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Title Interview ‘Train the Trainers.’ Workshop on developing a unified training strategy Performance of DOT in 2005-06 The Underground Economy in Pakistan On Campus Book Review What is ……………..the Laffer Curve Interview 31st STP- Passing Out Ceremony Pakistan’s Tax Conundrum DR Ishrat Hussain Visit’s DOT CBR’s New Model Army The skewed distribution of Income in Pakistan Article- Taxation of Business Profits Book Review Latest Int’l Fiscal Research Article- Message of the Quran 3rd ATAIC Technical Conference Chairman CBR visits DOT Article- The Design of Tax Incentives 33rd STP- Passing Out Ceremony DOT Report Card, 2006 DOT TimeLine - 2006 Direct Taxation of Income in Pakistan, 1947 – 2006 – an overview CBR’s Integrity Management Statement Article- ‘Ibn e Khaldun.’ Yassie Hodges- CBR Consultant ‘Kenwood Green’- A DOT Landmark Tax Incidence Integrated Audit Training Capacity Building & Staff Training Program Preparation for 1st ATAIC Conference of Heads of (Direct Tax) Training Institutions
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Article- The taxation of agricultural income in Pakistan A trip down memory lane Inauguration of DOT(DT) Gymnasium 1st ATAIC Conference of Heads of (Direct Tax) Training Institutions Interview A trip dow memory lane InterviewTax Awareness Workshop Article- Tax Base Broadening Interview DOT performance report Reflections o n the Federal Budget 2007-08
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2006-07 Highlights Article- ‘Moonsplit.’ Post-Budget Seminar 2006-07 Tax Reform and mindset change Computer related staff training IBFD Training Course 2nd National Audit Working Session Inaugural of IBA led Capacity Building 34th STP_ Inaugural Developing Strategic Change Leadership Software presentation at DOT(DT) 60th Independence Day Celebrations at DOT(DT) Chairman’s address to participants of IBA Capacity Building program Islamic Calligraphy New initiatives to upgrade FBR’s Training Establishments Technology as ‘Force Multiplier.’ Imam Bokhari Change Management Relational Database Model IBA led Capacity Building Program Organizational Development & Change Management Training activities at DOT(DT) Lahore, July – Dec 2007 Training Methodologies at DOT(DT) ‘Role Play’ as a training aid. ‘Mahasil.’- Technology as Force Multiplier. Probationers country study tour Message from Member ( Legal), FBR DOT(DT) 34th STP pass out Messages for the probationers of the 34th STP Automating the taxman’s workplace Article- ‘Muslims and the renaissance.’ Visit of Member (FATE), FBR to DOT(DT), Lahore. Training initiatives for support staff at DOT(DT) Employees Workshop 2008 Looking to the future I.T Learning at DOT(DT) Asymmetric initiatives for revenue mobilization Workshop on Audit of Direct Taxes Ibn e Khaldun Int’l best practices in Tax Administration ‘Train the trainer’ course at DOT(DT), Lahore. The IBFD Connection Article- The ‘t2gdp’ enigma Interview Mid-Career Management Course The Federal Budget – some loud thinking From the Editor’s pen DOT(DT) Faculty participation at Int’l Workshop in Mexico
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DOTGazette RESEARCHARTICLE
Taxation of Business Profits Realignment of tax burdens among different business entities
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ifferent Legal entities are treated variously by current tax law. Thus the proprietory (Individual)/Association of Persons [AOP] /URF/HUF and the corporate forms of business organization suffer
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In this Issue Research Article :
Taxation of Business Profits Book Review :
Aesthetics of Incompleteness Latest Fiscal Research Message of the Quran Patron
M. Muneer Qureshi (Director General) Staff Advisor
varying tax burdens for given levels of income. In addition the corporate form is further differentiated between Private and Public limited companies. Also, Banking Companies are taxed differently. In Pakistan, the present treatment of different legal forms appears not to have been designed to differentiate the tax load according to any clearly discernible criteria. A uniform system for taxing business enterprise with specific relief features for small business, irrespective of the legal form of the business, would facilitate
greatly the design of optimal marginal rates of taxation-optimal in a manner as to balance revenue yield with equity. The objective ought to be to identify a "small business" not on the basis of arbitrarily contrived legal form but on the basis of income size and ownership characteristics. Implications of a High Marginal Rate of Tax: In order to appreciate all facets of the problem it should be recognized that there can be situations in which a high marginal rate of tax can serve specific fiscal objectives such as when it is the intention to mop up supernormal earnings of business
generated by tariff protection, monopoly, inflation etc. The high marginal rate emerges in such situations usually through the interplay of multiple tax rates on income, principally through an excess profits tax which is levied in addition to the income tax. The need for such a levy can arise due to new revenue needs such as for special purpose development activity or even during wartime. In the economic development context, high marginal rates can be theoretically justified on the ground that they would encourage employers with abnormally high income to lower prices for their products or, in the alternate, to raise wages. Thus where the tax takes a high proportion of each additional unit of earning, deductible expenditures are cheap and additional net earnings have little appeal. Furthermore, a high marginal rate can serve as a symbol of the government’s resolve to take excessive profits >>>>
Dr. Hamid Ateeq (Additional Director) Editor-in-Chief
Munir Ahmed Ch. Editors (English)
Sobia Saleem & Humaira Daud Editors (Urdu)
Arsam Aftab & Misbah Nawaz Design & Layout
Azhar Jehangir & Zafar Iqbal Burki Directorate General of Income Tax Training & Research, Sutluj Block, Allama Iqbal Town, Lahore. >>>>
DotGazette EDITORIAL
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he November issue of DOT Gazette, like its preceding issues, not only attempts to highlight the events at DOT during the month but also attempts to provide an impetus to the thoughts of the readers, acting as a catalyst in an attempt to explore new vistas of knowledge and wisdom. With TMS and case studies of 33rd STP going in full swing, the training has entered into a more practical phase in which the officers will be familiarized with the situations that they would face immediately after their posting in the field. In the midst of all this, DOT Gazette is trying its best to keep the readers informed of all that's going on at DOT and in the department. The Director General's interview, in the first edition, Chairman CBR's Interview, in the second and Dr. Ishrat Hussain's words of wisdom, in the third, is indicative of our endeavor to apprise the readers of the aims of the transformation. DOT Gazette is fully aware of the burden and importance of this duty. Mr. Ovais Mazhar Hussain, CEO Angora Textile Mills and an ex-PSP officer, visited DOT to deliver a lecture on Textile Sector in Pakistan. In order to make the gazette more responsive to the demands of the readers the Director General is painstakingly monitoring the affairs of the gazette and your valuable suggestions in this regard are invited and will be most welcome.
>>>> out of growth. Despite the possible advantages of a high marginal tax rate in certain situations, it is also a fact that in a peacetime economy dedicated to expansion and troubled by inflationary pressures, a high marginal tax rate injects evident inequities, incentives to waste cheap tax currency and disincentives to growth and efficiency. As far as multiple tax rates are concerned, these are generally considered obsolete in the context of future tax planning. The verdict of fiscal authorities generally is that they are conducive to waste and inefficiency. Where the high marginal rate emerges out of a high tax rate graduation of a single tax on income, this can be seen as a misguided application of the progressive ability to pay principle that encourages fragmentation and discourages the growth of business enterprises. Tax Rate Structure in Pakistan- An Overview: In Pakistan the corporate sector has been characterized by three distinct types of companies- Public Ltd, Private Ltd and Banking Companies and each type has suffered levy of tax differently with the Banking Company having to suffer the highest tax rate and the Public Company the least. However from 2002 a convergence of tax rates for the three type of Companies has become evident and Tax Year 2007 will see all distinctions removed and all three 'types' will be taxed at 35% flat. Besides the corporate taxpayer, partnerships registered as a 'Firm' under the statute have also been taxed differently till assessment year 2001-02 and such a 'Firm' has had to
pay 'Super Tax' only on profits at maximum rates ranging from 30% [1976-77 to 1982-83], 40% [1983-84 to 1986-87], 35% [1987-88 to 1991-92] and 25% [1992-93 onwards] and minimum super tax rates ranging from 5% [1976-77 to 1982-83], 6% [1983-84 to 1986-87], and 5% [1987-88 to 2001-02]. This category of taxpayer is not cited in the Income Tax Ordinance 2001. Interestingly, Firms comprising Professionals have been exempted from levy of Super Tax. The [non-salaried] Individual taxpayer [as well as AOP/ URF /HUF /] has suffered levy of income tax at graduated rates for different 'slabs' of income with very high rates of tax for the
highest slabs in the 1950's and 1960's and these came down significantly only in the mid 1980's. However the downward trend has continued since and in Tax Year 2006 the maximum rate [25%] is less than the corporate rate [35%]. [see Fig 2]. The Individual earning Salary Income only, or where the salary income is more than 50% of the Total Income, has however been accorded preferential treatment by allowing for either taxation at a lower tax rate or a lump sum 'ad hoc' tax deduction and such preferential treatment continues under the Income Tax Ordinance 2001. In order to facilitate 'small businesses' a Fixed Tax Scheme was announced for the assessment years 1991-92 to 1995-96 in which businesses earning income upto a threshold limit, with limited capital investment and located in certain specified areas, were taxed at an adhoc lump sum amount of Income Tax. No Return of Income was required to be filed and normal law assessment procedure was dispensed with and qualifying businesses general small shopkeeperscould deposit due tax as notified by CBR in the Post Office. This Scheme was discontinued
DotGazette with effect from assessment year 1996-97 and has not been revived since. A Flat Rate of Tax - Pros & Cons A unitary flat rate across the board would appear to have obvious merits from the standpoint of simplicity and consequent administrative efficacy. Nevertheless, the fact remains that it would not alleviate existing inequities in income distribution and could conceivably even contribute to exacerbate the same. There would also be considerable problems with working out an effective unitary rate of tax that would ensure the same generation of revenue as the present graduated rate structure and at the same time reduce the burden of taxation. A true unitary system would mean doing away with imputation of corporate income. This could then mean loss of significant revenue from this area. In fact, for private limited companies this is the only area of revenue significance as far as the exchequer is concerned, as in Pakistan, only nominal corporate profits are disclosed by the Pvt Ltd Co almost "as a rule." (Because the company has a separate juristic entity it is recognized as a 'person' apart
from its directors. Thus the tax, under the present system, falls on both the company and its directors. Piercing the 'corporate veil' however makes it only too evident that in actual fact the separate identity of the company is a fiction created by statute. The identity of the directors merges into that of the company. It is the company that in the final analysis pays the tax both for itself and its directors. In this view of the matter, imputation of its income subjects the Company to multiple rates of taxation. A true unitary flat rate system would therefore necessitate doing away with imputation). The corporate ability to retain earnings and disburse salaries to its directors, rule out, given the present format of the statute, disclosure of significant net pre-tax profits for the private limited companies which are under no pressure to declare dividends. It would be difficult to offset the revenue loss from this area. Too high a flat rate of tax would abruptly escalate tax burdens especially for the small to medium enterprises. At the same time the supernormal earnings of the larger enterprises would not be mopped up by government which in the long run would exacerbate in-
equalities in income distribution. The deliberate planned quest for an egalitarian society would thus remain unfulfilled. A complicating factor in the design of a unitary flat rate tax system is the presence of many small or new business enterprises that need preferential treatment in order to be able to establish their roots and grow. Subjecting them to a relatively high flat rate would thus run counter to the stated objective of ensuring their survival and prosperity as it is these present day small enterprises that are ultimately expected to grow up into the mature medium and large size enterprises of tomorrow. While the need to accord some sort of relief for the small business enterprise is a generally accepted proposition, yet it has been argued that there does not really exist a good economic case for the preferential treatment of small business. It is pointed out that the truly small business is economically inefficient and it does not make much sense to tax subsidize the inefficient. It is also pointed out that small business already enjoys, directly or indirectly, some kind of price umbrella effect from the forward shifting of heavier business taxes on large enter-
prises so that tax relief on top of tax shifting becomes a kind of unjust enrichment. Attention is drawn to the fact that it is the new business that really warrants favorable treatment and not merely the existing small business-and for new business it may actually be advisable to give relief through measures other than providing tax subsidies. The countervailing arguments for according relief to the small business enterprise hinge on the recognition that inevitable gaps occur in the credit and risk capital supply system and since small business depends heavily on internal funds for growth, some tax forbearance is essential. Furthermore, it may not be at all practical to attempt identification of "New business" vis a vis the small business. An existing small business in existence for a number of years could conceivably become a new business through change in ownership. Clearly this is not the sort of "new business" that the statute would like to support and promote.
Contributed by: M. Muneer Qureshi
DotGazette BOOKREVIEW
"Aesthetics of Incompleteness" This is indeed a prodigious talent at work and had it not been for the dedication of Amina Hassan , the writings might have been lost for good. Reviewed by: M Muneer Qureshi
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his compilation is a true 'labor of love' and one can only marvel at the many hours , nay years I am told [five to be exact], spent on resurrecting writings that otherwise might well have been forgotten and lost for good . Amina Hassan not only ardently admires her gifted father but much more importantly, shows an insight into his thinking that brings out the real persona behind the person. Another title for this book could be, "The protean genius of Shoaib Bin Hassan." Not only are the writings a brilliant example of masterly command over the English language, they have a range and scope that is truly of epic proportions. This can best be illustrated by referring to some of the titles cited in the books' 'Contents:' -Darwin and collapse of judeao Christian world view, Political cannibalism, The poetry of primitivism, Secular sermons from history, Of Tolstoy's Russia, Of Machiavellianism, The life and love life of Dickens, Aesthetics of incompleteness, Wisdom without pillars, Of absurdity in profundity, Anatomy as destiny, Public squalor, private affluence, A farewell to book culture, Ghostsreal and metaphors, So spake Zarathusthra, Saints and unsaintly saints, Cultural hor-
"Aesthetics of Incompleteness" Prose writings of Shoaib Bin Hassan, compiled and edited by Amina Hassan. Iqbal Academy, Lahore, Pakistan. 484 pages. Price Rs 450/-, ISBN 969-416-363-3. Website: www.allamaiqbal.com
rorscape, Emma Duncan's animal circus, Of things falling apart. The English language plays an increasingly important role in the 21st century. It is the language of choice in international commerce. In the field of I.T. it is the language in which most computer programs are written. It is the language of science and modern technology. It is the preferred language in education especially higher education. And in at least one country, India, it is the language that has been described as the glue that holds the country together. There are more than six billion human beings on this planet today and of these about 400 million can fairly be said to be "na-
tive speakers" of the English language. Yet English is today widely accepted as an "international language." What is more, many of the non native English speakers - and writers- have acquired a proficiency in the use of the language that exceeds that of the native English. Who has not heard of Joseph Conrad author of 'Lord Jim', 'Nostromo' & 'Heart of darkness' - among many other masterpieces- who could not even speak English till age 21 and yet is today acknowledged as an extraordinary talent in the English language. Vladimir Nabokov , creator of 'Lolita.' The Nigerian Nobel Laureate, 'Wole Soyanka.' And there are others. No, I am not going to embarrass Shoaib sahib by suggesting that he is in the same league as Joseph Conrad. But he is not far behind. I am sure that had he truly applied himself seriously to writing as a career he would today be in the English Language Hall of Fame. The autobiographical section of the book is a treat. Though incomplete, it is a snapshot that is not easily forgotten. I was especially intrigued because going through the autobiography, I had a sense of 'dĂŠjĂ vu' as many of the places referred to have a special meaning in my father's [an army 'Medico'] life as well Quetta, Sialkot, Nisar Road, Lahore Cantt- especially the account of life in England in the
early fifties and the [return] voyage to Pakistan on board RMS Caledonia, rings many bells for me. 'Small world' indeed! A true writer 'plays with words.' And Shoaib Bin Hassan is a champion at word play. Words seem to flow effortlessly from his 'moving finger.' And they paint a picture that is at once beautiful and haunting. This is indeed a prodigious talent at work and had it not been for the dedication of Amina Hassan , the writings might have been lost for good. Notwithstanding his huge talent, Shoaib Bin Hassan is clearly a humble man, self effacing and unassuming. He clearly shuns the limelight. But such humility can be seen as a fault when it almost leads to burying a literary treasure trove! That is what Mr. Hassan almost succeeded in doing - but for the timely intervention of Amina. Although I am all praise for the book I have to refer to one 'deficiency' that I find somewhat rankling. The articles have obviously been published over an extended timeframe in various newspapers / magazines but these are not expressly identified and no dates are cited. I hope this will be remedied in a subsequent edition of this book as a 'Time Line' is very important to a writer for it clarifies the context and shows how the writer's thinking has evolved over time. Well done Amina Hassan and very well done Shoaib Bin Hassan!
