OBJECTIVES OF REFORM

a. Overall increase in the revenue collection and contribute to the achievement

of fiscal targets;

b. Increase in tax to GDP ratio;

c. Collection of optimum tax revenues;

d. Broadening of the tax base;

e. Strengthening audit and enforcement procedures;

f. Guarantee fairer and more equitable application of tax laws;

g. Increase in transparency and integrity;

h. Improve effectiveness, responsiveness and efficiency;

i. Facilitate & promote voluntary compliance with tax laws;

j. Provide transparent and high-quality tax services

OUTCOMES OF REFORMS
a. Gaining Stakeholders' Respect

b. Substantial reduction of corruption - Transparency International Report

On Tax Facilitation 's Ranking improved to 32 in 133 countries (recent report)

c. Improved performance - Revenue targets not only achieved but surpassed

d. Increase in Tax to GDP ratio by 0.3 % each year from 2004-05 as against

agreed KPI's of 0.2 %

e. Creating business friendly environment

f. Introducing professionalism, integrity, teamwork, courtesy, responsiveness,

transparency and fairness

g. Facilitating and providing service to the taxpayers

h. Reducing the cost of doing business

 i. Adversarial relations turned to mutual trust and confidence.

ARTICLE ON REFORMS
Pakistan continues to face deep fiscal crisis which cannot be resolved easily. Taxes are
insufficient to meet Pakistan's debt servicing and defense needs. The tax-to-GDP ratio does not
enable Pakistan to counter inflation or improve governance, deliver quality public services or
improve human resource to reach a take-off stage for economic development. To address these
issues, GoP initiated a Tax Administration Reforms Program (TARP) in FBR in the year 2005 to
achieve objectives to include overall increase in the revenue collection for achieving fiscal targets;
increase in tax to GDP ratio through broadening of the tax base; strengthening audit and
enforcement procedures through professional capacity building of FBR officials; ensuring more
equitable & transparent application of tax laws through provision of high-quality tax services. By
completing TARP in 2011 FBR has substantially achieved the desired objectives despite various
obstacles in the existing operational environment. The successful completion of TARP rests upon
Government's firm resolve to reform FBR's Tax Administration

In June, 2000 when GoP appointed a Task Force on Reforming the Tax Administration. This
Task Force presented its report in May, 2001 which was shared with stakeholders to include trade
bodies, accounting institutes, tax bar associations and donor agencies for framing an
implementation strategy in the light of viable recommendations from the concerned stakeholders.

Subsequently, on the request from the GoP for input on FBR's reform effort, an IMF Mission
visited Pakistan in August, 2001 which carried out in-depth discussions with various stakeholders
including Ministry of Finance, Establishment Division, Federal Public Service Commission and trade
bodies. The Mission presented its draft report in August, 2001 which was condensed with other
similar studies to extend recommendations for a tax system having simpler laws and efficient
procedures for promoting self-assessment, reducing physical controls and creating reliance on audit
& risk assessment.

Consequent to these reports and discussions with various opinion makers FBR prepared a tax
reform strategy, which was approved by GoP in November, 2001. The reform strategy had three
main planks (a) policy reforms, (b) administrative reforms and (c) organizational reforms. Policy
reforms included simple laws, universal self-assessment, elimination of exemptions, less
dependence on withholding taxes, effective dispute resolution mechanism. Administrative
reforms aimed at (I) transforming income tax organization on functional lines (ii) re-engineering of
manual processes of all taxes with the aim to reduce face to face contact between taxpayers and
tax collectors, increasing effectiveness of FBR and improve skills and integrity of the workforce and
facilitation of taxpayers. Organizational reforms also included re-organization of FBR on functional
lines, reduction in number of tiers and reduction in workforce.

With a view to supplement the level of skills in FBR for meeting the above said objectives, the
Government in March-April, 2002 appointed professional Members from private sector for (i) Human
Resource Management (HRM), (ii) Information Management System (IMS), (iii) Audit, (iv)
Facilitation and Taxpayers Education (FATE) and (v) Fiscal Research & Statistics (FR&S). FBR
prepared new recruitment policy (with greater emphasis on skills that match FBR needs), incentive
& merit-based remuneration, promotion mechanism and extensive training.

In 2002, FBR received a Project Preparation Facility (PPF) of US $ 2.9 million from World Bank
which was used for hiring of international consultants, namely M/s Maxwell Stamp PLC, UK, and
establishing Large Taxpayer Unit & Model Sales Tax House at Karachi and a Medium Taxpayer
Unit at Lahore. M/s. Maxwell Stamp prepared a Comprehensive Medium- and Long-term Tax
Reform Strategy including an implementation time-table defining the precise reform steps and their
time frame.

