A majority of members in a federal cabinet body have identified flaws in the finance minister’s plan to restructure the Federal Board of Revenue (FBR), finding it not aligned with the requirements to end corruption and misuse of power by taxmen and lacking substance to enhance collection.

The sub-committee of the federal cabinet finalised its deliberations on Thursday over the FBR restructuring plan that the cabinet had referred to them for endorsement. No minister plainly said no to the plan, but their comments suggested that this plan was not workable, according to one of the members of the committee.

Privatisation Minister Fawad Hasan Fawad and Law Minister Ahmad Irfan Aslam raised serious questions about the viability of the plan and the legal mandate of the caretaker government, according to sources.

They added that the law minister was of the opinion that the caretaker government has the mandate to get the cabinet’s nod for FBR restructuring. But he was of the view that the final step of enacting or making changes to the legislation does not fall in its mandate – a comment that cuts the hands of the caretakers to enforce these changes.

The law ministry, excluded from the consultative process earlier, will have to undertake a major exercise to implement the plan, and time is not on its side, according to sources. They said that the law minister also questioned the sustainability of the restructuring in case the next elected government decides to throw it in the bin.

The sources said that the law minister was also of the view that the bureaucracy would not implement the restructuring introduced by the interim setup.

Similarly, the privatisation minister argued in the meeting that the proposed restructuring does not address the question of the huge tax policy gap that is keeping Pakistan’s tax-to-GDP ratio at the lowest level of 8.5%. The privatisation minister was also sceptical about the success of the fresh scheme given the fact that all such attempts in the past have failed to yield the desired results.

Fawad, a former bureaucrat, also objected to making the federal secretary and the director generals of the Customs and Inland Revenue Service answerable to oversight boards. He also opposed including private sector persons as members of the oversight boards, particularly the tax consultants. He did, however, back the plan to separate policy from the FBR and also endorsed the separation of Customs and Inland Revenue Service.

The privatisation minister also argued that the proposed restructuring would not end corruption in the FBR.

Read IRS appeals to ECP on FBR restructuring

The cabinet had also withheld approval of the summary to restructure the FBR, citing a lack of clarity and questioning the legal mandate of the interim government to proceed with such a drastic restructuring exercise.

“The ECP should take notice of this illegal and untimely action and restrict the caretaker government from deliberating and approving the summary, which is evidently beyond their mandate,” reads the petition filed by Deputy Commissioner Ali Saleh Hayat Kalyar on behalf of the IRS service before the Election Commission of Pakistan.

Foreign Minister Jalil Abbas Jilani supported the idea of having separate policy and oversight boards and recommended that safeguards should be incorporated into the restructuring plan to reduce political influence on tax policy decisions and also reduce corruption within the organisation.

The foreign minister also opposed the inclusion of the private sector in the decision-making process. The cabinet committee was also informed about the reservations of Inland Revenue Officers who do not support the restructuring exercise.

Commerce Minister Gohar Ejaz backed the proposal but termed the plan to increase the tax-to-GDP ratio highly over-ambitious. Ejaz suggested setting the tax-to-GDP ratio target at 18% for 2029. He criticised the FBR for not thinking deeply.

The sources said that the energy minister also did not fully support the restructuring exercise. Mohammad Ali opined that there was a need for a National Tax Authority, as the proposed restructuring does not address core issues of Pakistan’s taxation system.

His views were that only efficient taxmen should be part of the National Tax Authority and the rest of the lot should be sent home packing.

He also did not support the idea that the finance minister should chair the Oversight Boards. Mohammad Ali suggested that the positions of the DGs for Customs and IRS organisations should not be restricted to civil servants. He wanted these positions to be filled by the private sector.

Published in The Express Tribune, January 26^th, 2024.

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