DotGazette THE LATESTINTERNATIONAL FISCAL RESEARCH Taxation and the Evolution Tax Structure in Developing of Aggregate Corporate Countries: Many Puzzles Ownership Concentration and a Possible Explanation
other policies would sensibly be used to offset these tax distortions. Tariff protection for capital-intensive firms is one. Inflation, imposing a tax on the cash economy is another
Mihir A. Desai, Dhammika Dharmapala, and Winnie Fung NBER Working Paper No. 11469 June 2005
Roger Gordon and We Li NBER Working Paper No. 11267 April 2005, Capital Account
ABSTRACT
ABSTRACT
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ax policies seen in developing countries are puzzling on many dimensions. To begin with, revenue/GDP is surprisingly small compared with that in developed economies. Taxes on labor income play a minor role. Taxes on consumption are important, but effective tax rates vary dramatically by firm, with many firms avoiding taxes entirely by operating through cash in the informal economy and others facing very high liabilities. Taxes on capital are an important source of revenue, as are tariffs and seignorage, all contrary to the theoretical literature. In this paper, we argue that all of these aspects of policy may be sensible responses if a government is able in practice to collect taxes only from those firms that make use of the financial sector. Through use of the financial sector, firms generate a paper trail, facilitating tax enforcement. The threat of disintermediation then limits how much can be collected in taxes. Taxes can most easily be collected from the firms most dependent on the financial sector, presumably capital-intensive firms. Given the resulting differential tax rates by sector,
egal rules, politics and behavioral factors have all been emphasized as explanatory factors in analyses of the determinants of the concentration of corporate ownership and stock market participation. An extension of standard tax clientele arguments demonstrates that changes in the progressivity of taxes can also significantly influence patterns of equity ownership. A novel index of the concentration of corporate ownership over the twentieth century in the U.S. provides the opportunity to quantitatively test for the role of taxes in shaping ownership concentration. The index of ownership concentration is characterized by considerable time series variation, with significant diffusion of ownership in the post WWII era and reconcentration in the late 1990s. Analysis of this index indicates that the progressivity of taxation significantly influences corporate ownership concentration and equity market participation as predicted by the model. This evidence supports the intuition of Berle and Means (1932) that taxation can significantly influence patterns of equity ownership.
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high-tax one, and if the tax is the statutory or effective average one. There is also evidence that countries' own tax rates are reduced by liberalization of exchange controls in other countries.
On the Undesirability of Commodity Taxation Even Liberalization and When Income Taxation is Corporate Taxes Michael Devereux, Ben Lock- Not Optimal Louis Kaplow wood and Michela Redoano Department of Economics, NBER Working Paper No. University of Warwick & 10407 March 2004 CSGR, University of Warwick CSGR Working Paper No. ABSTRACT n important result 119/03 First version: July 2002 due to Atkinson and This version: March 2003
ABSTRACT
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his paper studies whether exchange controls, particularly on the capital account, affect the choice of corporate tax rates, using a panel of 21 OECD countries over the period 1983-1999. It builds on existing literature (i) by using a unique data-set with several different measures of the corporate tax rate calculated from the actual parameters of the tax systems: (ii) by allowing exchange controls to affect the intensity of strategic interaction between countries in setting taxes, as well as the levels of tax they choose. We find some evidence that (i) the level of a country's tax, other things equal, is lowered by a unilateral liberalization of exchange controls, and (ii) that strategic interaction in tax-setting between countries is increased by liberalization. These effects are stronger if the country is a
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Stiglitz (1976) is that differential commodity taxation is not optimal in the presence of an optimal nonlinear income tax (given weak separability of utility between labor and all consumption goods). This article demonstrates that their conclusion holds regardless of whether the income tax is optimal. In particular, given any commodity tax and income tax system, differential commodity taxation can be eliminated in a manner that results in a Pareto improvement. Also, differential commodity taxation can be proportionally reduced so as to generate a Pareto improvement. In addition, for commodity tax reforms that do not eliminate or proportionally reduce differential taxation, a simple efficiency condition is offered for determining whether a Pareto improvement is possible.
Complete articles can be downloaded from: www.nber.com
DotGazette MESSAGEOFTHE QURAN
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onsider the profound insights contained in the verses of the Holy Quran: 1. "With power did We construct the heavens‌verily, We are 'continuously expanding' it." [AL QURAN; Zariat, 51:47] The reference to the 'heavens' in this verse clearly refers to what is today an established fact - that the universe is in a state of expansion. At the time that the verse was revealed to the prophet and put to writing (early 7th century A D) there was no concept of the state of the universe as an expanding entity. Most people then, including men of learning, thought that the earth was the center of the universe and the sun and the planets revolved around the earth. No one even imagined that there were other suns too, billions more, other planets and indeed other galaxies! Living in such an age, it is truly extraordinary that an unlettered Arabian, denizen of an arid desert land, should make such a profound statement. But then this is not the prophet speaking- these are the words of God Almighty and God knows all! However the scientific proof for this has come in the 20th century. Astrophysicists have now established through rigorous re-
search based on the light spectrum of distant stars [the so called "red shift" phenomena] that galaxies are moving away from each other and the universe is expanding at a rate called the "Hubble Constant". Also, energy released by dying stars at the very edge of the universe [quasars, pulsars] is being monitored and their "red shift" studies lend strong support to the idea of an expanding universe. We also know now that this expansion will one day [billions of years in the future] come to an end and that will have apocalyptic consequences for human kind. All this was made known to the prophet of Islam by God Almighty some 1400 years ago and the prophet ensured that the knowledge was put before mankind in writing through the Quran. 2. "Then He (Allah) gave the earth an 'oval' from. (Daha ha). [AL QURAN; Naziat, 79:30]. Although a topic as mundane as the elliptical shape of the earth might appear innocuous to us today, in the 7th century this knowledge was truly revolutionary. It was widely accepted then that the earth was flat as it did indeed 'appear' to be. However the Quran said otherwise and the Arabic word used [Daha] likened the shape of the earth to that of
the egg of an ostrich. It is significant that the egg of an ostrich is not round but 'elliptical' and that is exactly how the earth is shaped. However in translation this point was missed and as the translators had no inkling about a 'round' or 'elliptical' earth they translated the Arabic "Daha" as 'spread out' or 'flat' and so it remained in translation and only recently have scholars realized this mistake.
Not only has the existing shape of the earth been correctly identified as "elliptical" in the Quran, the 'future shape' of the earth as it will be on 'judgment day' (qiyamat) also finds specific mention. 3. When the earth is flattened out and it casts forth what is within it‌and becomes empty. [AL QURAN Inshiqaq ; 84:3-4] Astrophysicists today are generally agreed that a time will come when the expansion phase of the universe will come to an end and the contraction phase shall start and as the universe contracts, a reversal of gravitational force will take place that will eventually lead to the earth (and all other celestial bodies) being crushed and flattened out, spewing out all that they hold. The origin and creation of the universe has intrigued and per-
plexed man through the centuries. In 1950 the now well known 'big bang' theory was put forth by physicists Ralph Alpher, Hans Bethe and George Gasmow that in essence postulated that in the beginning the universe was a super dense mass reduced to less than the size of a pinhead - the so called 'singularity' [nukta]. Some fifteen billion years ago it exploded suddenly and violently and in 10 minus 32 seconds of time expanded 10 to 30 time or more in size - and continued to so expand and has been in a state of expansion ever since. Astonishingly, what has been theorized by physicists in 1950 finds mention in the Quran [some 1400 years earlier] in Surah Al Anbiya [21:30] "Have they not who disbelieve seen that the heavens and earth were joined together (fused, as one piece), then We parted them." Subhan Allah! [All praise to Allah]. Consider further, the startling revelation in the Quran about the mineral 'iron' as it exists on earth: Thus it is stated in the Quran: 4. "We first created man from an essence of clay; then placed him, a living germ, in a safe enclosure (the womb). The germ We made a clot of blood, and the clot a lump of flesh. This We fashioned into bones, then clothed the bones with flesh, thus bringing forth another creation". [AL QURAN Al Mominoon; 23:12-14]. In the Quran the "water cycle' finds special mention and it is emphasized that water is central to life on earth and that God makes special provision for an adequate supply of water of mankind.
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DOTGazette The Third Technical Conference of the Association of Tax Authorities of Islamic Countries It was agreed that considering the shortfall in Government Finances in most countries, and the consequential, recurring, fiscal deficits, there was a pressing need to significantly improve the Tax to GDP ratio.
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four day International Conference, the Third Technical Meeting, of some 20 Islamic countries , members of
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In this Issue The Third ATAIC Technical Confernce
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Editorial Chairman CBR Visits Dot The Design of Tax Incentives
Patron
M. Muneer Qureshi (Director General) Staff Advisor
Dr. Hamid Ateeq (Additional Director) Editor-in-Chief
Munir Ahmed Ch. Editors (English)
Sobia Saleem & Humaira Daud Editors (Urdu)
Arsam Aftab & Misbah Nawaz Design & Layout
Azhar Jehangir & Zafar Iqbal Burki Directorate General of Income Tax Training & Research, Sutluj Block, Allama Iqbal Town, Lahore.
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the Association of Tax Authorities of Islamic countries [ATAIC], was held at Islamabad from November 22 to 25. A select group of Income Tax Group officers received the delegates and represented Pakistan in the conference. Chaired by Mr. M. Yusuf Abdullah, Secretary General (Revenue Division) and Chairman , Central Board of Revenue, Government of Pakistan, the delegates to the conference discussed Resource Mobilization in the Region with special reference to Improvement in the Tax to GDP ratio, Tax Base Broadening, Voluntary compli-
ance and Shariah Taxation [zakat]. Mr. M. Muneer Qureshi, Director General, DOT, Lahore, was appointed Conference Rapporteur. Country papers were presented, views exchanged and questions answered by the various delegates and there was broad consensus on the need to move ahead with tax reform measures already initiated by most countries in the region. Progress made in various countries on reduction in tax rates, both corporate and personal, the (imaginative) use of Information Technology, Taxpayer Facilitation and other as-
pects having a bearing on resource mobilization was high lighted. It was agreed that considering the shortfall in Government Finances in most countries, and the consequential, recurring, fiscal deficits, there was a pressing need to significantly improve the Tax to GDP ratio. Successes recorded by Turkey in improving the Tax to GDP ratio and by Malaysia in Tax Base Broadening evoked much interest. Pakistan stressed the need to repose trust in the taxpayers and bridge the credibility gap between Tax Administration
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DOTGazette EDITORIAL
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he December issue of DOT Gazette is with you. This month we had the honor of playing host to the Chairman CBR, Mr. Abdullah Yusuf, who especially visited DOT in order to address the probationary officers of the 33rd STP. He also inaugurated the newly built Conference Hall at DOT. Though winter in general makes life somewhat slower, however activities in the congenial environment of DOT do not seem to abide by this rule of nature. DOT remains as hectic as ever. It’s rather been a bit more hectic as the training program for the 33rd STP enters the final phase. The probationers are now fast approaching the DOT STP Exam and the FPSC FPOE after which they will report to IBA Karachi for the specially designed Tax Management MBA program. The MBA Degree program has been made an integral part of the officer’s training and the rationale is to equip the officers with high level professional skills, conceptual clarity and practical proficiency- necessary qualities in today’s demanding work environment. This speaks volumes of the CBR commitment to create a truly efficient work force. In November the 33rd STP went on a Country Study Tour to Murree, Ayubia, Nathiagalli and Abbottabad. Hopefully, the trip was both useful and enjoyable. DOT administration and the Gazette team are thankful to you for your keen interest and valuable suggestions. Chief Editor
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>>>> and Taxpayers. Pakistan's comprehensive self assessment scheme impressed many delegates especially as it had not led to any fall in tax revenues as many had initially feared. A need
to control the unhindered growth of the informal sector was stressed by many delegates as this sector robbed the exchequer of revenues and contributed significantly to a deterioration of the tax base. In
the concluding session, the conference adopted three Reports on three different topics, viz. Resource Mobilization, Voluntary Compliance and Shariah Taxation. In his concluding remarks, the ATAIC Chairperson,
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Mr. M. Abdullah Yusuf stressed the need for member countries to equip themselves with the latest in modern science and technology, especially in the field of Information Technology which was crucial to enhancing the ability of Tax Administration to properly appraise data and automate processes central to tax collection, audit and detection of tax evasion. The delegates greatly appreciated the excellent conference arrangements made and the deep personal interest taken by Mr. M. Abdullah Yusuf, Secretary General (Revenue Division)/Chairman, CBR, Mr. Salman Nabi, Member (Direct Taxes), CBR, and other CBR officers and also the warm hospitality extended to them. The 4th Technical Conference of ATAIC will be held in Kuwait in 2007.
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DotGazette ONCAMPUS
Chairman CBR
VISITS DOT The officers should think that we are in partnership with the taxpayers and that we should facilitate them so that their business flourishes - the more they earn the more will be our share in their income.
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r. M. Abdullah Yousaf, Chairman CBR, visited DOT on Saturday, 18th November, 2006, to meet the probationers of 33rd STP. He was received by the Director General, senior officers and the faculty members of DOT. This meeting was originally scheduled to be held in the CBR Headquarters, Islamabad at the end of the six days long Country Study Tour of the probationary officers but due to the pressing commitments of
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the Chairman, meeting was rescheduled at DOT Lahore. The meeting was held in newly refurbished Iqbal Memorial Conference Hall, which was for-
mally inaugurated by the chairman immediately after his arrival. The newly inaugurated Iqbal Memorial Conference Room has a seating capacity of 50 persons with state of the art audio visual faculties. This hall will not only be useful for ongoing training activities but will also be used for international conference. The Director General Mr. Muneer Qureshi briefed the chairman about the training received by the probationers. The chairman later addressed the probationers and talked about his expectation from the new lot of officers. He also responded to various queries made by the probationers about their future career in the department.
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DotGazette RESEARCHARTICLE
The Design of Tax Incentives it is increasingly becoming evident that non tax benefits might weigh significantly in the calculations of the foreign investor and in his scale of parameters having a bearing on feasibility these could have primacy over the advantages conferred by tax benefits.
