World Bank backs CBR's direct taxes structure reform plan

ISLAMABAD (November 13 2003): World Bank (WB) is in favour of Central Board of Revenue (CBR) plan to reform structure of direct taxes for speedy detection of non-filers and non-payment of taxes by business community.

A World Bank project information document on Tax Administration said that the Bank would support government's plan to reform direct taxes by flattening the organisation structure, improving the identification and registration process, and specialising in handling of large and medium taxpayers affairs.

The CBR will maintain a taxpayer database containing all assessment and payment data and enhance its capability to quickly detect taxpayer non-filing and non-payment.

Under the reform plan, the CBR is devising five computerised systems on the direct taxes side.

These include taxpayer registration system, income tax information processing and accounting system, case tracking system for collection/enforcement and computerised audit selection system.

The direct tax organisational units (eg, LTUs and RTOs) will require appropriate hardware, system software and network support for these functions.

The taxpayer registration system will be instrumental in registering taxpayers for direct taxes.

Currently, CBR is using a National Taxpayer Number for all taxpayers. However, for ease in capturing data from sources outside CBR, the authorities would use National Identification Card (NIC) number for individual taxpayers and continue to use NTN for business taxpayers.

The income tax information processing and accounting system will process a filed tax return and update a taxpayer's account. The Tax Management System (TMS) developed at the MTU can be expanded.

Case tracking system for collection/enforcement would have the ability to track a case and provide its status (received, closed and inventoried, etc) as it proceeds through the system.

Computerised audit selection system will select cases for audit based on audit selection criteria established by member audit.

The document said that the direct tax administration is the area, which needs reform as the structure is highly bureaucratic that expands to hundreds of base level offices, each of which has a high degree of independence.

The operating techniques are outdated and ineffective and the use of technology is quite limited.

The future organisation structure for administration of direct tax will also be based upon a functional approach. Several functional members will provide functional program planning, policies, direction, training and evaluation from the central office of the CBR.

Tax administration activities will eventually be located in 12 regional tax offices (RTOs), with extended operations for taxpayer facilitation purposes into 60-75 taxpayer facilitation centres (TFCs). There will also be three large taxpayer offices (LTUs).

There is already a good start with the creation of Karachi LTU that is serving around 300 gazetted taxpayers. Around 50 officials from both Income Tax and Sales Tax Departments have been brought together, organised and co-located on a functional basis. Eventually the LTUs are expected to cater to more than 600 large taxpayers.

In addition, a Medium Taxpayer Unit (MTU) has been set up in Lahore. Based on its experience, CBR plans to established another 5 in next year.

These MTUs will become part of the 12 regional tax offices that will co-locate sales tax and income tax, providing for greater sharing of information, resources and removing duplication of certain common functions.

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