ISLAMABAD:
The International Monetary Fund (IMF) may impose three more conditions on Pakistan to ensure target-based tax collection against some enforcement measures, which have largely remained on paper and could not yield additional revenues.
Government sources told The Express Tribune that the IMF has proposed two to three new structural benchmarks for monitoring the progress of the Federal Board of Revenue against the enforcement measures.
The global lender wants tangible outcomes against the Compliance Risk Management, the Digital Invoicing Initiative and monitoring of production facilities of the outlets, the sources added. However, the FBR is reluctant to accept the target-based conditions, partly because some outcomes may not be in the hands of the tax authorities, the sources added.
The IMF wants to impose a new condition to ensure compliance risk management-based audit of the taxpayers, said the sources. The condition will be monitored during the remaining period of the $7 billion bailout package, which is expiring in September next year. The IMF is pushing the FBR to accept the condition that it must produce a certain percentage of the total revenue from the audit cases selected through the compliance risk management system.
The compliance risk management is aimed at promoting voluntary tax compliance by identifying risks, executing audits and enhancing revenue through taxpayer segmentation.
The tax authorities are of the view that they cannot ensure the exact percentage of revenues from these audit cases, as taxpayers have the right to go to the courts. The tax officials further said that the compliance risk management system was indicating about 57,000 cases for potential audit based on the last tax year’s returns. The IMF has asked to pick at least 10% highest risk-prone cases and ensure their audit. The FBR is reluctant to ensure guaranteed recoveries against these cases because of the legal rights that a taxpayer has under the existing laws.
During the last review talks, the FBR had assured the IMF that its enforcement efforts would focus on utilising FBR’s newly expanded data sources and risk management tools. It had committed to provide revenue impact estimates to the IMF and set key performance indicators to monitor progress and outcomes. The IMF had also assured its help in finalising the number of audits and number of transactions covered by digital invoicing.
The FBR has in the past used disputed tax cases as its revenues, which ended up compelling the executive to request the judiciary to expedite these cases. The FBR recently won the super tax case from the Federal Constitutional Court after the matter remained stuck in litigation from three to 11 years. The FBR is now planning to recover up to 25% in penalty from these taxpayers as late payment surcharge.
The sources said that the field formations had certain reservations against the audit cases picked through the compliance risk management system.
The IMF monitors the implementation of the $7 billion bailout package through quantitative performance criteria, continuous performance criteria and prior actions, all of which are compulsory in nature.
In addition, there are structural benchmarks and indicative targets, which are aimed at addressing the weaknesses of Pakistan’s economic, governance and anti-corruption regimes. The IMF has already imposed over 64 conditions during the previous review talks.
The FBR missed both its conditions, the total tax collection target and collection from the retail sector, for the July-December period.
Both sides are currently in the process of bridging their differences over many outstanding issues, which may lead to the imposition of more conditions. Pakistan and the IMF failed to reach a staff-level agreement last week due to differences over the budget, taxation and the pricing mechanism of petroleum products. The sources said that the new IMF conditions are aimed at binding the tax machinery into measurable tax collection against these measures.
The FBR had also established a Compliance Risk Management Directorate in 2022 as a step forward in the identification, assessment and prioritisation of compliance risks. However, the outcomes remained below expectations. The sources said that the IMF also wants to impose a condition to bind the FBR to ensure that a certain percentage of sale receipts are digitally monitored in real time. The implementation of digital invoices has also been slow.
The estimated value of recorded sales in Pakistan is about Rs64 trillion and the IMF is targeting to bring a major chunk of it online to ensure that there is minimal sales tax and income tax evasion. The sources said that about 27,000 persons have so far been integrated with the FBR digital initiative and only one-third are sharing invoices online. The FBR has authorised four parties, including PRAL, to provide services for digital invoices.
Last month, the FBR reconstituted a committee to evaluate applications for grant of licence for integration of registered persons under the Sales Tax Rules, 2006. The registered persons notified by FBR are required to integrate their Point of Sale (POS), Enterprise Resource Planning (ERP) or any other invoicing system with FBR through a licensed integrator having a valid FBR licence for integration.
The FBR had set many deadlines for large businesses, corporate and non-corporate sectors to integrate their sales with the tax systems. However, these deadlines were repeatedly missed and now the FBR is targeting to complete this chain by June this year. The corporate sector had serious reservations against the FBR’s digital initiative. The tax authorities said that they have accepted three conditions of the businesses to convince them to fully link their sales.
The tax authorities said that they have agreed to allow businesses to upload their invoices in bulk, remove a wrongly updated invoice within 72 hours and have multiple service providers simultaneously.