D
esigning tax incentives is not easy. As a stimulus measure an incentive provided through deliberate interference with statutory taxation measures is expected to enhance profit ability sufficiently to increase competitiveness. On the negative side is the revenue that the exchequer loses as long as the incentive remains in force. Tax incentives have been considered important in the context of promotion of industrialization. The geographical dispersal of industry is another important criteria kept in mind while designing these incentives. The lack of adequate linkages hinders the smooth flow of factors involved in production across the economic expanse. Tax incentives are expected to compensate for such limiting factors - at least to an extent. In the opinion of many, while designing tax incentives the long term objectives should have primacy over short term goals. Disproportionate effort expended to realize proximate intermediate goals can be counterproductive for eventually such a (shortsighted) approach could interfere with and even prevent the achievement of the more fundamental objec-
tives of public policy. Investment Incentives The rationale for the deliberate encouragement of specific industries is that these could lead the way in the industrialization effort by giving a cue to other related and complementary activity through the externalities - linkages - that they induce. Given an acceptance of such a scenario, the interest of the planners in designing the incentive measures is easily understood. In their scheme of things efforts to attract capital to the leading industries has high priority and tax incentives are considered a crucial component of the plan. While increased availability of capital would certainly go a long way towards increasing the output of the specific industry to which the incentive has been targeted, in many cases an unintended by-product is the substitution of capital for labor in the favored industry. Over time this could lead to generalized substitution of capital for labor over the full spectrum of the entire industry. Considering that third world countries are plagued with severe problems related to labor redundancy due to over population, such a development amounts to a distortion in factor utilization and bodes ill for the future economic format
that would take shape as a result of such incentives measures. It would be recognized however that the real reason for such selective subsidization of investment is obviously not merely to increase the capital stock of an industry targeted to benefit from the incentive but rather to enhance the capability of the industry to produce more of the desired output. Thus it is the capability to throw up increased output that is the long term objective. When the incentive measure is based upon output rather then upon investment in the selected industry than it will not have the effect of increasing capital formation without distorting relative factor prices. The measure then will have the effect of creating a bias for adoption of techniques of production that result necessarily in capital intensity (more capital per unit of output). General investment incentives have the serious defect of under pricing capital in general. Considering the fact that developing countries are capital deficient the under pricing of capital would intensify demands for capital goods. Most of these would be machinery and allied items and the great majority of these would originate from already
established industry abroad. A greater chunk of the already scarce foreign exchange would thus be appropriated for importing such capital goods. The only redeeming feature of a policy of designing general investment incentives would be the stimulus it gives to foreign investment and to domestic industry producing capital goods. However in the majority of cases these benefits are not likely to outweigh the disadvantages as it is increasingly becoming evident that non tax benefits might weigh significantly in the calculations of the foreign investor and in his scale of parameters having a bearing on feasibility these could have primacy over the advantages conferred by tax benefits. As for domestic industry producing capital goods since this is already an area that is sought to be developed it would not be realistic to expect that in the formative phases of economic development it would be sufficiently developed to be able to make a significant contribution thru production of adequate quantities of capital goods. Among the many enigmatic problems that planners in third world countries face is that of opening up backward regions in the country by effecting a decisive change in the labor - capital mix and thus initiate dramatic changes in productivity. The objective clearly is to escalate wage levels from their existing depressed state to levels that are socially acceptable and to increase aggregate industrial output. As should be evident from the statement made above the problems posed by regional disparities in levels of
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DotGazette economic development have multiple dimensions. Because of resource constraints the government is unable to unilaterally make investment in all the various undeveloped regions on a scale that would lead to meaningful change. The alternate plan thus is to induce private investment to move into these areas. This however is easier said than done. The less developed regions in a country are traditionally characterized by lack of infra structure (means of communication, energy supply, education, healthcare etc.) and an adverse labor - capital mix in whatever industry obtains there. The economic deficiencies insulate and isolate the backward region from the more developed areas due to the weak linkages. Over time, therefore, left to themselves, the problems posed by underdevelopment breed on themselves and exacerbate and accentuate the original situation. As a direct sequel, while the rich in the country keep on getting richer the poor not only remain poor put slide downwards on the poverty scale. Given the above scenario the reluctance of private enterprise to move into so forbidding a situation is quite understandable especially as improvement of the condition of a people is hardly the principal motivating factor in the calculations of the entrepreneur when he makes an assessment with regard to the feasibility of an investment decision. The cost - benefit equation is the key to a positive response from private enterprise and the costs being what they are, the benefits are not likely to be a sufficient inducement for the entrepreneur to take on the
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daunting challenge that the backward region presents. However, if costs are lowered sufficiently, then it follows logically that the benefits would appear to be more attractive. Going a stage further, if it is possible to lower costs and at the same time increase the benefits the attractiveness of the situation improves dramatically. Insofar as the tax burden constitutes a cost factor it impacts unfavorably on profits. As in the final analysis it is the profits that can be realized that loom so large in the mind of the entrepreneur, a reduction in the tax burden is expected to do the trick in luring the entrep to the backward region. Taxes are imposed through statute. They can thus be withdrawn completely (exemption) or held in abeyance (tax holiday) or levied at a reduced rate. (preferential taxation.)). Most fiscal authorities today do not favor tax exemption as a means of attracting private enterprise to the less developed regions. It is increasingly being felt that most of these incentives are in the long run counterproductive. One of the reasons that such incentives are viewed with disfavor is that these have been seen over time to lead to a substitution of capital for labor. Considering that most third world countries are labor abundant and capital poor it makes much more sense to use labor wherever it is feasible to do so i.e. wherever its use does not impact unfavorably on productivity and lead to deficiencies in output. Given the need to increase productivity, induction of capital is essential as there are very real limitations to what labor alone (or labor with
very little capital) can achieve. In any case the use of more capital is one of the aims of development policy. After all, industrialization means putting machines to work for man so in that context substituting capital for labor is inevitable. However the continuing use of more and more capital per unit of output perpetuates capital intensity in industry and this trend once established is difficult to reverse. The dangers inherent in such a situation include exacerbation of existing labor redundancy problems faced by the developing country. Additionally, labor is unable to acquire the work experience that in the long run is crucial to instill capabilities that will have the most long lasting impact in terms of enhanced productivity of a significant segment of the total available labor force. In addition to the reasons given above, tax exemptions distort information relevant to quantification of the real cost of economic development. Such quantification is necessary to evaluate and monitor the efficiency of a development program. After all it must be known what the execution of a development plan entails. Insofar as tax exemptions represent revenue deliberately foregone, to that extent it represents the cost of bringing development to the less developed region. However the fact that a specific industry has come to the target region frequently clouds the cost involved. Again - and this is important - it may not be at all clear that it was the tax incentive that was actually instrumental in brining the industry to the backward region. In fact the available evidence suggests strongly that the exemp-
tions actually constitute windfall gains to industries that would have located in the region in any event. One of the problems with tax incentives is that once enacted they tend to become institutionalized. Over time the beneficiaries get conditioned to the incentive and find it increasingly worth their while to come to their defense when ever they face a challenge. This vested interest will take great pains and even incur much expense to ensure that the incentives are retained irrespective of the fact that they might be poorly designed, inequitable or ineffective. Tax incentives manage to escape public scrutiny largely because they are not treated as items of public expenditure when infact they are really on all fours with the public expenditures in that they consume potential public funds. It is increasingly being felt that explicit subsidies achieve more in terms of desired objectives (viz increased output, employment and domestic value added in exports) without creating undesirable distortions in resource allocation. Also the cost of the incentive is much more evident when administered through a subsidy. Thus the well-worn paths taken by tax incentives - accelerated depreciation, investment credit, initial write off etc - should be trod on not with alacrity and blind enthusiaism but rather with extreme caution and may be even reluctance so that the inevitable negative effects are minimized. Contributed by M. Muneer Qureshi
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DOTGazette IN THIS ISSUE
Passing Out of 33rd STP pg.1
Dot Timeline 2006 pg. 3
Direct Taxation of Income in Pakistan, 1947 -2006 - an overview pg. 7
Passing Out of the Officers of 33rd STP
T
he Passing Out Ceremony of officers of the 33rd Specialized Training Program was held at DOT (DT) HQ's, Lahore, on the 28th of Dec 2006.Mr Muhammad Abdullah Yusuf, Secretary General, Revenue Division and Chairman CBR, was the chief guest. Mr Muhammad Talha, Member (HRM), CBR, Mr Salman Nabi, Member.( Direct Taxes), CBR, Mr Haji Ahmad, RCIT, (Eastern Region), Mr Umar Farooq, DG, LTU, Lahore, DOT Faculty Members and guests from the private sector, including bankers, lawyers and doctors also graced the occasion. The officer's of the 33rd STP went through an eight month long
being provided to them, including the MBA in Tax Administration at IBA, Karachi . "Education should be a welcome opportunity whenever it comes," he said. Addressing the officer's, Mr Muhammad Talha, Member (HRM),CBR, expressed the hope that the new skills that they will
PATRON
M. Muneer Qureshi (Director General) STAFF ADVISOR
Dr. Hamid Ateeq (Additional Director) EDITOR-IN-CHIEF
Munir Ahmed Ch. EDITORS (ENGLISH)
Sobia Saleem & Humaira Daud EDITORS (URDU)
Arsam Aftab & Misbah Nawaz DESIGN & LAYOUT
Azhar Jehangir & Zafar Iqbal
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training program that started on the 26th of April, 2006 and concluded on the 27th of Dec. The specialized training at DOT in accountancy, law, office procedure, computer skills including TMS comprised the second phase of the IBA MBA program [ the 1st phase being the CTP at the Civil Services Academy, Walton, Lahore] and the officers will now join IBA Karachi for the final phase after which the successful participants will be awarded an MBA Degree in Tax Administration. The specially tailored MBA in Tax Administration is now an integral part of the Income Tax Group pro-
bationary officer's pre-service training regimen and is designed to instill specialized skills in the officer's that will have a direct bearing on the work that they will be eventually doing in the deptt. Speaking to the officer's on the occasion, Mr M Abdullah Yusuf, congratulated them on their successful completion of the STP and advised them to have a positive outlook and make full use of the unique training opportunities
acquire in accountancy, audit, management and business studies at the IBA Karachi will enable them to not only discharge their duties efficiently but will give new meaning to the reform effort currently underway in CBR and it's field formations. Mr Salman Nabi, Member, Direct Taxes, CBR, said that DOT had evolved into an important training institution and the good work
>>>>
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DOTGazette EDITORIAL
DOT Report Card - 2006
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he month of December, 2006 was very hectic at DOT. This month the probationers of 33rd STP of Income Tax Group completed their training. Final passing out examination of the probationers of the 33rd STP was held at DOT in the start of December, after which they proceeded to their FPOE at FPSC which ended on 27th of December. The passing out ceremony of 33rd STP was hled on December 28, 2006. Secretary General, Chairman, CBR, Mr. Muhammad Abdullah Yousaf graced the occasion with his presence. The batch would join IBA Karachi on 8th of January for the specially designed Tax Management MBA Program. The faculty members & DOT administration played a commendable role in the training. It speaks volumes of their efforts that they made the probationers, with diverse educational background, pass through this ordeal successfully. The whole batch was feeling gratified and elated on the successful completion of their STP. For this we owe special gratitude to the D.G. who took personal interest in the training, especially the presentations on national and international issues, role play sessions and case studies, through which he confronted the officers with policy issues and practical problems. DOT faculty deserves more gratitude than these words can contain. We hope we will continue to benefit from their guidance through the thick and thin of our future careers.
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Three STP batches complete their training in one calendar year [unprecedented] May 06,: Workshop on Integrated Training Strategy June-06: Launch of TMS Training Program Aug 06: DOT Launches DOT Gazette Breaking new ground DOT launches training initiatives for support staff Capacity Building continues on new improved lines DOT represented in 3rd Technical ATAIC Conference hosted by CBR in Dec 06 DOT Participates in 1st ever Workshop on Integrity Management hosted by HRM Wing at Bhurban, in Dec 06. DOT facilitates holding of Audit Working Sessions by Audit Wing of CBR -- Dec 06
done here had already borne fruit as was evident from the fact that there had been a 20% increase in Return filers which, in his opinion, was largely relatable to the increased efficiency of departmental officer's in discharging their duties in the field. Mr M Munir Qureshi, DG(DOT), made a presentation explaining the important events in the DOT calendar in 2006. He said that three STP batches [the 32nd, 31st and 33rd STP respectively] had completed their training in one calendar year which was unprecedented. The DG pointed out that besides their regular training program the probationers made presentations on a wide variety of subjects and engaged in 'role play' sessions that helped build up their confidence and improve their problem solving capabilities. Eminent speakers from the private sector also addressed them on significant issues. The DG(DOT) said that given the excellent DOT training facilities and physical infrastructure every effort should be made to transform DOT into a regional training hub with an International outlook. He pointed out that an ATAIC international conference on rev-
enue forecasting had already been held at DOT in 2005 and another conference of ATAIC Training Institute Heads was being planned for March 2007. Earlier, the PMC, Mr Kashif Aslam thanked the DG(DOT) and Faculty for providing excellent facilities and cooperation to the probationers during the training program.
The Chairman CBR distributed certificates to the successful probationers and awards to position holders. Memento's were presented by DOT to the Chairman CBR, Member CBR (HRM), and Member CBR (Direct Taxes). The ceremony was followed by a bonfire, dinner and a musical program.
A W A R D S
Munir Ahmed Ch. (Best Probationer)
Ms. Attiya Rehman (Best Female Probationer)
H O L D E R
Azhar Jehangir (2nd Best Probationer)
Capt. Arsam Aftab (Best Conduct)
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DotGazette DOT TIMELINE 2006 JANUARY
FEBRUARY
Inaugoration of Badminton Court.
32nd STP- Final Passing Out Ceremony.
MARCH
APRIL
Training in the Tax Management System (TMS) Launched.
DOT hosts an All Pakistan Mushaira
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MAY
JUNE
DOT hosts Integrated Training Strategy Workshop.
31st STP Probationers country study tour
JULY
AUGUST
31st STP Final Passing Out Ceremony
DOT gazette launched.
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DotGazette DOT TIMELINE 2006 33rd STP Probationers make Field Visits
OCTOBER Mr Ishrat Hussain, Chairman NCGR & Former Governor, State Bank of Pakistan, Visits DOT.
NOVEMBER
DECEMBER
*DOT participates in the 3rd Technical ATAIC Conference *33rd STP Country Study Tour *Chairman CBR inaugurates new DOT Conference Room.
*DOT participates in the first Integrity Management Conference at Bhurban organized by CBR HRM Wing * DOT is the venue for the first three day National Audit Working Sessions organized by CBR Audit Wing * 33rd STP_ Final Passing Out Ceremony.