To bridge the financial gap between the PPF and the funding for main phase of Tax
Administration Reform an amount of US $ 6 million was also allocated out of World Bank funded
"Public Sector Capacity Building Project" which was later utilized for completion of Pilot Projects i.e.
Large Taxpayers Unit at Lahore, 5-Medium Taxpayers Units at Karachi, Peshawar, Rawalpindi,
Quetta and Faisalabad and a Dispute Resolution Complex (DRC) & Model Customs Collectorate at
Karachi, capacity-building & training of FBR's employees, Taxpayers Education Programs,
introduction of Universal Self-Assessment Scheme (USAS) and holding of Change Management
Workshops. Part of this funding was also utilized for appointment of M/s. NESPak Pakistan as
Consultants for preparation of design layouts, procurement support and supervision of works at sites
for LTU Lahore, 5 MTUs at Karachi, Quetta, Peshawar, Rawalpindi & Faisalabad, DRC and Care
Pilot Project Karachi.

To achieve Reforms objectives, FBR established Large Taxpayer units (LTUs) and Regional
Tax Offices (RTOs) to test the re-organized structure of income tax & Sales Tax and various
Taxpayers Education and Facilitation Centers to improve voluntary compliance. Customs processes
were also re-engineered by initiating Customs Administration Reform (CARE) which aimed at
minimizing the clearance time of goods and reducing the cost of doing business. Re-engineered
business processes were automated for e-filing of Income Tax returns and Goods Declarations,
followed by establishment of an FBR website for information dissemination and a helpline for
taxpayers.

Executive Committee of the National Economic Council (ECNEC) in its meeting held on
25.02.2005 approved the main phase of TARP with a capital cost of Rs. 9,501 million. Completion
period of this main phase of TARP was five years starting from 01.01.2005. During the World Bank
Mid-Term Review Mission in August-September 2007, the Bank reviewed the implementation
progress of this project in detail and on the basis of slow utilization of funds mainly due to problems
in development of Information Technology Systems during first two and half years, recommended
restructuring of TARP budget for remaining life of the project on the basis of anticipated
expenditures. Accordingly, a detailed exercise was undertaken on the basis of which a revised PC-
I with reduced capital cost of Rs. 6,473 million was prepared and submitted to the competent forum
i.e., CDWP/ECNEC. Revised PC-I was approved by the CDWP on 30.04.2009 and ECNEC on
20.08.2009.

TARP has so far gained Stakeholder’s respect through improved performance and creating
business friendly environment. Imbuing professionalism, integrity & responsiveness, and
introduction of transparent simplified procedures have reduced the cost of doing business. Moving
towards optimum use of automation and IT, professional training and better working conditions have
further infused confidence among tax collectors who intend to strive hard for increased taxpayers’
facilitation in the areas of Income Tax and Customs.

TARP has been closed by 31.12.2011 at a cost of Rs. 5,528 million against revised project cost
of Rs. 6,472.817 million. All the physical progress has been achieved. i.e. (a) establishment of 57
RTOs, MCCs, TFCs & Transit accommodations, (b) four soft wares i.e., Integrated Tax Management
System (ITMS), Human resource Information System (HRIS), SAP Materials Management (MM) &
Financial (FI) Modules, & Data Warehouse software have been completed and are functional (c)
11,445 machinery & equipment as per PC-I target were procured and distributed. Tax revenue of
Rs. 1,558 billion has been collected during 2010-11 against PC-I set target of Rs. 1,350 billion.
TARP PMU, during this process, through professional training and hands-on exposure, has gained
sufficient professional capability to utilize the same for achieving any future project development
objectives in terms of project planning, procurement of works, Goods and services and subsequent
monitoring & evaluation.

FBR has successfully achieved the objectives of reforms. The last five years revenue collection
Flow Chart reflects the greater revenue collection as follows;

COMPONENT OF REFORMS
Management and Institutional Development

• Organizational Design

• Human Resource Management

• Training

• Improving Professional Ethics

• Internal Audit Function

• Internal Affairs and Vigilance Function

• Managing Organizational Change

Improving Revenue Operations

• Direct Taxes

• Sales Tax

• Customs
Strengthening Revenue Services

• Establishing Audit Function

 • Establishing Collection & Enforcement Function

• Establishing National Intelligence and Risk management Function

• Establishing Custom and Tax Fraud Function

Tax Compliance Culture

• Establishing Taxpayers Identification, Registrati on, Return Processing and

Accounts Function

• Establishing Facilitation and Tax Education Function

• Impact Evaluation, Quality Assurance and Monitoring

Adopting Responsive IT Systems

• HQ Information Systems

• Direct Tax Information System

• Sales Tax Information System

• Customs Information system

Infrastructure Up-gradion and Development
Program Management and Implementation