FBR's Struggle with Tax Collection Challenges

The tax system in the country is facing significant challenges, including tax evasion, an increase in non-filers, corruption, and excessive powers given to tax collectors. The Federal Board of Revenue (FBR) has been issuing Special Revenue Orders (SROs) that benefit select businessmen, leading to policies that cater to the elite's convenience.

In 2002, the FBR initiated reforms to improve federal tax collection. These reforms aimed to simplify the IT Ordinance 2001, establish Large Taxpayer Units (LTUs) in Lahore and Karachi, and Medium Taxpayer Units (MTUs) in various cities. The introduction of Sales Tax Automated Refund Repositioning (STARR) was also part of these reforms, recommended by the IMF.

Despite the establishment of LTUs and MTUs to combat corruption, there has been limited success. Critics argue that the reforms focused more on infrastructure and technology rather than addressing the core issues of corruption and inefficiency.

The selection and posting criteria for tax officers have been contentious, with allegations of favoritism and lack of rotation potentially leading to collusion and corruption. The low number of taxpayers in the country, with only 5.3 million out of a population of 230 million contributing to direct taxes, highlights the challenges faced in tax collection.

The former Chairman of FBR emphasized the obstacles within the tax collection system and suggested that the organization itself may hinder tax collection efforts. Discrepancies in the reported number of taxpayers and the actual individuals subject to withholding taxes raise concerns about the accuracy of tax data.

Comprehensive tax reforms are needed to address collection mechanisms, increase the tax base, and promote equity in taxation. The heavy reliance on indirect taxes burdens the common man and allows for tax evasion and underreporting in various sectors of the economy.

To enhance tax compliance and revenue generation, transparent and efficient tax collection practices prioritizing fairness and accountability are essential.

The challenges faced by the tax collection system in the country highlight the urgent need for reforms that not only streamline the collection process but also focus on expanding the tax base and ensuring fairness in taxation. By addressing corruption, inefficiency, and promoting transparency, the tax system can become more effective in generating revenue and fostering economic growth.