SEPTEMBER
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DotGazette RESEARCHARTICLE
Direct Taxation of Income in Pakistan, 1947 -2006 - an overview. The lack of equity between sectors is a major flaw in Pakistan's tax structure. It provides the 'raison detre' for evasion of tax by those deriving income from sectors other than agriculture. They see no difference in income earned by them from manufacturing and that earned by those engaged in agriculture. It is difficult to comprehend why a feudal earning a crore of rupees or more annually from say an orchard or land holding should be granted exemption from levy of income tax. Contributed by M. Muneer Qureshi
P
akistan's tax to GDP ratio in 2005-06 is less than 10 and it has hardly 1.7 million taxpayers on the tax rolls. Given a population of 165 million this translates into a very narrow base indeed [ 1.03% ]. On the Gini scale, Pakistan ranks at 41 and that indicates fairly pronounced inequality in the distribution of income. Almost sixty years of progressive tax rates appear to have had little or no effect in reducing inequalities in the distribution of income. GDP is pitched at the equivalent of just about $4 bill that yields a per capita income of some $ 2,400. As a consequence, overall, taxable capacity is limited and the existing taxpayers get squeezed ever more as the need for additional revenues increases. Between sectors, there is a significant lack of equity. Both manufacturing and agriculture contribute roughly 20% to GDP. However Manufacturing contributes approximately 65% of the income tax paid to the federal exchequer
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while agriculture contributes just over 1%. Similarly, wholesale and retail trade contribute about 17% to GDP and only 2.8% % as income tax. Again, Transport, Storage and Communication contribute 14% to GDP and just 4.5% as Income Tax. The lack of equity between sectors is a major flaw in Pakistan's tax structure. It provides the 'raison detre' for evasion of tax by those deriving income from sectors other than agriculture. They see no difference in income earned by them from manufacturing and that earned by those engaged in agriculture. It is difficult to comprehend why a feudal earning a crore of rupees or more annually from say an orchard or land holding should be granted exemption from levy of income tax. After all, income is income- whatever it's source. The rationale for the federal tax exemption for income from agriculture is stately constitutional insofar as agriculture being a 'provincial' subject, income therefrom too must, it is argued, fall within the purview of the respective provincial government- where it arises. Well, if the income derived from agriculture can't be taxed by the federal government, what pre-
vents the provincial government from doing so? After all provincial governments do levy taxes- so why not a tax on income from agriculture as well? The fact of the matter is that no one seems to be willing to do so. Agriculture is cited as a 'difficult' sector of the economy subject to the vagaries of the weather and supposedly riddled with multiple problems. Imposing a tax on income from agriculture would statedly result in an insufferable burden for the average farmer and would ruin him .Especially in Punjab, the average landholding is cited as not supportive of an income tax and any such taxation would render the cultivation of the land on commercial lines as uneconomical. Historically, when tax has been levied on income, the general principle has been that 'all' income, regardless of source, is subject to taxation. In post Meiji Japan, agricultural income came to be taxed steeply and, paradoxically, the yield from land increased as land hitherto neglected and considered to be 'marginal' was brought into use through intensive cultivation using scientific methods to increase output so as to yield additional income to compensate for the increased
'cost' of cultivation consequent to the increase in taxation on agricultural income. Infact the 'surplus' from agriculture funded the development of the new manufacturing sector as second hand technology was imported, installed and put to use in Japan. Promising students in engineering and the sciences were sent abroad to learn first hand - and then return to Japan to put their newly acquired knowledge and experience to use in the motherland. With steep taxation on agriculture coupled with the 'surplus' generated from more intensive and efficient cultivation of land providing the wherewithal for investment in plant and machinery, the Japanese economy developed rapidly and the systematic 'capital deepening & widening' changed the complexion of the economy from that of mainly agricultural in the mid 19th century to that of an industrialized economy by the 1930's. The irony however is that taxation of agricultural income actually 'improved' agriculture rather than 'ruin' it - as many had feared. In Pakistan, a century and a half later, these (unfounded) fears still persist and keep the wholly unwarranted
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DotGazette exemption for agricultural income firmly on the statute. One can only hope that better sense will prevail - and soon. While Meiji Japan was a sovereign state, India in the mid 19th century was a British colony- and remained a British colony till the mid 20th century.Resultantly, the governments of the day in the two countries had different perceptions about economic development. Japan was determined to industrialize and 'catch up' with the western powers as it saw industrialization essential to a rapid increase in 'earning power.' Industrialization went ahead even though Japan had no natural mineral resources like iron ore, coal and no oil.The British on the other hand saw no need to industrialize India.In their view, India had 'comparative advantage' in agriculture and 'comparative dis-advantage' in manufacturing and so it made eminent sense, in their view, to develop agriculture. It also made sense, again in their peculiar view of the situation as it obtained then in India, to 'cultivate the rural aristocracy' -largely, creatures of the British- that owned much of the agricultural land. And what better way to 'cultivate' the agriculturist's of India than to grant them a blanket exemption from levy of any Income Tax on the income derived from sale of agricultural produce? While agriculture received 'preferential' treatment with regard to taxation of agricultural income, manufacturing was actively discriminated against. Not only was income derived from manufacturing subjected to income tax, the tax rate structure was such that the higher slabs of income had the highest marginal rate of tax- so
high infact as to be seen to be almost confiscatory. Needless to say this was not conducive to making investment in manufacturing. Fiscal policy thus had a good deal to do with India's relatively poor industrial infra structure- especially in the areas that came to constitute the new State of Pakistan and it is now being speculated -including informed opinion in academia- that this state of affairs was not 'accidental' but deliberate and was deliberately contrived to ensure a steady supply of 'primary' goods and raw materials - cotton for one- from
given the narrow tax base, any reduction in tax rates would necessarily lead to a fall in tax revenues - and the greater the reduction in tax rates the greater the fall in revenue. The almost perversely high tax rates continued to plague the fiscal scene in Pakistan till the mid '80's. There were three tax rates for the corporate sector, one each for Banking Companies, Public Limited and Private Limited Companies with the highest tax rate reserved for Banking Companies and the lowest for Public Limited Companies. Private Lim-
India to the textile mills of Manchester and Birmingham in Britain and also a ready market, in India, for the finished products of British Industry. It is indeed ironic that in the post war period when many former 'colonies' became independant much so called 'informed' opinion in the westincluding many academic's with impeccable credentials such as the Swedish researcher Gunnar Myrdal, of 'Asian Drama' fame, continued to advise developing third world countries that their salvation lay in a high enough tax rate structure that would 'ensure' that much needed tax revenue was put in the State coffers. The great fear was that
ited Companies were placed in between the two. For personal Income taxation, the highest marginal rate was pitched at an incredible 97% in the 1950's but came down to 60% in 1983-84 and then down further to 45% in 1986-87 to be further reduced to 35% in 93-94 and to 25% in 2006. By tax year 2007, the three tiered corporate rate structure will be a thing of the best and there will only one flat rate of 35% for all companies. In the late 1970's the existing income tax statute- a carryover from the colonial era- was perceived as having become cumbersome with the many amendments made over the years. Moreover, the exemption for income from agriculture
was also being seen as an anamoly and these deficiencies were addressed in a new income tax statute prepared to supersede the old income tax statute. But lo and behold, such is the power of vested interests that the exemption for income from agriculture was soon restored in the new tax statute, the income tax Ordinance of 1979 and the 'status quo' maintained. The narrow tax base enigma was thus not resolved and continues to haunt us to this day. With the yield from income tax on a 'plateau,' only a dramatic change in the tax statute was seen as making it possible to bring about a significant escalation in income tax revenues. This change finally came about in the early 1990's when a system of income tax withholding at source on a wide range of transactions was introduced and in it's wake followed the expected surge in income tax collections with the result that by 1995-96 the tax to GDP ratio shot up to 13.7% from the previous almost static level of 12% or so. . Another change in law that has had a salutary effect on revenue collections was the so called system of presumptive income taxation. Over the years a number of economic activities such as those related to imports, exports, execution of contracts etc, income wherefrom was subject to normal law assessment were seen as having become problematic insofar as the normal law assessment would usually result in a refund after allowing for credit of tax deducted at source and the issuance of this refund would make a dent in collection and lead to all sorts of complications including proper verifica-
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DotGazette tion of the payments claimed to have been made and the serious problem of corruption. A possible way out was to reduce the rate of tax deduction at source and to render the tax deduction at source as final discharge of income tax liability. This did away with the need to pass any formal order of assessment and avoided issuance of any refund. While 'presumptive taxation' may have been Ok as a short term, 'stop gap' measure, it is clearly not suitable as long term policy. Presumptive taxation targets 'receipts' not 'income.' There is no objective method to convert receipts into income 'at a glance' as it were. It imposes inequitable tax burdens. There is no 'adjustment' of tax paid because there is no formal assessment. 'Full and Final' discharge of liability is more akin to 'appropriation' than taxation. Tax withholding in advance of the actual earning of 'income' can create a perception of inherent unfairness -especially when it is not possible to fully adjust the deducted tax . It also creates a financial burden not easily understood and appreciated because there is no obvious nexus with income. Tax deduction in advance of the actual earning of income is the opposite of 'tax deferral' and entails a cost that the payer may find to be completely unwarranted. Such a system clearly does little to inspire confidence. For all these reasons, the government is committed to phasing out tax withholding and presumptive taxation. However that is not going to happen any time soon because there is the apprehension that a sudden move to abruptly do
1
away with the system might lead to a serious fall in revenues. A problem with regard to the corporate sector in Pakistan, especially the private corporate sector has been the persistent declaration of net loss when the Return of Income / loss is filed and the suspicion is -actually much more than suspicionthat the loss is mostly artificially contrived and not genuine. The improvisation made here to offset the loss to the exchequer that such declarations entailed was to levy a tax on the turnover declared by corporate entities. This 'turnover tax' brought in much needed revenue but led to an outcry that such tax of turnover was not 'income taxation' and was therefore not legal under income tax law. The statutory provision was strongly contested by the affected taxpayers and equally strongly defended by the income tax department and the matter eventually went right up to the Supreme Court. In a landmark judgment the Apex Court ruled that such levy of tax on turnover was not illegal. While statutory enactments such as those described above were specifically designed to lead to increase in income tax revenue collection, beginning in the mid '80's the tax rate structure for corporate and personal income underwent a significant change and tax rates were reduced, tentatively at first and then deliberately with the conviction that such reduction in tax rates would not lead to any precipitous fall in revenue. Much of the intellectual underpinning for this radical move was provided by the American economist, Arthur B. Laffer of Chicago University. He in turn referred to the writ-
ings of an arab muslim scholar some 600 years earlier, Ibn e Khaldun.In his masterpiece, Muqaddimah, Ibn e Khaldun observed that: "‌‌‌.as the tax rate goes beyond the moderate rate, the taxpayers compare their tax liabilities with their profits and become pessimistic and as a result do not promote economic growth and development. A large number of people refrain from productive economic activities thus causing a decline in the accrued tax revenue to the state." This was precisely the argument made by Arthur B. Laffer. He drew a simple yet elegant diagram - apparently first drawn by the professor on a napkin as he had dinner with a friend at a restaurant- to explain the proposition and the 'Laffer Curve' soon became well known and came to be referred to frequently, in academia as well in government circles as policy makers in developing, so called 'third world countries', grappled with the seemingly intractable problem of effective resource mobilization. Briefly, the Laffer curve showed that starting from a zero rate of tax, given the size of the tax base, upto a point, an increase in the tax rate will increase tax revenue. Tax rate in-
crease beyond that point will decrease revenue. At the extreme 100% tax rate, tax collection will be zero. The curve further clarifies that for any given level of tax revenue collected, given the size of the tax base, there are two rates of tax capable of achieving the collection- a high rate and a low rate, and it is much better, in terms of it's economic effects, that the lower rate option be exercised to realize the given collection of tax. India was one country that appeared quite enamored of the Laffer curve logic and resorted to systematic tax rate reduction AND opening up of the economy by de-regulation and privatization coupled with development of the I T sector. The move paid rich dividends and India's coffers swelled with increased revenues and sharply increased exports and foreign exchange reserves went up dramatically. As Pakistan followed suit and reduced tax rates all round, the much feared decline in revenues did not happen. In fact tax revenue actually increased - fully consistent with the logic of the 'Laffer curve.' What has surprised everyone though is that even when self assessment of income became universal in Pakistan for the first time ever
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DotGazette through the income tax ordinance 2001, there was no fall in tax revenue. Again this appears to be in keeping with the argument made by Laffer - and six centuries earlier, by Ibn e Khaldun. While the tax statute was redesigned there was also a redesign of the administrative arrangements made to mobilize revenue. The entire tax hierarchy was re-modeled on functional lines and primary authority to levy tax and collect revenue was now invested in the person of the Commissioner of Income Tax in sharp contradistinction to the previous arrangements when the Income Tax Officer occupied pivotal position. Needless to say the Commissioner would delegate authority down the line and would not be doing everything himself but nevertheless a sea change has taken place in the conceptual framework laid out by government for the assessment and collection of income tax and this change is expected to go a long way in building up taxpayer confidence and improvement in compliance levels. Concomitantly, the compensation package for selected tax personnel in all categories - officer's as well as support staff- has been significantly augmented. Ultimately, some retrenchment of personnel rendered redundant appears inevitable but the measures in their totality are definitely expected to improve efficiency all round and that should translate into a much better tax to gdp ratio than it's present abysmally poor level. The plethora of 'exemptions' stipulated in the second schedule to the Income Tax Ord '79 have been another reason for the low tax yield. Over the
years this fiscal concession in the guise of a five year 'tax holiday' normally extended to a second five year term, was seen an important incentive measure for 'new industry' especially in the far flung regions of the country with deficient infra structure. While the blanket exemption from levy of income tax may certainly have 'facilitated' investment in new industrial projects, it is highly questionable whether the income tax exemption 'per se' was actually instrumental in the investment decision. Informed opinion today appears not to hold such exemption to be the key factor in an investment decision and 'non tax' factors are now considered to have been much more important. However an important 'exemption lobby' was certainly created that ensured it's retention on the statute and the large number of concessions accorded have played their part in reducing 'tax yield.' In the new Income Tax Ordinance 2001, the number and variety of 'exemptions' have been reduced - but not eliminated. However CBR is now committed to a policy of not encouraging tax exemption as a policy measure. Besides the 'tax holiday' the statutory provisions related to an accelerated allowance for depreciation are of significance in reducing the taxable income of 'new industry.' This allowance is retained in the new tax statute and has played a key role in reducing tax liability - and also tax yield. Tax concessions, once accorded, tend to become an almost permanent feature. These do erode the tax yield and have no clear and direct causal relationship with an in-
vestment decision. That being so dependence on such concessions ought to be avoided in the future. While all these changes are no doubt hugely significant in the context of revenue mobilization, the seemingly un-hindered growth of the 'informal sector' poses a grave challenge to tax administration in Pakistan. Over the years the so called 'parallel economy' has ballooned in size from Rs 15 bill odd in 1973 to Rs 1500 bill in 2006 with a 'tax evaded' component of Rs 2.15 billion in 1973 and Rs 180 bill in 2006. As a percentage of GDP, the 'Underground Economy' comprised 20% of GDP in 1973 and in 2006 this has increased to 35% of GDP. This sector robs the exchequer of desperately needed revenues, prevents enlargement of the tax base, undermines the 'rule of law,' acts as a brake on the growth of the formal sector, corrupts national income data, confounds economic planners, and burdens tax administration to the detriment of revenue. To be sure, the 'informal sector' is not ' all bad.' It does provide employment and income -albeit, mostly subsistence level income - and consequentially also some dignity- to a large segment of the national labor force and that is of course much better than unemployment and all it's attendant ills. Nevertheless, the fact that this sector is largely undocumented, pays no tax and contributes to the perpetuation of a tax base that is extremely narrow [only 1.7 mill registered taxpayers in a population of 165 mill] must mean that it cannot be ignored and it is incumbent on tax administration to deal with the problem 'head on.' The
new tax statute does help as non maintenance of regular accounts now entails significant penalty and can lead to prosecution and incarceration in a penitentiary - something that was absent in the old tax law-. However it appears that technology will have to be brought into play in a big way if it's continued growth is to be arrested and put into reverse. The tax reform initiatives involving computerization of tax procedures, networking, setting up of a relational data base, data mining etc are all of extreme importance as they will make it possible to collate data meaningfully and zero in on tax evaders. Only when this has happened in a big way will it be possible to have a significant impact on the 'informal sector.' Once the department achieves such capability it will then become possible to enlarge the tax base significantly and augment revenues meaningfully. The 'spin off' from advanced technology brought into play will enable departmental officer's to not only arrest and reverse the growth of the 'informal sector' but very importantly, will also provide the wherewithal for dealing effectively with the chronic understatement in turnover [and the resultant understatement of the Net Income declared in the tax Return] in the retail and wholesale sectors and also the manufacturing sector. Effective 'electronic surveillance' holds the key to 'tax compliance' and the sooner the department makes headway in this crucial area the better it will be for revenue mobilization. If there is a magic wand that tax administration can put into play to boost revenues, this is it.
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Ibn-e-Khaldun, 'Abd al-Rahman (1332-1406) His most important philosophical work is the Muqaddima, the introduction to a much longer history of the Arabs and Berbers. In this work, Ibn Khaldun clearly defines a science of culture and expounds on the nature of human society and on political and social cycles. bn Khaldun's work on the philosophy of history is a landmark of social thought. Many historians Greek, Roman, Muslim and other - had written valuable historiography, but here we have brilliant reflections on the meaning, pattern and laws of history and society, as well as profound insights into the nature of social processes and the interconnections between phenomena in such diverse fields as politics, economics, sociology and education. By any reckoning, Ibn Khaldun was the outstanding figure in the social sciences between Aristotle and Machiavelli, and one of the greatest philosophers of history of all time.
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His most important philosophical work is the Muqaddima, the introduction to a much longer history of the Arabs and Berbers. In this work, Ibn Khaldun clearly defines a science of culture and expounds on the nature of human society and on political and social cycles. Different social groups, nomads, townspeople and traders, interact with and affect one another in a continuous pattern. Religion played an important part in Ibn Khaldun's conception of the state, and he followed alGhazali rather than Ibn Rushd as a surer guide to the truth. The work on which Ibn Khaldun's reputation chiefly rests is and learning its grammar,
and on the use of intuition as opposed to logic in solving difficult problems, can still be read with profit. However, it is Ibn Khaldun's views on the nature of the state and society which reveal most clearly both his profundity and the originality that marks him off so sharply from his Muslim predecessors and successors. The overwhelming impression given by Ibn Khaldun's writings is that society is an organism that obeys its own inner laws Ibn Khaldun sees the historical process as one of constant cyclical change, due mainly to the interaction of two groups, nomads and townspeople
Ibn Khaldun does occasionally refer to the existence of turning points in history, and thought that he was himself witnessing one of them. The main cause for this great change was the Black Death, which had a profound effect upon Muslim society, together with the Mongol invasions; and he may also have been impressed by the development of Europe, whose merchants and ships thronged the seaports of North Africa and whose soldiers served as mercenaries in the Muslim armies. He suggests that a general change in conditions can produce an entirely new social and political scene, rather as if a new world had been created.
