ISLAMABAD: Federal Board of Revenue (FBR) has started harmonizing Inland Revenue codes in order to simplify and consolidate the tax laws.
According to sources, the harmonization of IR codes has been started under World Bank funded ‘Pakistan Raises Revenue Project’. The FBR said that it had received financing from the World Bank towards the cost of the Pakistan Raises Revenue Project, and intended to apply part of the proceeds for consulting services.
The FBR said the government of Pakistan is implementing a reforms program to mobilize domestic revenues to finance its development vision.
This program is being financially supported by the World Bank through a Pakistan Raises Revenue Project (PRRP). The overall objective of the Project is to “contribute to a sustainable increase in domestic revenue by broadening the tax base and facilitating compliance”. The duration of the implementation of project is five-years (2020-2024).
The FBR, with support from the World Bank, is currently undertaking a project for harmonization of the existing tax laws administered by the Inland Revenue Service of the Board, including but not limited to the Sales Tax Act, 1990, Income Tax Ordinance, 2001, the Islamabad Capital Territory (Sales Tax on Services) Ordinance 2001, the Capital Value Tax levied under Section 7 of the Finance Act 1989 and the Federal Excise Act, 2005 with the objective to harmonize the existing laws to the extent possible in order to provide ease of compliance and implementation and to bring certainty into their application.
Inland Revenue Service working under the FBR is responsible for administering tax laws pertaining to levy, assessment and collection of all Federal Inland Taxes.
Over the years, a harmonization process for the three main Inland Revenue laws, i.e. Sales Tax Act, 1990, Income Tax Ordinance, 2001, the Islamabad Capital Territory (Sales Tax on Services) Ordinance 2001, the Capital Value Tax levied under Section 7 of the Finance Act 1989 and the Federal Excise Act, 2005 has continued in order to align the provisions of the four enactments with each other and to provide uniformity and ease of implementation/compliance for the tax collectors and the taxpayers.
The next milestone in the on-going reforms and continuance of the process of streamlining of Inland Taxes is the transition to a harmonized Inland Revenue Code by integrating the existing four laws.
Consulting services are required for drafting of the harmonized Inland Revenue Code including legislative drafting along with stakeholder consultation.
The administrative and machinery provisions will be common for all the three tax laws. This component of the proposed Code would include provisions relating to record keeping, registration and returns, audits and investigations, tax arrears, penalties (both civil and- criminal) for a taxpayer’s failure to comply with his obligations, recovery of monies owed to the government, internal investigations, the legal rights of taxpayers (including appeals), redress processes and dispute settlement.
On the other hand, the charging and substantive provisions will be unique for each tax in conformity with their distinguishable character and essence. In addition to reorganization of the existing legal provisions, the exercise will provide an opportunity to simplify and consolidate the tax laws where the laws have become cumbersome and complex.
This initiative will reflect aspirations of taxpayers to have a simple tax law, provide ease of doing business, meet the demands of both bilateral and multilateral development partners, as well as vividly crystallize the government’s vision of a fresh-look tax system.
The foregoing factors demand initiating the process of writing of a harmonized Inland Revenue Code as early as possible so that it can be publicized for general feedback and comments before becoming the part of the next Finance Bill.
FBR seeks the services of a consulting firm, which shall lead all aspects of the assignment of drafting the new legislation.
The Assignment has the following components:
(a) To review existing analytical work and recommendations from government’s and development partners’ initiatives from recent past;
(b) to engage in a structured consultative process with the management of the Board, to comprehend overall vision and objectives for this assignment, and to design a roadmap for achieving the desired objectives;
(c) to structure the drafts in a manner that it has common administrative/machinery provisions for all tax types and separate charging/substantive provisions for each tax type;
(d) to discuss and analyze the implications of the recommended unified tax code for the organizational structure of the FBR and IRS;
(e) to prepare and submit the draft legislation to the Board for its review and approval;
(f) to conduct stakeholders’ consultations, including FBR field offices, the taxpayers’ association or similar organizations, and incorporate their views, before submitting the drafts for legislative processing.
(g) to assist the FBR in the legislative process by attending the meetings of the Parliamentary Committees, if so, required by the FBR; and
(h) to work with FBR to design and conduct communication and awareness campaigns (internal and external), after the promulgation of the legislation.
The FBR has invited Expression of Interest (EOI) from consulting firms by March 05, 2021.