Customs to be Separated From Tax Collection Mechanism: Finance Minister

Caretaker Finance Minister Dr. Shamshad Akhtar said the federal government has initiated the process of restructuring Pakistan’s tax administration “to separate the Customs from the revenue collection mechanism”. “They will be tracking the smuggling and other elements, while the revenue collection will remain a mandate of the FBR,” the minister said while speaking at a virtual event. Broadly, Dr. Shamshad Akhtar said the caretaker government is working towards the separation of the tax policy and tax administration functions, so as to remove the apparent conflict of interest in tax collection. Tax policy has to be designed to be fair, equitable, and productive. The revenue and fairness objectives need to be pursued by expanding the tax base, reducing tax exemptions, and through a more efficient digital tax administration “The digital transformation of tax administration is a crucial step in meeting the objectives of enhanced tax collection and improved compliance. Innovative digital technologies need to be implemented to minimize tax gaps, increase tax collection, and reduce the share of the shadow economy,” she remarked. The minister expressed the urgent need to overhaul the government’s fiscal apparatus so as to lower the revenue-expenditure gap. Tax to GDP has remained low at 10 percent to 11 percent in the last 3 decades, with the government forced to finance large fiscal deficits through borrowing from domestic and external creditors. “Simultaneously, there is a need to enhance the efficiency and effectiveness of public expenditure. There is an urgent need to improve coordination within the federal government and with provinces and reorient expenditure priorities towards social welfare,” she said. In this regard, the minister mentioned that the government has initiated dialogue with the provinces for sharing expenditures on BISP and PSDP projects falling under the domain of provinces. A review is being conducted to close departments at the federal level for devolved subjects. Akhtar revealed that options are being explored to shift the large infrastructure projects under the PPP mode, providing sizeable savings on budgetary resources for both federal and provincial governments. “We are looking at ways to enhance allocation to the Viability Gap Fund for undertaking Infrastructure projects in PPP mode. We are also exploring avenues to seek credit guarantees from INFRAZAMIN to enhance private-sector investment in Infrastructure,” she added.