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DOTGazette IN THIS ISSUE
Interview: Yassie Hodges pg.1
Integrated Audit Training pg. 6
INTERVIEW
PATRON
Yassie Hodges, CBR CONSULTANT
STAFF ADVISOR
M. Muneer Qureshi (Director General)
Ms Yassie Hodges was interviewed by the Director General, DOT, Mr. Muneer Qureshi, When she was visiting Lahore in connection with the Special Audit Course DG(DOT): Yassie Hodges, can you tell us something about your professional background? YASSIE HODGES: My overall background is that I have approximately 27 years of experience in tax administration. I started my career with the Internal Revenue Service in the US as an auditor. I spent eight years as an auditor before I became resident lead instructor in training,training auditors that were coming into the service. I initially worked as Chief of Audit and later became the Director of Compliance responsible for collection, compliance, criminal investigation and research. Approx two years ago I left
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Kenwood Green re-inaugurated pg. 8
govt and started working with a private consulting firm. Part of my work with the consulting firm had to do with helping tax administrators in developing countries deal with problems such as those obtaining in Pakistan. I spent time in the Philippines specifically focusing in on their audit program looking at audit techniques. Before I came here I was actually in Kenya doing very much t h e
same type of work. So I was selected here to actually take a look at the full audit program in Pakistan- not just make recommendations but rather reach an agreement with the CBR and implement a full fledged audit program and then follow up and monitor the program to see whether the changes envisaged are actually being properly implemented. DG(DOT): You have been in Pakistan for some time now and have had an opportunity to get to know CBR personnel at all levels. What is your opinion of their overall competence and skill ? YASSIE HODGES: Generally I must admit that I am very impressed with the overall skill set within CBR. I think you have a highly educated workforce which is a plus for the organization as a whole. One of the things that I thought was a shortcoming however is whether you have the right people in the right job and that is something that needs to be taken into consideration. I was impressed
Dr. Hamid Ateeq (Additional Director) EDITOR-IN-CHIEF
Amna Faiz BhattY (Deputy Director) EDESIGN & LAYOUT
Zafar Iqbal Directorate General of Income Tax Training & Research, Sutluj Block, Allama Iqbal Town, Lahore. Ph: +92-42-7842710 PABX: +92-42- 7830211 Fax: +92-42- 7842702 Web: www.dgtrdt.gov.pk e-mail: dg@dgtrdt.gov.pk also by the fact that the organization puts in so much effort in it's overall training program but then again are we giving the right type of training to people for the jobs that they are assigned? In particular I think that it applies to the MBA program. I think that's an excellent program but I was also wondering whether that was the most effective way to do the program at this point in time. The new Income Tax Group & Sales Tax & Federal Excise officers have already spent 16 years in a learning environment and then to put them through a two to three year program before they even get any experience may be a little bit challenging in not being able to capitalize as much from
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DOTGazette The newsletter as well as its earlier issues are also available at our website www.dgtrdt.gov.pk DOT Peacock Photographed by: M. Muneer Qureshi
Kenwood Green' re-inaugurated
T
he eye catching wood structure known as "Kenwood Green" is a DOT landmark and was built in 1998-99 entirely through funding contributed by Mr Khalid Hameed, then DOT instructor in Bookkeeping & Accountancy. Not only did he provide the funding for the project, he also supervised the erection of the structure right from the cuttting and shaping of the wood planks to the painting of the finished structure, the installation of the large clock on the face of the structure and also the electrical lights and fixtures. The beautiful lawn where the structure stands was then uneven, undeveloped, rough ground, strewn with stones and pitted with potholes. This too was prepared painstakingly under the supervision of Mr Khalid Hameed with tons of earth trucked in from outside and the ground levelled and planted with grass and flower beds laid out. All this was done by Mr Khalid Hameed out of his love and affection for DOT and the finished structure was inaugurated by him on15th March 1999 and a commemorative plaque was put up. Mysteriously, this plaque subsequently 'disappeared' sometime in 2000 and no one seemed to be much concerned - notwithstanding the attention drawn to the disappearance of the plaque by Mr Khalid Hameed who by then had left his teaching assignment at DOT. This 'wrong' has now been addressed and on 18th Jan 2007 "Kenwood Green" was re-inaugurated by Mr Khalid Hameed and a fresh plaque, that is a carbon copy of the original, was unveiled by him in the presence of DOT faculty and selected guests including Mr Haji Ahmad, RCIT, Eastern Region, Mr A.A. Zuberi, former Director, DOT / Member ITAT, Mr Mohsin Akhtar, former Director General, DOT / Member, ITAT, Mr Nazir Chaudhry, Accountant Member, ITAT, Lahore Bench, Mr Saadat Saeed, former Director
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DOTGazette EDITORIAL
T
he January issue of the DOT Gazette wishes its readers a very Happy New Year. May this year bring the best to all the readers. For DOT, this year is turning out to be as challenging and demanding as the previous we parted ways with. In December we bid farewell to. the probationary officers of the 33rd STP who left for Karachi to pursue their MBA (Taxation) from IBA, Karachi. Since May 2004 till December 2006 The DOT administration was over stretched in organizing back to back five training programs of Income Tax Officers (ITO) and Assistant Commissioners . Come January 2007 ., and the Directorate is again geared up to shift its energies and resources to the Capacity Building Programs of Officers and Officials alike. DOT also hosted the first ever joint training program of around 40 Audit officers of both Income Tax and Sales Tax Group from 15th to 27th January 2007 Recognizing the selfless services of Mr. Khalid Hameed, a visiting faculty member, who enriched not only the minds of his students but also the DOT landscape with a legendary Kenwood Green , the Director General Mr. M. Munir Quershi arranged a special inaugural of the site . It is hoped that this gesture shall set future traditions of giving the rightful credits where deserved.
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the program than if they had they had some practical experience that they could relate to in the classroom. DG(DOT): So the MBA program is a good thing? Oh excellent! DG(DOT): But the overall training timeframe is perhaps too protracted? YASSIE HODGES: No, I was thinking of the timing for it. To give you an example, when I went for my MBA program one had to be a manager for 5 years before they even considered you for the program. …………….. The only thing that I was saying was that with this particular program where you bring in new Income Tax Group & Sales Tax & Federal Excise officers and put them in that type of situation for a whole year without any type of work experience…………….. is that really the best way to do it. Maybe giving them some practical experience first dealing with actual real life situations in the field and then bringing them back into the MBA program later will be a little bit more beneficial. So I don't have any problem with the length of the MBA program but just the timing.
DG(DOT): Do you think it would be possible to achieve all the tax reform objectives by 2009 - the so called, 'year of arrival?' YASSIE HODGES: I think it's very, very do-able -if you can stay focused. Sometimes one of the problems I have faced is that there is so much going on that it is easy to get distracted and get side tracked and everytime you get side tracked it takes you away from the ultimate goal that you are trying to get to. That is something you will have to look at very closely. Once the path is laid out then you should be able to put all available resources behind it so that you are able to fulfill the commitments instead of being directed to another area. If you do that then I think it's do-able. But it is going to be a hard jobI don't want anyone to think that this is going to be an easy job because it's not. I personally think that there are a lot of skills and abilities throughout the organization but they may not be utilized in quite the right fashion and that's what
needs to be focused in on. DG(DOT): Many knowledgeable people see the present tax system as inherently complex and a strain on tax administration and see a system based on a standard 'flat tax' to be more easily manageable and more effective in terms of results. The debate in the U.S has been quite contentious and many people appear frankly fed up with the almost mind bending complexity of the present system and would like to see a change and a shift to the 'flat tax.' What is your opinion on the matter? YASSIE HODGES: Yes, but that debate has been going on for some time. Whether or not it is ever going to be a reality, I don't know. But it's not only in the US that the debate has been going on. It is going on throughout the world because no matter what tax system you look at, everyone is saying the same thing whether or not an actual effort has in fact been made to simplify the system. From a theoretical standpoint I think it's an excellent idea if you could have a flat rate system. However I don't know what the overall consequences would be if a flat rate system were actually implemented. I am not really familiar with any research in this area. DG(DOT): So a shift to a 'flat tax' system is not imminent in the U.S? YASSIE HODGES: Imminent? No I don't think so! DG(DOT): There are skeptics in the Pakistan Tax Administration who are still uncomfortable with the Universal Self Assessment Scheme and see it as too far reaching and fear that given the weaknesses in tax administration,
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DotGazette taxpayers are bound , sooner or later, to exploit these to the detriment of revenue. What do you think? YASSIE HODGES: This topic I've often discussed with the Member Audit quite a bit. Universal Self Assessment does'nt mean that taxpayers can file a Return in any manner and in any fashion that they feel like. That's not what it means. Rather, taxpayers are required to maintain proper books and file proper returns and in order to have a strong program you also have to couple that with an effective enforcement program. With a proper audit program in place the USAS will in my opinion yield very good results - for revenue and for taxpayers. I do think that Universal Self Assessment is a very good idea. Taxpayers have already responded positively and frankly I don'nt see any reversal of the same. DG(DOT): Based on your experience so far, what new training initiatives would you recommend? YASSIE HODGES: One of the things that I think I would have most is instilling skills that would better enable tax personnel to solve practical problems that they come across. I have found everybody is talking a lot about the many problems in the organization. I would like to see people act a little differently- using skills to diagnose problems and then get to the root cause of those problems and finally resolve the problems. This is the way to move forward. When an organization focuses too much on the problems themselves and too little on ways and means for their resolution, it really starts getting everyone down. People lose their self esteem and morale. Any time you are in an
environment where everything is so negative, you have a problem and you lose productivity. The focus should always be on problem solving and if you can get people to start looking at the problem with a view to seeking it's resolution you will see dramatic improvement. However this is not going to be easy and it is imperative that all available resources are brought to bear to ensure that the requisite problem solving skills are instilled in the work force through appropriate training. DG(DOT): There is a lot of talk about the need to change the 'mindset' of the CBR workforce. This ofcourse is easier said than done. How do you think we should go about it?
We need to change this negative attitude in the organization as a whole. If that happens I think it would go a long way in changing the mindset on positive lines. You will see a change in the way people go about doing their day to day job and they will interact better with taxpayers. They will also take more interest in the organization as a whole. DG(DOT): What are your specific recommendations to increase the effectiveness of the audit workforce? YASSIE HODGES: One of the key things we can start with is the qualification of the audit personnel. We may usefully refer to Malaysia in this context.
Through lectures? Workshops ? YASSIE HODGES: Not really. I think it's more how you interact with people and treat everyone. I have a concern that there is still a 'class system' throughout the organization (CBR). It depends on what position you hold. People don't associate with certain types of people who they may perceive to be inferior to them in (official) status.
Malaysia is often cited as a role model in the ATAIC group. The manner in which Malaysia selects it's audit personnel has changed significantly since 2001. Auditor's are now required to have either an accounting or law background and without such a background one cannot even be considered for appointment as an auditor. What that does is that it speeds up the learning process. They are able to bring people in
and put them through a shorter period of training - may be three to four months in a class room setting. Then they are given onthe -job training where they actually apply what they have learned in the classroom and then the process is rotated back and forth. A more or less similar situation obtains in the U.S. In time you will be able to assess what their overall skill level is and to determine whether they are fit for their particular job. This way you can get much more productivity out of tax personnel than when you induct 'generalists' and put them in a class room setting for a protracted length of time. DG(DOT): Strong Executive support is essential to the success of any program of tax reform. You have worked in the CBR for some time now and have met the senior officer's, including the Members and the Chairman. What is your candid opinion of their commitment to tax reform? YASSIE HODGES: Frankly I really have been very impressed especially with the Chairman himself because he really takes keen interest in any and every problem facing the organization and is ever willing to move forward. So do other members of his team. When you have that kind of commitment in which the key players are willing to commit all available resources to get the job done, that is when things change for the better. I think that's a critical aspect when you are going through a reform process. DG(DOT): But the Chairman did not start his career in government as a taxman. Infact initially he worked in the private sector as a professional accounts man - he is a Chartered
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DotGazette Accountant. Is that a problem? YASSIE HODGES: I think that's a plus point. Any Organization can do with fresh outside perspective to better understand problems confronting the organization and to be able to devise new approaches for their early resolution. DG(DOT): Pakistan has a very narrow tax base. You have seen the statistics. Can anything be done in a hurry to enlarge the tax base? YASSIE HODGES: In a hurry? I don't know. Is it possible to expand the tax base within a 'reasonable' timeframe? Yes it is. One of the things I looked at when I came here was there is so much business activity that is going on and to have only 1.5 million tax returns………I just could'nt even imagine that especially when you consider that a large number of filers are salaried and wage employees. What about all those businesses that are not filing Re-
RESEARCH Tax Incidence
V
ery few reliable studies of tax incidence in developing countries. Broad indication of mildly progressive impact. "Chile case shows that this is not due to direct taxation; with VAT strongly regressive. "World Bank study (Ferranti et al, 2004) stresses importance of topic but comes up with no new evidence.
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turns? I think that if we, selectively yet systematically, focus in on a particular segment of the business population instead of doing a 'shotgun approach' trying to rope in all non- filers in one go, we will have much better results. May be doing a pilot study with the Rawalpindi MTU - because they don't deal with the corporate taxpayers- to look at what kind of data is currently out there and see if we can get data more effectively from the provincial governments. This way we can start using our own creative energy on a small part of the population and this narrow focus may actually help unearth many more non-filers than any other method. Once we have achieved success with this relatively small group, we can then replicate the methodology on a larger group until we have covered most of the 'potential' taxpayer population. These are the type of things that I think are very, very do-
able. DG(DOT): Finally, technology has been cited as a 'force multiplier' to dramatically enhance the effectiveness of tax personnel . What specific recommendations do you have in this area? YASSIE HODGES: I think that's a critical aspect. If collectively you really want to move forward quickly, technology provides many of the answers. Trying individually to do things with pencil and paper, you can go only so far. The rather limited taxpayer population in Pakistan actually makes it easier to concentrate resources and deploy technology effectively. You already have underway the Integrated Data Management system and Data Warehouseing. In order to efficiently digitize and put to use the mass of available hard copy data, proprietory Optical Character Recognition software in conjunction with Op-
tical Scanning hardware may offer a viable solution. Even if OCR is not always practical, Imaging technology can still help in making it possible to 'store' and then 'pull out' and use tax relevant information. Technology is able not only to facilitate Tax Deptt personnel but also taxpayers. Electronic filing of Returns and data input and access across telephone lines are realistic possibilities using appropriate technology. The imaginative use of technology creates a 'win-win' situation for everyone. However whenever technology is put to use in this manner to store, retrieve and collate sensitive data, it is essential that robust control and data encryption systems be devised simultaneously to ensure that the new systems are not misused in any manner by 'unauthorized' persons. Video of the Interview can be seen at www.dgtrdt.gov.pk
Sources of Tax Revenue for various country groups, 2001 Taxes on income profit and capital gains
Social Security contribution and taxes on payroll Property Tax
Property Tax
Sub-total: taxes on income and property
Taxes on goods and services
Other Taxes
Total
Percent of GDP OECDa 12.4 9.7 2.4 24.5 7.7 0.3 32.5 LACb 4.7 3.8 0.3 8.8 8.8 3.4 21.1 Othersc 6.5 0.8 0.2 7.5 8.3 3.4 19.2 Percent of total tax revenues OECDa 38.2 29.8 29.8 75.3 23.8 0.9 100 LACb 22.1 18.1 18.1 41.5 42.1 16.2 100 Othersc 33.9 4.2 4.2 39.1 43.2 17.8 100 a. Excludes Mexico b. LAC include Argentina, Brazil, Chile, Guetamala, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela c. Others include India, Indonesia, Malaysia, Russia, Singapore, Thailand and Ukraine Sources: Artana, Lopez Murphy and Navajas, 2003 OBCD Revenue Statistics 2001: IMF Government Finance Statistics and IMF country reports to complete on subnational government
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Decade Before Tax Gini Coeff Brazil 1970s 56.2 China 1970s 27.3 1980s 31.7 1990s 36.2 Czech Republic 1990s 28.3 Ecuador 1990s 51.5 Hungary 1980s 26.9 1990s 28.1 India 1970s 40.5 Indonesia 1970s 42.7 Mauritius 1980s 45.7 Mexico 1970s 52.5 1980s 50.6 Nigeria 1980s 35.7 Pakistan 1970s 33.5 1980s 33.4 Peru 1980s 49.3 Singapore 1970s 38.7 1980s 41.3 1990s 37.8 Taiwan 1970s 29.3
A f t e r-Ta x Gini Coeff 55.3 31.7 33.3 43.0 22.1 43.0 22.4 26.3 30.9 36.6 39.6 51.0 55.0 37.0 31.2 32.0 42.8 34.0 35.5 37.9 28.9
Difference Before and After-Tax Income distribution for Chile (1996) Decile Income Income Change in Progressivity (tax as % share pre- share of income total -0.9 Income VAT Other Tax tax after_tax share 4.5 tax taxes System 1.6 0 11 3.42 14.4 1.45 1 1.4 0.05 6.8 0 2.74 11.8 4.2 16 2 2.63 -0.11 -6.1 3.77 0 11.4 4.33 15.8 3 3.61 -0.16 8.5 0 10.9 4.25 4.73 15.2 4 4.59 -0.14 -4.5 5.57 0.01 10.7 4021 15 5 5.47 -0.1 -1.9 6.76 0.04 10.2 4.07 14.3 6 6.64 -0.12 -9.6 0.11 9.7 8.22 4 13.8 7 8.2 -0.02 -6.1 10.6 0.23 9 3.85 13.1 8 10.61 -0.01 -6.1 0.62 8 3.54 12.2 15.42 9 15.75 -0.33 -1.5 2.54 6.3 40.75 2.96 11.8 10 41.09 -0.34 4.4 GINI 0.4883 0.4961 1.4 RATIO 13.41 14.12 -2.3 -1.4 -6.6 -4.7 -5.9 0 -0.3
Source: Chu, et al. (2000)
Incidence of tax and spend Now widely argued that a single rate of tax on income/consumption combined with equal per capita income would be strongly redistributive (IABD, 1998) But this would only work if large cash transfers to the poor were involved (not a feature of EMs) as in UK; and above all depends on strong assumptions about distributive effect of public goods. The imputation of the benefits of public goods by income class is difficult, and can only be done rigorously for health and education (a third or so of public expenditure). Evidence on direct tax and growth Macroeconomic instability, debt overhang, social conflict much more an enemy of private investment that tax (Serven and Solimano)
Empirical literature for OECD countries indicates little or no effect of direct tax rates on growth. Strong intuition in endogenous growth theory that human capital is not a credit collateral, so inequality hurts growth (Aghion and Howitt, 1998) Growth and direct taxation Our preliminary estimates for OECD countries indicate a marginal positive relationship; and direction of causality remains to be established. Our estimates for Latin America indicate a barely significant (Rsq=1.7%) negative relationship. Growth is thus largely independent of tax rates. But even accepting this and assuming that causality runs tax=> growth, implies that doubling
direct tax burden from 5 to 10% of GDP would only reduce growth by 0.4% - surely an acceptable price for the welfare gain? Arguments against direct taxation Disincentives to saving and entrepreneurial or professional effort; corporation tax passed on to consumers. Difficulty and cost of collection, particularly in open economics (asset mobility) with large unregulated sectors (informal firms) and no cadasters etc. What matters is net incidence, so flat rate income tax (or better consumption tax, i.e. VAT) combined with targeted expenditure is the solution. Arguments for direct taxation Savings effect ambiguous (Ricardian Equivalence)
and effort disincentives exaggerated: inequality may lower growth. Collection problem one of political pressure rather than administrative incapacity. Direct taxation (progressive) central to the social contract with wealth-holders in a democratic society (Rawls).
