”
Former Chairman FBR and member Tax Advisory Committee Federal Tax Ombudsman Pakistan Abdullah Yousaf, on a question about reasons that lead to partial implementation on TARP programme, said maximum systemisation of TARP programme needed full commitment at the top level and support from FBR team that was unfortunately not there when needed.
He said overall, problems that have negatively affected TARP implementation are: lack of effective political commitment, insufficient tax policy reforms to expand tax bases and simplify the tax system, lack of follow-up on the measures agreed to be implemented, lack of co-ordination among different areas, lack of management conviction to implement key measures, high turnover of top managers, lack of accountability, leadership and ownership on the project; weak implementation capacity and a rigid and inappropriate legal framework.
Abdullah Yousaf further said there are three stakeholders to the tax system, government, taxpayer and tax collector. There should be a win-win situation for all three. He said the tax payee should be given the due facilitation that FBR owes to him while salaries of tax employees especially tax collectors should also be raised to ensure more efficiency and transparency into the tax machinery.
Chairman Tax Committee Islamabad Chamber of Commerce and Industry (ICCI) and Tax Lawyer Mian Ramzan said ineffective co-ordination among the operations (now Inland Revenue – IR), Enforcement, Audit Wings, PRAL and RTOs/LTUs seriously undermined the effective implementation of instructions from HQ to field formations resulting in ineffective operations and non-achievement of TARP objectives.
He said TARP project mainly helped FBR in constructing buildings, purchasing cars and computers, but the objective of automation for broadening the tax base did not materialise, so to say TARP as successful project do not seem feasible. WB report said high turnover of top authorities severely affected the project. A situation of permanent instability has also been aggravated by vested interests both within FBR and the business community, undermining support of the project and its ability to fully meet the development objectives.
The main tax policy envisaged in TARP did not lead to the introduction of a modern VAT, combined with an effective excise tax system. Also, removal of exemptions and zero rates in sales tax were below expectations. Zero rates for non-exporters and special regimes (for example, retailers) remain intact. WB observed that lack of leadership and accountability was also a critical feature of TARP implementation.
TARP was cut down its size to over $78 million from first allocated amount of $123 million. TARP has been implemented under three ministers of finance, four chairmen of FBR and a number of FBR Board members. TARP that would expire on December 31 has remained a problematic project for the WB during the last few years as this project was initially conceived and signed during the tenure of Musharraf-Aziz regime, but failed to utilise its allocated amount of $123 million till December 2009. During the PPP regime, World Bank Executive Board granted extension of two years till December 2011 and cut down its size to over $78 million, including the grant amount of DFID. FBR authorities would also be reviewing the decision to make a formal request to WB for a new programme in a visit of WB Team into Pakistan in January 2012.
