ISLAMABAD: In a bid to convince the relevant powerful quarters, the caretaker government is linking the restructuring of the Federal Board of Revenue (FBR) to the conditions set by the International Monetary Fund (IMF), The News reported on Monday.
However, the Fund’s technical team has not yet communicated any such specific recommendation.
Sources confirmed to The News on Sunday that caretaker Minister for Finance Dr Shamshad Akhtar was all set to make an all-out effort this week to seek approval on restructuring of the FBR from the federal cabinet before the next general elections.
It has been communicated to the military establishment and Prime Minister’s Office that the unbundling of FBR into two entities was part of the IMF’s programme conditionalities, so it was necessary to grant assent to the proposed reform plan.
But the IMF communication with the Government of Pakistan shows altogether a different picture as there was nothing specific as part of the condition under the ongoing $3 billion Standby Arrangement (SBA) programme.
A technical team of the IMF visited Pakistan last December 2023 to discuss the tax administration and future roadmap with the Government of Pakistan. In the initial recommendations, the IMF communicated that there was no fixed view internationally on whether customs and tax functions should fall under one authority.
The survey data of 74 countries indicate that 43% administer tax only, with the remaining 57% combining tax and Customs. There are potential advantages to having a cohesive body to deal with revenue collection, whether at the border or elsewhere.
However, this decision is ultimately for the government to make. The IMF has taken the stance that whichever organisational design for Customs is adopted, close coordination between domestic taxes and customs must be maintained.
This should involve the full coordination and cooperation of tax and customs operations at management and linked operational levels. Data sharing is also crucial and must be maintained to support CRM and other compliance efforts.
The good practice in modern organisation design is to adopt a function-based approach. Functional organisation design is already being considered within the current proposals. More detailed guidance on functional design for revenue administration is available through a technical note published by the IMF online.
The IMF’s technical team made its initial recommendations when the caretaker minister for finance made a presentation before them that there were two options under consideration i.e. either to establish a National Tax Agency or unbundle the FBR and make two entities, Federal Board of Inland Revenues and Federal Board of Customs.
The IMF team left the decision to the Government of Pakistan but now it is being portrayed that the unbundling was the demand of the IMF, which was not true.
This scribe sent out a question to the spokesman of Ministry of Finance but got no reply till the filing of the report.
However, the correspondence between the IMF and the Pakistani government presents a quite different picture, as there was no mention of any particular requirement under the $3 billion Standby Arrangement (SBA) program that is now in place.
In December 2023, a technical delegation from the International Monetary Fund (IMF) traveled to Pakistan to confer with the government about future plans and tax management. The IMF stated in its first recommendations that there was no consensus globally about the separation of customs and tax functions.
According to study data from 74 nations, 43% of them handle tax administration only, while 57% handle both tax and customs administration. Having a unified organization to handle revenue collection, whether at the border or elsewhere, may have benefits.
Nonetheless, the government will ultimately have to decide on this. The IMF has stated that strong coordination between domestic taxes and customs must be maintained, regardless of the organizational structure chosen for customs.
At the management and related operational levels, there should be complete coordination and collaboration between the tax and customs activities. Maintaining data exchange is also essential to CRM and other compliance initiatives.
Using a function-based approach is contemporary organization design best practice. The existing suggestions already take functional organization design into account. You can find more thorough guidelines on functional design for revenue management in an IMF technical paper that is available online.
After hearing from the caretaker minister of finance, who presented two options for consideration—establishing a National Tax Agency or unbundling the FBR and creating the Federal Board of Inland Revenues and Federal Board of Customs—the IMF’s technical team made its initial recommendations.
The Government of Pakistan made the decision; the IMF delegation did not, as is now being falsely claimed, demand that the unbundling be done.
The Ministry of Finance spokeswoman was contacted by this scribe, but no response was received until the report was filed.
