Government weighs new tax agency as FBR faces Rs650b collection shortfall
The government is considering a new tax agency or a deeper restructuring of the existing machinery, after finding the Federal Board of Revenue’s performance unsatisfactory despite repeated reform attempts.
New tax agency plan goes to the prime minister on Oct 19
The FBR will present “comprehensive proposals on HR reforms, revamping and restructuring” to Prime Minister Shehbaz Sharif on October 19, under directives issued by the Prime Minister’s Office on Thursday.
Government officials said the idea of an altogether new organisation was floated at a meeting at the highest level last Saturday. Internal discussions have since begun, with FBR Chairman Rashid Langrial tasking officers to prepare the plan.
When asked whether a new agency was under consideration, the FBR spokesperson said reform was “a robust and ongoing process” and that dozens of ideas come under discussion. He added that no comment could be made until any proposal becomes formally approved policy. In a second reply, the board confirmed the prime minister had directed it to bring forward comprehensive human resource reform and restructuring proposals, and said work was under way.
The FBR also denied talk of outsourcing revenue collection to a private company, calling it “totally baseless”.
Why the overhaul is back on the table
Sources said the discussions are at an early stage, with no concrete proposal finalised. Setting up a national tax agency was among the options discussed. Any move to transfer the FBR’s powers to a new body would need changes to the FBR Act 2007 and at least four tax laws.
The reasons are familiar: a narrow tax base, a stagnant tax-to-GDP ratio and below-par collection. The tax-to-GDP ratio stayed at 10.3 per cent last fiscal year, and the FBR missed its original annual target by more than Rs1.1 trillion.
This year’s target of Rs15.263 trillion needs over 17 per cent growth. The board beat its first-quarter target but grew at barely 7 per cent. Sources expect full-year growth of around 12 per cent, leaving a shortfall of more than Rs650 billion that would hit spending plans of over Rs1 trillion under the National Economic Initiative through provincial cash grants.
A long history of FBR reform attempts
Reform efforts since 2000 include turning the Central Board of Revenue into the FBR, merging service cadres, redefining the entity on functional lines and, in 2024, an over Rs55 billion transformation plan. During the caretaker setup, there was also an attempt to split the FBR into Customs and Inland Revenues.
An official involved in the deliberations said the FBR would not be dissolved, and officers who do not opt for a new body would stay until retirement.
Tax base still narrow despite deadline extension
The FBR is struggling to widen the tax net. Of 19 million national tax number holders, only 6.9 million had filed returns by Thursday evening, against 8.5 million returns in the last tax year. The government had extended the filing deadline to October 31, as we reported in our piece on the FBR tax return deadline extension.
The fixed tax scheme for traders has also disappointed. The government hoped to bring 3.7 million retailers into the net, including one million this year. But by Tuesday, only 137 new traders had filed returns and paid Rs5 million in taxes, an average of Rs36,465 per trader.
The board says reforms continue: third-party auditors from chartered accountancy firms, officer training with institutions such as LUMS, performance assessments based on actual results, faceless customs assessment, digital invoicing, POS integration, an AI-based risk management system and integrated third-party data. The October 19 presentation will show how much of this the prime minister thinks is enough.
FAQ
Is Pakistan creating a new tax agency?
The idea is under discussion at the highest level, with the FBR due to present restructuring proposals to the prime minister on October 19. No final decision has been made, and the board says the FBR would not be dissolved.
Why is FBR restructuring being considered again?
A narrow tax base, a stagnant 10.3 per cent tax-to-GDP ratio and an expected Rs650 billion shortfall against this year’s Rs15.263 trillion target are driving the move.
What would a new agency require legally?
Transferring the FBR’s powers would need amendments to the FBR Act 2007 and at least four tax laws, so any change would take time to implement.