Political issues Lack of administrative reach created by political process as well as crime, corruption etc. Wealthy avoid paying tax 'legally'. Tax evasion justified in elite discourse by corruption and waste in the public sector. Underlying lack of a sound social contract: not only between state and society, but between the wealthy and society.
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Integrated Audit Training The first such training program was launched at DOT's main campus at Lahore by CBR Audit Wing on 15th Jan 2007. This was a twelve day session and in a significant move, personnel from both the direct and indirect tax jurisdictions participated to make this a truly 'Integrated Training" program.
A
udit is a core component of the of the Tax Reform measures currently underway in CBR. are Without effective audit the Universal Self Assessment Scheme - an integral part of the Income Tax Ord 2001- cannot realistically be expected to yield the results expected by the framers of the new statute.
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Regular Audit of Income Tax Returns has been held in abeyance by CBR for sometime now pending formulation of a clear policy for selection of Returns for Audit. Personnel deputed for Audit are also being trained on professional lines for the first time ever. The first such training program was launched at DOT's main cam-
pus at Lahore by CBR Audit Wing on 15th Jan 2007. This was a twelve day session and in a significant move, personnel from both the direct and indirect tax jurisdictions participated to make this a truly 'Integrated Training" program. The training itself had been 'outsourced' to M/s Professional’s Academy of Commerce, a leading private sector institution manned by Chartered Accountants that was carefully chosen through a competetive, fully transparent selection process. The actual instruction in the class was less through the traditional 'lecture' and more through an interactive highly participative process, that included 'hands on' computer work. DOT participated fully in the preparatory phase of the program including design of the training curricula and training methodology and it also made it's excellent facilities available for the training sessions. DOT also independently monitored the actual conduct of the training sessions. The training program ended on 27 - 01 - 2007.
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DotGazette Capacity Building & Staff Training Programme durring Janurary 2007 In this context the Directorate regularly organizes Capacity Building Programs for officers and Refresher Courses for officials of the Income Tax Group. In the month of January 2007, two Refresher Co In the month of January 2007, two Refresher Co pacity Building Programs for officers and Refresher Courses for officials of the Income Tax Group. In the month of January 2007, two Refresher Course were organized for officials such as UDC's and LDC's. The duration of each course was 12 days and were so organized that Computer skills , Income Tax Laws and Civil Service Rules were taught for 12 hours each . Spot tests /quizzes and strict class attendance ensure the level seriousness attached to these trainings. Each batch comprised of not less than 22 par-
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BR is presently undergoing massive reforms whereby functional as well as infrastructural reforms are underway. In this scenario there is an increased emphasis on
the need to develop workforce capabilities at all levels by equipping them with appropriate knowledge, skills and abilities . In this context the Directorate regularly organizes Ca-
ticipants The Directorate also held one Capacity Building Programs for officers of grade1718 and one for officers of grade 19 in the month of January . The focus of these Programs was sensitization of participants to major economic issues facing the country in addition to issues related to Income tax. Lectures on topics such as WTO and Its implications for Pakistan, Water issue and its Economic Repercussions etc. were arranged from subject specialists. Multi dimensional training techniques were utilized to elicit maximum response from participants. To highlight the importance of Freedom Movement and the role of Jinnah , the movie "Jinnah" was shown to the participants and their views requested in writing.
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DOTGazette IN THIS ISSUE
The Taxation of agricultural income in Pakistan pg. 2
A trip down memory lane pg.4
PREPARATION
Inauguration of Gymnasium/Sports Room pg. 8 PATRON
Preparation for ATAIC conference of Heads of Training of Institutes
M. Muneer Qureshi (Director General) STAFF ADVISOR
Dr. Hamid Ateeq (Additional Director) EDITOR-IN-CHIEF
Amna Faiz BhattY (Deputy Director) EDESIGN & LAYOUT
Zafar Iqbal Directorate General of Income Tax Training & Research, Sutluj Block, Allama Iqbal Town, Lahore. Ph: +92-42-7842710 PABX: +92-42- 7830211 Fax: +92-42- 7842702 Web: www.dgtrdt.gov.pk e-mail: dg@dgtrdt.gov.pk
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he ATAIC( The Association of tax Authorities of Islamic Countries) was established in year 2003 at Kula Lumpur. The mission of the Association is to facilitate the improvement of tax administration and promote Sharia Taxation with particular reference to Zakat within the Islamic countries, in order to meet the challenges/changes rapidly taking place in the world. Its first conference was held at
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Malaysia Kula Lumpur. Thereafter the second conference was held at Tehran, Iran and the third Conference was held from 22nd to 25th November, 2006, at Islamabad, Pakistan ATAIC with twenty member countries is presently the most active organization of Tax Administration in the Islamic World. Member countries include, Bangladesh, Brunei, Darussalam, Comoros, Egypt, Guyana, Indonesia, Iran, Iraq, Jordon, Kuwait, Lebanon,
Malaysia, Morocco, Pakistan, Qatar, Senegal, Sierra Leone, Sudan, Tajikistan and Yemen. In order to explore opportunities for further cooperation in the field of tax training, a Conference of ATAIC head of training institutes is scheduled from 12th 14th March, 2007. As Chairman, CBR Mr. M. Abdullah Yusuf, is currently the Chairperson of ATAIC, the Directorate of Training & Research [DOT] has the honour of hosting this International
Conference at its Lahore Campus. In addition to member countries, delegates from USA, Turkey and IBFD [The Netherlands] are also participating as observers. In order to make the upcoming Conference a success, the entire staff and faculty of DOT is actively engaged in organizing this event. General repairs in the International Hostel, refurbishing of the main entrance lobby and upgrading and modernization of conference room [Iqbal Hall] are underway. It is hoped that the combined energies and efforts of all involved synergize to make this event a success.
DOTGazette EDITORIAL
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he March issue of the DOT Gazette coincides with the welcoming gentle winds of spring beckoning us all in action.. In DOT itself, hectic preparations for the upcoming ATAIC Conference scheduled from 12-14th March are underway. These preparations however, have not gotten in the way of all important in service capacity Building Programs organized by the Directorate. Keeping pace with the momentum of past one month, three separate Capacity Building Programs and the second Integrated Audit Training course were held in the month of February. Credit goes to the efficient organizational skills of the DOT administration for successfully managing all these activities, albeit, sometimes simultaneously. Another achievement for DOT is the upcoming affiliation with IBFD (International Bureau of Fiscal Documentation) Amsterdam, Holland. IBFD is a world renowned institute known for research and publications on international as well as local fiscal laws and statutes. This affiliation would make all current publications of the institute and its library accessible to DOT for utilization in teaching and research. Not to be out done in the field of physical training along with building of mental capabilities, DOT recently upgraded its Gym / sports facilities through purchase of necessary exercise equipment.
The Taxation of agricultural income in Pakistan Income from agriculture is exempt from levy of income tax in Pakistan because the law governing the taxation of income declares such income to be outside the ambit of taxability. The continuation of this exemption for agriculturists not only deprives the federal exchequer of significant potential revenue but also sabotages attempts to inculcate the ideal of voluntary compliance which is central to the functional efficiency of any system of taxation.
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griculturists in Pakistan contribute nothing to the federal exchequer by way of taxation of the incomes generated by them from their agricultural pursuits. The share of the agricultural sector in the total direct tax burden (federally administered) is thus zero. Considering that agriculture as an economic sector contributed more than 20% to GDP - the highest of any sector- the conclusion is inescapable that something is seriously amiss here and it is the duty of government to address the situation directly and design a system of income taxation for this sector that will cater to it's peculiar features and yet make the necessary contribution to the federal exchequer. The argument for taxation of agricultural income rests on the fact that there exists a 'slack' in this sector in terms of untapped capability that the right kind of policies can exploit to release resources to fund the overall development effort. That there exists an actual 'slack' in the agricultural sector in Pakistan appears to be borne out by various indices viz inefficient cropping pattern, under utilization of fertilizer, inadequate and / or improper use of pesticides / insecticides, improper use of irrigation facilities and
mis-utilization of private investible potential in the hands of the farmers. Because of this 'slack' Pakistan is no where near the top among other developing countries with significant agriculture in terms of agricultural productivity and this not because Pakistan's agricultural land is inferior but because that land is not properly cultivated and the agriculturists are not much inclined to make the extra effort to do so. If tax on agricultural income was to be levied however - as was done in Japan- then perforce the agriculturist would have to put in that extra effort to increase the productivity of 'all' land -including land now labeled as marginal or barren. Historically, we have the telling example of Meiji Japan where when in the 1880's the drive to modernize Japan was launched aggressively, heavy
taxation of agriculture brought in it's wake a huge increase in land and labor productivity, quite unparalleled in the history of the world. Of course it was the successful harnessing of the dormant 'capacity' or 'slack' that led to this increase. Had there been no 'slack' taxation would only have resulted in misery for the agriculturist. Taxable capacity of a person is based on the income that person can earn in a given period less the subsistence requirement for himself and his dependent family. What remains after meeting the subsistence requirement is the extra out of which taxes can be paid. In a society with a fairly skewed income distribution those at the upper end of the skew will have the most capacity to meet taxation levies notwithstanding the fact that their subsistence requirements would be larger
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DotGazette as their perception of subsistence would be different from say a small farmer with a limited landholding. Thus average per capital income data is not really very useful in defining taxable capacity in a given sector of the economy. We must know how this income is actually distributed. Inequalities of distribution must mean differences in taxable capacity. 'Subsistence' has different implications in the agricultural and other non-farm sectors. This is because subsistence has a biological as well as a sociological basis. In strictly biological terms it entails the requirement to keep body and soul together i.e., it is essentially a 'survival' matter. In that narrow sense it can be argued that the subsistence allowance both in caloric and monetary terms would be roughly the same. However when we look to the sociological dimension we do see that 'subsistence' has a quite different connotation in the farm and non-farm sectors. Thus families in the rural areas, in general, do not spend as much on fuel, lighting, house rent etc as do their counterparts in the non-farm sectors. Infact the differences are quite significant. Furthermore, other 'necessary' expenditure that non-agricultural families in general and urban families in particular have to bear is that connected with clothing, footwear, medicines, education and even entertainment. In all these areas the agricultural family escapes much of the high expenditure enigma that the non-agricultural family cannot - though of course in varying degrees. An addi-
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tional complicating factor is that non-agricultural families have to make the bulk of their purchases from the 'market' and have to contend with service and marketing costs that add to prices. In view of what is stated above, it is apparent that 'subsistence' in the agricultural sector costs a good deal less than in the non-agricultural sector. That being so the incidence of indirect taxes- which generate the bulk of government revenues- is necessarily markedly less on the agricultural sector than elsewhere. This therefore adds to the advantage that the agricultural
exaggerated impact in the agricultural sector as the majority of the population resides there. Thus lower relative subsistence requirements in the agricultural sector must mean a higher relative taxable capacity. That is why we say that the agricultural sector has the potential capability to suffer much higher taxation than it currently has to bear. The incidence of benefits of public expenditures is another important aspect to be considered in the context of the economic argument in favor of additional taxation of the agricultural sector. An
sector has through the income tax exemption. In other words we can safely conclude that the tax burden there is markedly less than in the non-agricultural sectors. This is contrary to what many commentators say - especially those who speak 'for and on behalf' of the agriculturists- who would have us believe that the tax burden in infact roughly the same for the agricultural sector vs a vis the other sectors since indirect taxation which everyone has to bear must have an
analysis of public expenditures on the current and capital account would reveal that government expenditures incidence is much greater than the tax incidence on the agricultural sector. This implies a net outflow of public funds both on the current and the capital account from the nonagricultural sector to the agricultural sector. What it boils down to is the inescapable fact that the agricultural sector is receiving much more monetary funding than it is contributing. Inter
sectoral inequity is thus patent. In Pakistan there appears to exist sound economic justification for really strong taxation on agricultural income especially on the big land owners. It is known to all that these big feudals have made a mockery of land reforms and continue to own huge tracts of prime agricultural land. It follows that the income from these landholdings also accrues to them. Notwithstanding the charges that they do bear by way of abiana etc the fact remains that their taxable capacity is enough to bear the burden of income taxation. A progressive land tax combined with a presumptive income tax could yield good results both with regard to generation of revenue and for achieving other economic objectives. However if political impediments to implementation of a progressive land tax are pronounced, other alternatives can and should be explored and these include a fairly heavy proportional land tax. Whatever alternate is chosen -or 'mix' of alternates- it should be recognized that an effective tax policy for the agricultural sector will have to be formulated in conjunction with other specific measures viz land reform, technological change and specific measures to improve the lot of the small farmer
Contributed by:
M. MUNIR QURESHI
DOTGazette 1STCOMMON
Dot Gazette feels privileged for commencing this journey into the past from Mr. Haji Ahmad. With the most apt educational background of Master in Administrative Sciences from the Punjab University, Mr. Ahmad joined the 1973 Batch of Civil Servants, named "The First Commons".
