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  • April 4, 2014

Tax Collection

FBR Lobbies to Switch Back to ‘Old Circle System’

Date: April 04, 2014

‘Imported’ administrative reforms implemented over the last 12 years in the Federal Board
of Revenue (FBR) with the help of $149 million in external assistance could not work in
Pakistan, believe top tax officials who have now started lobbying for reverting back to the
old ‘circle system’.

The sweeping reforms that started changing the face of the FBR from 2001-02 had been financed
by the World Bank and Department for International Development (DFID) of the United
Kingdom. In the old system, called circle, the country had been divided into over 700 small
circles for tax collection. The circles were present at the tehsil level.

Under the new system, known as functional system, the tax affairs are managed through 18
Regional Tax Offices (RTOs) and three Large Taxpayer Units (LTUs).

In a smart move, the FBR has brought Pakistan Tax Bar Association President Munawar Sheikh
and the association’s former head Abdul Qadir Memon as members of the Tax Advisory Council
(TAC) for seeking support for the old system, say sources.

TAC has recently been constituted to advise the government on tax affairs. Both of them were
not members of the council and were brought later.

Proponents of the circle system argue that before the reforms, the in charge of the circle was
entrusted with all the responsibilities.

“Under the present system, four different officers deal with one tax file,” said Dr Ikramul Haq, a
former tax official and leading tax expert.

The FBR believes that its experience over the years suggests that working on functional lines
created a lot of coordination problems amongst various divisions. It added the abolition of the
circle system had created chaotic conditions in activities of the tax machinery.

With the present functional system, the goals of broadening the tax base and individual
ownership of the work by tax officers could not be achieved, said Shahid Husain Asad, Member
Tax Policy of FBR’s Inland Revenue Services.
Asad said the FBR wanted to implement a hybrid system where it wanted to replace the RTOs
with the circles but the LTUs would be kept in place. So far no decision had been taken and it
would be up to the political leadership to decide, he said.

Asad pointed out that the FBR needed an indigenous system as Australian and UK models could
not work in Pakistan. India was still going on with the circle system, he said.

The functional system was built on the pillar of automation – a core goal that the FBR has failed
to achieve so far.

The problem is that policies and systems are changed in the country due to the conditions
attached with foreign loans. Despite a dismal outcome of the first phase of reforms, the World
Bank is ready to give $500 million in the name of tax reforms. The loan is expected to be
approved in the first week of next month.

However, the bank may oppose the latest move to reverse the changes in the system, according
to the sources.

Before switching back to the circle system, the FBR should conduct a comprehensive study and
make a three-year plan, as sudden changes in tax structures would never be beneficial, said Dr
Ikramul Haq.

He said the world was moving towards automation and the FBR should focus on automation too.
Even if the FBR reverted back to the old system, it would have to rely on automation, he added.
Also, the FBR is said to be pushing for the move in a bid to restore the old glory of the Income
Tax Service, as there was a time when the deputy commissioner was a powerful man.

The Express Tribune


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