The government is considering establishing a new tax collection agency or further restructuring the existing Federal Board of Revenue (FBR) to increase national revenue, as the FBR’s performance remains unsatisfactory despite multiple reform efforts.
According to government officials, the idea of establishing an entirely new institution was proposed for the first time at a high-level meeting last Saturday. Consultations have since begun within the FBR, with Chairman Rashid Langrial assigning several officials the task of preparing a plan for presentation to Prime Minister Shehbaz Sharif.
According to directives issued by the Prime Minister’s Office on Thursday, the FBR has been instructed to present comprehensive proposals to the prime minister on October 19 regarding human resource reforms, improvements to the FBR, and its restructuring.
Asked about the proposal to establish a new institution, an FBR spokesperson said on Thursday that reforms within the organization were a strong and ongoing process, during which dozens of ideas and proposals were discussed. In a separate response, the FBR confirmed that the prime minister had directed it to submit comprehensive proposals concerning human resource reforms and the restructuring and reorganization of the institution, adding that work was underway.
The department clarified that the focus remained on reforms within the FBR. The spokesperson categorically rejected reports that tax collection would be outsourced to a private company, calling them entirely baseless.
According to sources, consultations remain at an initial stage, and no final proposal regarding the FBR’s future structure or the establishment of a new revenue collection agency has been approved.
The options under consideration also include establishing a national tax agency. If a decision is made to transfer the FBR’s powers to a new institution, amendments would be required to several laws, including the FBR Act 2007 and at least four tax laws.
According to a government official, the current thinking is that the FBR would not be completely abolished. Officials who choose not to join the newly established institution would be allowed to continue serving in the existing organization until retirement.
Sources said the main reasons for considering a new institution include the failure to broaden the tax base, the inability to achieve the required level of tax collection, and stagnation in the tax-to-GDP ratio.
Asked about the results of the FBR’s transformation plan, the spokesperson said tax collection had increased from Rs9,200 billion to Rs13,000 billion over two years under the initiative.
However, this response does not fully reflect the ground realities, as the spokesperson attributed the increase in tax collection to the transformation plan while also overlooking the effects of additional taxes and modest economic growth.
The government imposed heavy taxes under the International Monetary Fund (IMF) programme, which also contributed to an increase in the tax-to-GDP ratio during the first year. Meanwhile, the Cabinet’s Economic Coordination Committee approved an initial expenditure package worth Rs32.5 billion for six months in November 2024.
Of this amount, Rs5.6 billion was allocated for the purchase of 1,087 new vehicles. The FBR is also facing difficulties in expanding the tax base.
Of the 19 million individuals holding national tax numbers, only 6.9 million had filed their tax returns by Thursday evening, compared with 8.5 million returns filed in the previous tax year.
The government also introduced a scheme to bring traders into a fixed-tax regime, aiming to include 3.7 million retailers in the tax net.
A target was set to bring one million traders into the tax net during the current year. Business transactions are being monitored in real time by integrating digital invoicing with the Point of Sale (POS) system.
An artificial intelligence-based risk management system is also being used to select cases for audits and clearances.
Also Read: FBR Grants Another Extension for Filing Tax Returns
