ISLAMABAD: (Dawn 01 July,2009)

The PPP-led coalition government on Tuesday reversed the Seven-year old World Bank-funded project to reform tax administration owing to persistent pressure from the customs and excise group causing millions of rupees cost to the national kitty.

The reforms, initiated by the previous government in the year 2002, were focused on the functional merger of the sales tax, federal excise with the income tax. The agreement reached with the World Bank for the reform process to be carried out with a loan worth $150 million.

Ironically, the tax groups, income tax and customs, implemented those reforms initiatives immediately, which only benefited their lifestyles like doubling of salaries, purchases of new cars and establishing new buildings with new furniture.

The World Bank also proposed to reduce the number of members’ posts (BPS-21) at Federal Board of Revenue (FBR) to five and further rightsizing in the tax administration. But the government also reversed this decision by increasing the number of members to 12 instead of five.

These major decisions happened in the wake of the agitation started by the customs group against the merger of sales tax with income tax when the former chairman FBR Ahmad Waqar issued a notification for establishing the Inland Revenue and Customs, as separate group.

The customs and excise group filed a petition in the Islamabad High Court against the intended merger of sales tax and federal excise with the income tax on the plea that both taxes are different in procedure, collection, laws and regulations from the income tax.

The High Court granted stay order and directed the FBR for not making any change in the status quo till further order.

The agitating customs group was of the opinion that there was no such plan under the original reforms documents for the physical integration of sales tax with income tax but only the proposal was for functional integration of the taxes. The customs group also termed the merger as against the constitution.

The government spent millions of dollars on increasing the revenue-to-GDP ratio. The tax-to-GDP ration rather decreased to 9.6 per cent this year from 12 per cent before the start of the reforms process.

The reforms process was focused on three features, integrated tax management system, common taxpayers identifiers and common data warehouse, which did not happen despite spending millions of rupees on consultants and studies.

The government has also not undertaken any audit of those people who are responsible for causing millions of rupees loss to the kitty for not carrying out the policy reforms.

Under the new set up a major lacuna would still remain as FBR appointed Member Domestic Operation, South, Muhammad Ramzan from customs group, while posted Aziz Ahmad Bilour of income tax group as Member Domestic Operation North.

They will supervise the operations of all taxes—income tax, sales tax, federal excise duty in their respective zones, North and South. However, the customs operation will be managed only by the customs group.

At the same time, FBR posted Khalid Aziz Banth as Member Policy direct taxes and Mehmood Alam as Member Policy indirect taxes (customs, sales tax and federal excise).

On the policy side, the government separated the taxation system into direct and indirect taxes while on the operational side it created two zones by integrating the functions of sales tax, federal excise with income tax.

Analysts said this ill planning of the government would again create the clash of interest between the two tax groups as the gulf between the two taxes had already widened over the interpretation of the reform process. Who will be answerable to whom under the operational side integration?

According to the notification, the government appointed Ihsanul Haq as Member facilitation and taxpayers education; Zafar ul Majeed, Member strategic planning and statistics; Hafiz Muhammad Anees as Member taxpayer audit.

Munir Qureshi has been posted as Member operations (customs). He shall also hold the additional charge of the post of Member policy customs. Ch. Muhammad Azam posted as Member administration and human resource, Muhammd Saeed Khan, director general special initiatives, and Shahid Azam Khan Member enforcement and accounting.