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tarting from our March 2007 issue, DOT Gazette has initiated a new theme Captioned - "A Trip down the Memory Lane". Under this theme, beginning from 1st Common onwards, each issue shall include a special writeup on Income Tax Officers belonging to various Common Training Programs. The purpose of these writeups is to establish a communication link amongst officers of our group belonging to various commons. Dot Gazette feels privileged for commencing this journey into the past from Mr. Haji Ahmad. With the most apt educational background of Master in Administrative Sciences from the Punjab University, Mr. Ahmad joined the 1973 Batch of Civil Servants, named "The First Commons". Be it a mere coincidence of time, he was lucky enough to
be groomed as a probationer in the very first batch, resulting from the then "Civil Service Reforms Agenda", where officers of various cadres /occupational groups were to be commonly trained. Mr. Ahmad vividly remembers the initial days of service as formative phase of his life as a dedicated Civil Servant. He very proudly counts on the opportunity of working as Salary Circle assessing Officer under the ablest guidance of Mr. Abdul Aziz Khalid, the then Commissioner of the Lahore Zone nearly encompassing the entire areas now styled as Eastern Region, Lahore. Mr. Abdul Aziz Khalid, is a note-worthy poet and eloquent writer. Mr. Ahmad quite emotively memories his early days super-ordinates, Ch. Salah-udDin, and Mr. Sikandar Hayat Khan; the former for his dedication to extensive develop-
ment works he had undertaken and the later for being a strict disciplinarian, a researcher, thorough bred tax professional, prolific writer and poet. The traits of being an efficient administrator with a noticeable passion for reforming the institution and love for literary activities can be perceived to be a reflection of Mr. Ahmad's grooming in the initial years of service while working with these super- ordinates. Given the administrative milieu of the department in those old days, the idea of getting posted in the Companies Circle very after his promotion to BS-18 and then, persistently continuing as assessing Officer of Companies till further promotion in next grade, gives him a solace. Coming true to the maxim, "Luck always favours the hard worker" Mr. Ahmad was se-
lected in an open competition for the coveted "Mason Fellowship" at the prestigious Kennedy School of Government (KSG) at the Harvard University. Proving his worth as an excellent academician at KSG, Mr. Ahmad earned a certificate in "International Tax Program" at the Harvard Law School (HLS) in addition to Masters in Public Policy and Management. One of the latest feathers in his cap of success, of which all members of the service are rightly proud of, is the conferment by the Prime Minister of Pakistan of "Certificate of Commendation" for the year 2005-06 on him alongwith his worthy batch mate, Mr. Salman Nabi, the Member (Direct Taxes). Besides his dedication and commitment to the official business, he has been successful in not letting his passion for Sports and Arts diminish in any way. No wonder, he is also the Senior Vice President of Pakistan Gymnastic Federation, President of the Punjab Gymnastic Association and the Editor in Chief of the pioneer annual publication of the Regional Tax Office, "The Renaissance". He has represented Pakistan on a number of international sports congress both inside and outside our homeland. Our discourse with Mr. Haji Ahmad, explored the soft, mellow, subtle and kind person inside the strict administrator when he remembered his passed away batch mates with un-controlled tears. Rightly remarked by one of his batch-mates,"Ahmad is a highly qualified batch-mate, who has inherent cravings to excel in every walk of life"
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DotGazette FLASH BACK The year 1973 will go in history as Year 1 for the Civil Service of Pakistan, coming in place as a result of Administrative Reforms of early 70's. It was for the 1st time that initial training of all service/occupational groups was jointly organized at the ACADEMY FOR ADMINISTRATIVE TRAINING, LAHORE. The main campus of the academy was situated opposite The Administrative Staff College (The Mall) in Lawrence Garden in a grandiose building which is presently known as "Quaid-eAzam Library". The batch comprised of 247 probationers, who joined the common training program on 1st December, 1973. Unlike the later day development, group allocations were not made prior to joining the Common Training Program (CTP). Implicit in any transition are the experimentations, and differences of opinion. It was decided that final group allocation would be done on the basis of combined marks obtained in the initial Competitive Exam and Final Passing Out Examination (FPOE). As a bye product of transition, most probably the difference of opinion between the Establishment Division and FPSC, reflected in what ultimately happened to the batch while getting allocated to various services. May be in a bid to flexing its arms, the then FPSC cleared only 16/17 probationers in the Final Passing Out Examination, setting a tough target for the Establishment Division to go for allocations. The riddle was however resolved
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when it was finally agreed between Establishment Division and FPSE that those probationers who cleared the FPOE shall have their first choice of group allocation and the rest of the probationers would be allocated on the basis of joint marks of competitive examination and FPOE, irrespective of their not getting through the exam. Courtesy the transition, one of our batch mates who was the last to join the training program due to dropouts of few successful candidates, got allocated to DMG group as he had cleared the FPOE. A hind sight interpretation
ferent important positions across the country. Coming back to our parent service - Income Tax Group, the 1st Commoners are holding important portfolios inside / outside CBR and working continuously to serve the department and the country to the best of their abilities. Our Income Tax Batch from 1st Common comprised of 20 bright and committed officers. Describing persons is generally difficult but once it comes to your known ones it turns out to be an uphill task. Looking back through the prism of time takes one back to memorable moment. Writing about
and London. A frequent visitor between Pakistan and Great Britain, he is touching new heights of glory in international exposure. Mr. Zahir Kaleem is a jovial person lively to talk, who excelled amongst his batchmates to an international position in CATA. He is presently working as Executive Director of Common Wealth Association of Tax Administrators (CATA), a prestigious slot for a number of common wealth countries in the World. Mr. Muhammad Khan, having command over both Pushto and Punjabi languages
1st Row sitting L to R: Hamid Ali Alvi, S. Ansar Hussain Shamshi, Abdul Hameed Khan, Ali Asghar, Kh. Anees Ahmad (Deputy Director), M. Zafar Ali Rizvi (Asstt. Director), Kh. Muhammad Sadiq Butt, Sayed Nasrul Karim Ahmad Ghaznavi, Abdul Rauf Khan 2nd Row sitting L to R: Tahir Sajjad, Parvez Akbar Lodhi, Muhammad Saeed, Muhammad Mazhar Hussain, Ashfaque Ahmad Memon, Mukhtar Ahmad Gondal, Arshad Mahmood Malik, Hazrat Ali, Khadim Hussain Chaudhri, Inayatullah Kashani, Ghulam Qadir Mahar, Abrar Alam, Tariq Iqbal Puri 3rd Row sitting L to R: Hafeez ur Rehman Khan, Mazhar Ali Sha h, Muhammad Khan, Muhammad Asadullah Sheikh, Haji Ahmad, Malik Muhammad Ashraf, M. Mohsin Khan, Aftab Ahmad Shah, Saleem Sultan Durrani, Moin Gul Khan Afridi, Zafarullah Sheikh
of history reveals that the Common Training Program has served an important national purpose of inter-provincial harmony and inter-group cohesion. By the grace of God, a sizeable number of 1st commoners are contributing to the welfare of the homeland in dif-
friends and batch mates is always gratifying: Mr. Qadirul Jalil is a good friend and batch mate, who opted for retirement from service on his own initiative. He is presently running a consultancy and family sports business in Lahore, Sialkot
and hailing from Attock, is presently posted as CIT (Appeals) at Islamabad. He is a friend of friends, who is living his life in his own peculiar way of living. Mr. M. Illyas Sheikh is a very lively personality from Lahore. He is presently posted
DOTGazette
as Commissioner (Southern Region), Karachi. Now settled in Karachi, he is an active participant of social life in the metropolis. Mr. Mukhtar Ahmad Gondal, a serious minded prominent figure amongst 1st Common Income Tax Officers, is presently posted as D.G. LTU, Karachi. Earlier, in the Direct Tax Policy side of the Central Board of Revenue, he proved his mettle in negotiation of International Tax Treaties. With God gifted qualities and religious - cum - mystic leanings, he has made himself singular in the tax service and social life. Mr. Usman Khalid Mirza is again another outstanding, sober and graceful officer of our batch, who will be the last man to compromise on his virtuous graces. He is presently posted as D.G. (Inspection & Audit) C.B.R. Affectionately called as "Judge Sahib" by the batch mates, Mr. Salman Nabi was a Civil Judge before joining the Income Tax Service. He is a serious - minded career officer; besides having a ready wit and a live sense of humor. Salman is presently serving as Member (Direct Taxes)
C.B.R., and thus holding the most important post in this period of transition and reforms and is managing the affairs excellently. Khawaja M. Sadiq Butt, a representative from the beautiful valley of Kashmir, is a colleague who was always smiling and ready to help. He is now retired from service and is enjoying a peaceful family life. Mr. Abdul Ali Khan is presently posted as Chief Coordinator (DPC). Mr. Khan always had an impressive and charismatic personality. A part of his charisma stemmed from his name "Hazrat Ali". When he initially joined the common training program, his name "Hazrat Ali" evoked immediate responses. When he introduced himself in the academy as "My name is Hazrat Ali", the batch mate sitting next to him retorted and said " and I am Amir Maawia!!". Hailing from Rocky Mountains of Ghazni Khel, Mr. Ali had the taste of serving across the country. Persistently practicing muslin since his childhood, he safeguards the characteristics of a Pakhtoon. Mr. Umer Khan M ohmand was our only batch mate from
FATA and has now retired from service. He served for most part of his career in NWFP. However, just before his retirement he was posted as Commissioner (Sargodha). It seemed that God wanted him to have a good taste of Kinoos and Punjabi diet before bidding farewell to the service!! Mr. Inayat Ullah Kashani, a Baloch to the core, is our only batch mate from Baluchistan. He possesses a witty personality and an intelligent bearing. He has retired from service and one of his sons qualified for the Competitive Examination and joined the DMG Group. Mr. Abdul Ghani Channa is presently posted as C.I.T., (Southern Region) Karachi, Channa is a thorough gentleman who has to his credit noteworthy publications in Sindhi literature. Mr. Iqbal Muzaffar is another accomplished batch mate of ours who is presently posted as D.G. RTO (Rawalpindi). A witty and affectionate person by nature, Iqbal is also a poet with active interest in literary pursuits. He is loved alike by seniors, colleagues and juniors. Mr. M. Farooq Ahmad Amin: Educated in Law from London School of Economics (LSE), he could not withstand the bondages of civil service and opted to quit in the early years of his career to independent life. He is presently running a successful consultancy in Karachi. Sardar Irshad Shaheen is presently posted as the Regional Commissioner (AJK) and in that capacity he is incharge of all taxes. A poet and writer, he used to organize
memorable literary gatherings while he remained posted in places such a Gujranwala, Fasilabad, Sialkot and Sargodha. As a young man he was known for his progressive leanings. Life herein is transitory. Some of our batch mates have left this mortal world, obviously leaving a sense of profound grief amongst the survivors. All of them are so close to my heart that though physically apart, their presence is always felt by my soul . A brief introduction of those friends; Mr. Munir A. Sheikh was a thorough gentleman and professional, who left this world at the prime of his career, leaving an indelible impression of his nice, disciplined and sober personality for his batchmates, colleagues and friends. His last assignment was as Member ITAT. Mr. Aftab Ahmad Kohati was a hardworking and competent officer, whose untimely death in grade 19 was a sad blow to his family as well as friends. Mr. Muhammad Arshad Malik was another of our very competent colleagues, who resigned from service in Grade 19. A jovial and well rounded personality, he established a name for himself in the field of business. Another tragedy for his family is that his brother another officer of Income Tax Group Mr. Amjad Malik, has also passed away. Mr. Nawal Rai N. Oad was a master in figure work, accounting and law. He was always ready to guide fellow colleagues in solving problems while undertraining in the academy. His last posting was as C.I.T. Corporate Region, Karachi.
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DotGazette TRAINING
Training Activities Undertaken in February
The purpose of all such trainings and capacity buildings remains to expand the horizon of mid career officers of income tax group through lectures and group tasks. The Directorate also organized two separate capacity building programs/trainings for Income Tax Officers (ITO)/Special officers and Supervisors/Administrative officers.
these training programs were simultaneously organized from 12.02.07-24.02.07. Each group comprised of more than 20 officials each. The focus of these trainings was to explain the new provisions of Income Tax Ordinance 2001 and to upgrade the computer skills of the officers. The second session of the Integrated Training Program commenced from 19th February 2007 and as previously officers of both Income tax and sales tax
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he DOT Lahore Campus remained busy in conducting various Capacity Building programs for officers as well as officials during February . In addition , the second session of the Integrated Audit Training Course of officers of both income tax and sales tax was organized in collaboration with Audit Wing ( CBR) and Professional Academy of Commerce (PAC) . The main focus of Capacity Building Program for grade 19 officers held from 12.2.07-17.02.07 was sensitization to important economic concepts having relevance to incidence of taxes and measurement of economic growth. Extended lectures and group discussions were held on topics such as " The phenomenon of Under ground Economy,"
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" WTO-Concepts & Implication" , "Integrity Management ( Working of Invigilence Wing ,CBR)"etc. In addition , two lectures were organized on " Sales tax-Concept & Practice in Pakistan" in view of the future merger of two internal taxes in RTOs and LTUs. Mr. Akhtar Ali Naeem (Ex-Collector Customs ) delivered these lectures followed by a lively Q&A session. In all 32 participants in grade 19 from all over Pakistan underwent this Program. The pur-
pose of all such trainings and capacity buildings remains to expand the horizon of mid career officers of income tax group through lectures and group tasks. The Directorate also organized two separate capacity building programs/trainings for Income Tax Officers (ITO)/Special officers and Supervisors/Administrative officers. Both of
participated in the twelve days training program. Largely based on case study approach, the purpose of this training is to equip the officers of audit wings of both services in conducting meaningful audits. The Directorate remained fully associated in planning the course design and in provision of all allied infrastructural facilities to the participants of the course..
DOTGazette Inauguration of Gymnasium/Sports Room Y et another achievement in the month of February for DOT was the inauguration of the newly created Gymnasium /Sports room .The need for proper gym facilities complete with necessary exercise equipment was being felt for the last few months. All modern training campuses provide gym/sports facilities for ensuring mental as well as physical discipline amongst the trainees. Recognizing this need , our Director General, Mr. M. Munir Qureshi , took a personal interest in sanctioning the necessary funds for this purpose. Dr. Hamid Ateeq ( worthy Additional Director & also our health mentor!!) and Dr. Yasmin Fatima ( Deputy
erly utilized by the probationary officers as well as by the faculty. In future , there are plans for construction of a separate Gym complete wi th sports facilities like Tennis , badminton etc. under one roof. For faculty members
Director & another doctor!! ) surveyed the market and selected the equipment comprising of electronic/ manual tread mills, Air bikes, Stepper, Twister etc.
there shall now be no excuse for extended waist lines!! Also present at the inauguration were Mr Haji Ahmed , Regional Commissioner (Eastern Region ) and Mr. Noorul Amin Hotiana (Add. Commissioner (HQ)).
Thus equipped , DOT is keeping up with its past efforts for making its Lahore campus an International Tx Training Academy. It is hoped that these facilities shall be prop-
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ATAIC PICTORIAL pg. 5
ATAIC International Conference of Heads of Training Institutions, March 12-14, 2007, DOT (DT) Lahore, Pakistan. pg.1
PATRON
M. Muneer Qureshi (Director General) STAFF ADVISOR
Dr. Hamid Ateeq (Additional Director) EDITOR-IN-CHIEF
“....The theme of the conference was ‘Technology as a Force Multiplier in training and the workplace’....."
