ISLAMABAD: Prime Minister Shehbaz Sharif has approved the separation of two revenue collection bodies, the Customs and the Internal Revenue Service (IRS), a move strongly resisted by tax groups in the past.
The prime minister gave his approval last month to the recommendation presented by the maritime sector reform task force.
The committee had proposed at least 99 measures, ranging from infrastructure rehabilitation to greater facilitation at ports, with specific timelines for their implementation, according to official documents seen by Sunrise.
The bifurcation of IRS and Customs flows will take place by March 31.
Prime Minister approves task force recommendation to reform maritime sector; plan to be carried out before March 31
Changes in FBR structure
As per the existing structure, the Federal Board of Revenue (FBR) is a global body, with IRS and Customs being two of its wings, according to the tax authority’s website.
The IRS collects federal sales, income, and excise taxes, while Customs imposes levies on goods traded across borders.
The proposed reforms provide for three separate boards to oversee the functions and policy formulation of FBR.
This included a policy board to develop federal income tax, sales tax, and excise tax policies. The board, headed by the Finance Minister, would have members from the private sector.
Two separate oversight and governance boards will be established for the IRS and Customs.
These boards will be chaired by a retired tax official or an expert appointed by the Minister of Finance. These boards would also have representation from the private sector.
If the plan is implemented, the post of FBR chairman would cease to exist and would be replaced by the chairmen of these boards.
The reforms also suggest replacing the current members of the FBR with director generals of the IRS and Customs. The structure and method of tax collection will not change the formation of the field.
The two establishments, the IRS and Customs, will be attached to the Division of Revenue.
The DGs would have administrative, financial and operational control over their establishments, including budgeting, accounting and transfers.
Previous attempts
The then caretaker Finance Minister Shamshad Akhtar announced a similar measure on November 16, 2023.
The decision was later ratified by the then cabinet as well. However, the incumbent government is yet to implement the proposed plan.
The plan is expected to again attract opposition from tax bodies, with officials also questioning the government’s seriousness in carrying out these reforms.
A senior tax official has expressed this skepticism, stating that the government “has no intention of reforming tax administration.”
The official predicted that the fate of this measure would be no different than in the past.
The apprehension arises from the fact that the FBR is yet to appoint a separate member for the Customs administration, a recommendation also approved by the prime minister. Currently, a single member oversees the administrative affairs of both tax groups.
The government has come up with a comprehensive transformation plan to address the significant income gap of around Rs 7.1 trillion. A central element of this transformation is the deployment of digital solutions for tax collection.
Furthermore, in line with the agreement with the IMF, the government is considering separating tax policy formulation from collection.
According to sources, the FBR still plays a role in Customs policy formulation.
Published in Amanecer, January 5, 2025.