Amna Faiz BhattY (Deputy Director) LAYOUT & DESIGN
Zafar Iqbal he first Conference of ATAIC Heads of Training Institutions was held at the Directorate General of Income Tax (Training and Research), Lahore from March 12 -14, 2007. Nine countries represented by seventeen delegates, including observers, participated. The theme of the conference was "Technology as a Force Multiplier in training and the workplace." The purpose of holding this conference was to look in-depth at the existing arrangements for training of direct tax personnel in the ATAIC group, to evaluate different options to improve the same and develop a broad consensus on the key issues involved and the best practices in this area. The poor yield from taxation is a feature common to many countries of the ATAIC group. The tax to GDP ratios are well
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veloped countries where a yield of 20% and above vis a vis GDP is not uncommon. And in the highly developed Scandinavian countries tax to GDP ratios of 40% and
above are commonplace. In the ATAIC group the average "aggregate revenue" [tax and non-tax revenue] for the entire group comes to just 419.5 bill dollars US which is just 12% of the overall GDP of 3474 billion dollars. Considering that the aggregate revenue includes both tax and non tax revenue, the yield from taxation is certainly very much on the lower side. Countries like Pakistan have a tax
ATAIC Chairperson, Mr M Abdullah Yusuf, the driving force behind the March 2007 Conference of ATAIC Training Heads, in whose tenure as Chairman, CBR, CBR has, todate, hosted three ATAIC Conference (April 2005, on Revenue Forecasting,
Directorate General of Income Tax Training & Research, Sutluj Block, Allama Iqbal Town, Lahore. Ph: +92-42-7842710 PABX: +92-42- 7830211 Fax: +92-42- 7842702 Web: www.dgtrdt.gov.pk e-mail: dg@dgtrdt.gov.pk to GDP ratio of just about 10%. Needless to say this needs to be improved drastically. Only three countries of the ATAIC group, oil rich Kuwait, Qatar and Iran are able to generate aggregate revenues significantly in excess of their aggregate expenditures. Consistent with the Conference theme, presentations were made on a wide range of topics including Forensic Audit, Computer Forensics, Simulation methodology, Computerization in the tax department and it's role in selecting Returns for audit, data warehousing, multi
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DOTGazette EDITORIAL M
arch 2007 was one hectic month. It was the month of the ConferenceThe first meeting of ATAIC Heads of Training Institutions since the inception of the Association in 2003. Many months of diligent preparation went into the landmark event. Eventually the hard work paid off and when the delegates started arriving on March 10, DOT(DT) had an almost festive look to it with National Flags of the Member countries fluttering on the flagpoles on the sparkling green front lawn ablaze with the bright colors of spring flowers. The above average rain in March contributed to a pleasant extension of winter chill and added to the natural beauty of the conference setting. And that was not the only change one noticed on entering DOT. The main entrance to the DOT administrative block looked quite, quite different. The old faded photographs of stern tax men of yesteryears were gone and in their place were panels of outstanding examples of Islamic calligraphy - by the great Sadequain. The brand new Conference Room - the main conference venue- was another significant change at DOT. With state of the art electronics and sound system and eye catching furniture it made an immediate impact on all who entered the room. Alas! all good things do have an ending. But the memories remain. And the tremendous goodwill generated in these three memorable days at DOT will
dimensional training methodology etc The use of modern technology has revolutionized work place practices in all areas. Information Technology has probably had the biggest impact of all the different technologies available. At the heart of Information Technology is the ubiquitous computer. This may be a full fledged 'mainframe,' a 'mini mainframe,' or a P.C. Whatever it's configuration, given appropriate software, a networked environment and suitable peripherals, this machine has magnified enormously the human capability to store, retrieve and process vast amounts of raw data. In revenue mobilization, the training of tax personnel in diverse disciplines is today heavily dependent on modern technology. Forensic audit, computer forensics and Simulation are all highly specialized areas in which tax personnel need to be trained intensively in order to make it possible for them to conduct meaningful audit, detect tax evasion, bring the concealed / suppressed income to tax and, in selected cases, successfully prosecute tax evaders in a court of law, leading eventually to a significant jump in government revenues - revenues necessary to launch programs of economic development and meet other pressing expenditures, including those on Defense and Administration. At the DOT(DT) main campus at Lahore there has already been a sea change in the induction of modern technology to impart training to tax personnel. Four, state of the art computer labs with 100 odd P-IV branded computers with comprehensive, uninterrupted power backup
ronment are the core component of the new technology dedicated to provide training on the Tax Management System (TMS) newly developed by Pakistan Revenue Automation Ltd, a fully owned CBR subsidiary company. Besides, multi media projection, electronic panaboards with built in optical scanners, laser printers and flat bed optical scanners etc lend full support. It is now possible to render realistic simulation scenarios using dedicated proprietory software. DOT(DT) is also well on the way of becoming a full fledged member of the International Bureau of Fiscal documentation and will soon be able to tap the superb on-line IBFD resources including comprehensive data base and specialized tax journals and this promises to lead to a quantum jump in DOT(DT) training potential. Incidentally, IBFD membership does not come cheap and CBR's willingness to commit significant resources to the much sought after membership of this prestigious institution is symbolic of it's firm resolve to upgrade the training and research establishment and bring it up to International standards. The first Conference of ATAIC Heads of Taxation Training Institutions was inaugurated on the 12th March 2007 by Mr Salman Nabi, Member (Direct Taxes), CBR and in his inaugural address he recapitulated Pakistan's participation in the ATAIC Technical Conferences held so far and CBR's initiative in emphasizing the need for a conference convened expressly to appraise the arrangements for training of taxation personnel within the ATAIC group. He pointed out that most ATAIC
recurring fiscal deficits and there was an urgent need to augment revenues meaningfully which can only happen if there was a very well trained workforce of taxation personnel. Mr Salman Nabi drew attention to the fact that in an era of globalization and economic integration it was imperative that taxation personnel are familiar with the latest investigative techniques and understand the relatively new science of computer forensics for which a concerted training effort was necessary. He pointed out that a beginning had already been made by DOT when in 2005 a 12 day workshop on revenue forecasting was organized using the micro simulation approach developed by a foreign consultant to plot future revenue streams. He expressed confidence in DOT's ability to conduct more workshops on these lines and advised that DOT implement a CBR commitment to the United Nation's to use the available training facilities at DOT on an international plane. Mr Muneer Qureshi, DG(DOT)(DT) also spoke on the occasion. During the conference proceedings delegates from all the participating countries made presentations and there was something of value in each presentation. However the presentations by the delegates from Malaysia and Turkey do need special mention. Malaysia has made significant progress in developing training modules in Forensic Audit, Computer Forensics and Simulation and has been identified as a Best Practices ATAIC Member in these disciplines. The efficacy of Tax Administration in Malaysia is evident from the fact that with
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DotGazette has more than four million registered taxpayers (20% odd). Likewise, Turkey has much to offer in computerization generally and more particularly, data ware housing and although not yet an ATAIC Member but because of it's active participation as an 'Observer' in all ATAIC conferences / meetings, is identified as a Best Practices country in these areas that ATAIC members can emulate. The progress made by Turkey in the imaginative use of computers and related Information Technology is evident from the fact that 91% of corporate tax taxpayers in Turkey use the e-filing channel for tax Returns and overall some 67% of the total taxpayer population [corporate and non corporate] required to file Tax Returns use the e-channel. This translates into savings of some 6000 tons of paper annually with a monetary value of some 1.2 million euros. From Pakistan there was a useful presentation by PRAL CEO, Mr Nasir Khan on the computerized Tax Management System in which DOT(DT) facilities have been used to provide training to a core group of master trainers who are now in a position to impart training to members of CBR's field formations in different parts of the country. The TMS is unique in that it has been developed by CBR / PRAL using in-house expertise. It is based on the Oracle Data Base platform and is being used to input tax data to build a 'taxpayers profile' and to implement and store statutory orders of income tax assessment, rectification and issuance of refunds. Mr Muhammad Talha, Member (HRM) CBR, [Pakistan] made a very succinct presenta-
/ Capacity Building and explained how the reform process has evolved since 2001 with special reference to the training program for CBR personnel. Also from Pakistan, Mr Muneer Qureshi, the Director General DOT(DT) explained to the conference delegates the new 'multi dimensional' training methodology being developed at DOT(DT). In contradistinction to the previous, lecture based uni-dimensional training methodology in vogue since 1947 [and even earlier!], the new holistic, multi-dimensional training methodology exploits new approaches to learning including dynamic, interactive class participation, case study, role play and simulation. It was explained that this approach seeks to relate course content with the conditions actually prevalent in the economy and training is thus made more meaningful and more relevant to the real world in which tax personnel work. The 'under ground economy' is one such real world scenario in which the new training methodology has promise. The UGE is of great significance to most developing countries in that this segment robs the exchequer of much needed tax revenues besides creating destabilizing distortions in the economy and under mining the rule of law in the country. The capacity building training at DOT(DT) makes full use of this new training methodology as does the specialized training program (STP) for the income tax group probationary officer's. Maj GenÂŽ Sikandar Shami [(HI(M)], Director General of the prestigious Civil Services Academy- where the training of the 'raw' CSS 'recruits' entering
tually begins- gave a very lucid presentation on the initial training process and explained how they too at CSA are using modern approaches to teaching to achieve optimal benefit. At the end of the three days of intensive deliberations, the delegates agreed on nineteen recommendations and the following communiquĂŠ has been released by DGDOT(DT) and sent to all ATAIC Members: RECOMMENDATIONS OF THE DELEGATES PARTICIPATING IN THE CONFERENCE OF HEADS OF ATAIC TRAINING INSTITUTIONS HELD AT DOT(DT), LAHORE, PAKISTAN. March 12 - 14, 2007. The Reports as submitted by the Conference Rapporteurs having been scrutinized, corrected / amended, where necessary, and finally duly approved by the respective Chairpersons in the various Sessions, It is hereby resolved that: 1. The officer's of the (Taxation) Training Institutions of the Association of Tax Authorities of Islamic Countries (ATAIC) will continue to meet at regular intervals to discuss and consider issues pertinent to the training of their taxation personnel. 2. All Members of the ATAIC shall participate fully in Conferences / Workshops held and absence will be avoided. 3. To improve interaction between Members, special efforts will be made to overcome the "language barrier" between Members. 4. Normally, English (UK) will be used as a common medium of expression between Members and Members will make efforts to improve the English expression and comprehension of their Taxation
especially those likely to participate in International Conferences. 5. When ATAIC Members hold Conferences, where possible, simultaneous translation facilities (English to Arabic) will be provided. 6. There shall be improved sharing of relevant information between ATAIC Members and the World Wide Web /Internet will be fully and properly put to use in this context. 7. Relevant statistical information / data will be organized and maintained in a common, mutually acceptable format, with effective safeguards / security to ensure data integrity but at the same time readily accessible by Members. 8. ATAIC Members will make their Training Institutions / facilities available for training of each others taxation personnel on a reciprocal, 'no profit, no loss' basis. 9. As far as possible, Members will endeavor to use state of the art but "appropriate" technologies in imparting instruction, including "information technology." 10. Members will also use dynamic but "appropriate," multi-dimensional training methodologies, including 'simulation modules,' in imparting instruction. 11. Members will consult each other on curricula for different subjects in which instruction is imparted in the training institutions and will endeavor to 'harmonize' curricula used, as far as is practical and feasible. 12. There shall be special emphasis on providing training in 'forensic audit,' and 'computer forensics' to taxation personnel.
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DOTGazette information technology, including computers and related peripheral equipment, will be accelerated in training institutions. 14. Malaysia will be "Best practices model" in imparting instruction in 'Forensic Audit,' 'Computer Forensics' and in the use of 'Simulation Methodology' in training. 15. Turkey (OBSERVER COUNTRY but active participant) will be "Best practices Model" in computerization and data warehousing. 16. Pakistan's experience with 'Self Assessment' / 'voluntary compliance,' 'Withholding Taxation' and 'Joint Audit Training' will be referred to by Members in designing their training
programs. 17. The Pakistan Direct Taxation Training Institution (DOT(DT)) will make necessary arrangements to provide training in English Language communication skills to ATAIC Members desirous of receiving such training, on a 'no profit, no loss' basis. 18. The 'Informal Sector' will receive special emphasis in the Training curricula. 19. ATAIC Taxation Training Manuals will be digitized and On-Line access by Members will be enabled. Issued by M Muneer Qureshi DG(DOT)(DT), the Conference Convener, this 14th day of March, 2007 and sent to all Members of the ATAIC.
DOT was privileged to have the Chairperson ATAIC, Mr M Abdullah Yusuf - who is also the Secretary General, Revenue Division and the Chairman CBRin person to address the conference delegates on the final session of the conference. Mr Abdullah Yusuf congratulated the delegates on a 'job well done' and exhorted them to make full use of the latest technological developments to increase the efficiency and productivity of the ATAIC taxation personnel. He said that while there was no need to try and "re-invent the wheel," nevertheless, it was necessary that developing countries be aware of latest technological developments and be willing to use
such technologies after imparting suitable training to the workforce. Proper training is thus a 'condition precedent' to the ability of tax administration to devise effective technological solutions to the many complex problems faced in revenue mobilization. In this context he referred especially to 'data warehousing' and 'information technology' and advised ATAIC members to share information in these areas.
Contributed by
M Muneer Qureshi
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DotGazette INAUGURATION CEREMONY
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DOTGazette CONFERENCE SESSIONS
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DotGazette CULTURAL EVENTS
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DOTGazette IN THIS ISSUE
An Interview with Observers from IBDF pg.1
A trip down the memory lane pg. 3
AN Awareness Workshop pg. 7 PATRON
M. Muneer Qureshi (Director General) STAFF ADVISOR
Dr. Hamid Ateeq (Additional Director)
I
n the month of March, 2007 DOT paid host to ATAIC Conference of the Heads of Training Institutions. Two observers from IBFD Mr. Aurobindo Ponniah (IBFD Head, Malaysia and Dr. V. Van Kommer (Manager, Government Consultancy) attended this conference. Mr. M Muneer Quershi DG DOT interviewed the two gentlemen on this occasion and an extract of this interview is reproduced as under. Q.1 Kindly dilate upon the mandate and functions of IBFD (International Bureau of Fiscal documentation). Ans: IBFD is a foundation established in 1938 with the view to maintain fiscal documentation that could benefit the tax world at large. We are an independent organization based in Amsterdam, the Netherlands and run by a board of trustees comprising of eminent tax personnel. Over the years our library has grown to include tax laws of all countries and is one of the largest tax libraries in the world. In addition we specialize in tax publications and journals written by tax professionals on issues such as transfer pricing, European taxation etc.
now have a full fledged tax academy in Amsterdam for training government officials and corporations. This academy offers inhouse structured courses to interested governments and multinationals e.g. IBFD in collaboration with the Malaysian Tax Academy are running courses on" transfer pricing" for
Ans: Our major beneficiaries are South East Asia, Central Asia, Nepal, Vietnam, China, Central Africa and Countries in Eastern Europe. As countries of Latin America are Spanish speaking areas, language remains a barrier for most of Latin America as our medium of training is English.
Right to left: Mr. Aurobindo Ponniah (IBFD Head, Malaysia, Dr. V. Van Kommer (Manager, Government Consultancy) the Malaysian Revenue Services. Dr. Kommer, (Manager, Government Consultancy) added that their services also included advising various governments on policy implementations. Q.2 How many countries in the developing world have benefited
Q.3 I understand that you have an office in India and another one in Malaysia. Ans: No. We don't have an office in India. We are based in Amsterdam and have a small sub-office at Washington D.C. Since November 2006, we have opened up an office in Malaysia
EDITOR-IN-CHIEF
Amna Faiz BhattY (Deputy Director) CREATIVE DESIGNER
Zafar Iqbal Directorate General of Income Tax Training & Research, Sutluj Block, Allama Iqbal Town, Lahore. Ph: +92-42-7842710 PABX: +92-42- 7830211 Fax: +92-42- 7842702 Web: www.dgtrdt.gov.pk e-mail: dg@dgtrdt.gov.pk may expand further in this region. Q.4 Can you tell us something as to how you collect data and establish a data base? Ans: Normally we have one professional for each country for collection of data. For example we have divided Asia Pacific into South East Asia, Central Asia and Pacific regions. For each region we assign two researchers with requisite qualifications such as an MBA or PhD. These researchers have further contacts amongst local correspondents in a country for supply of information on tax matters. For Pakistan our local correspondent for the last many years is
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DOTGazette EDITORIAL
T
he warm breeze of a typical summer, did nothing to dampen our enthusiasm for a momentum driven month of April following a hectic March . The resounding success of the ATAIC (Association of Tax Authorities of Islamic Countries) Conference of Heads of Training Institutions (12-14 March) speaks volume for the managerial acumen of the DOT administration headed by the Director General Mr. M. Munir Qureshi. As no team can ever succeed without the teamwork & commitment of those involved , the letters of appreciation issued by the Director General's office to all team members (may it be officers or officials) gave a new impetus to the DOT administration. Dot has always been a centre for imparting training as well as an avenue for much needed discourse and discussions in the present phase of reform & change . In order to apprise all stake holders amongst the field formations of the reform initiatives and the way forward, a one day "Awareness Workshop" was organized in collaboration with the HRM wing (CBR) in the Directorate. Officers belonging to both direct as well as indirect taxes participated in this workshop. Not forgetting the all important task of training, the Directorate also managed to conduct a Capacity Build-
....Continued from page 1 practitioner and an author of various publications. To ensure the sanctity of data collected, we require the local correspondents to supply the original text in the local language. For example in case of a tax treaty we request the government for original copy of that treaty. Any translation or transcription by our correspondents
Through proper and thorough documentation of your domestic and other companies you can access a part of your informal sector. We can also help in training of officers working in LTUs. Even in Holland, their LTU remains connected with the IBFD data base. We can further compare tax systems of various countries to develop "best practices model" for improving the
with any change incorporated is not acceptable to us. Q.5 Do you hire correspondents on the basis of the needs of an area? Ans: Yes and No. We have a team of dedicated researchers who may cover more than one particular country. For example our Malaysian expert may also handle Thailand. In Amsterdam we have a team of 70 tax professionals. Q.6 As you may already know, the informal sector in Pakistan is very large and income equal to around 40 per cent of GDP is generated by this sector and yet no taxes are being paid by it. What role, if any can IBFD play in assisting us in this regard? Ans: We can offer assistance in further documentation of your
implementation side of a reform initiative. Q.7 Can you tell us something about your educational backgrounds? Ans: (Aurobindo Ponniah) I am basically a Law Graduate from U.K. and then I joined the private sector. I have now spent almost 17 years in this field and currently I am heading our office in Malaysia. (Dr. V. Van Kommer) I am also a Law Graduate and joined the tax service as a Tax Inspector. Having served in various capacities, I then joined the diplomatic corp. I am also an author of various books on issues such as Performance Management, Effective Tax Administration etc. but my interest has always been in the implementa-
Q.8 It is interesting to note that both of you gentleman have law backgrounds whereas the common perception for a research foundation is that people involved in research generally have an economics background. Ans: Yes, it is interesting that in countries like India, Pakistan, Indonesia, Malaysia etc. generally economists handle tax administration whereas the trend is different in countries of Europe and even in America Q.9 Do you use video conferencing as a tool in you organization? Ans: No. E-learning with all its potential, has certain limitations. We have started using elearning for maintenance purposes e.g. case studies of laws. Huge investment is required for e-learning and generally it does not result in much satisfaction with a recipient of the information. Q.10 But video conferencing and e-learning is sometimes cheaper for the recipients and also results in more accessibility to experts. Ans: It is our experience that face to face interaction in a class room environment is more rewarding and learning is more for the recipient. However, we are developing our e-learning facilities and have started using it for maintenance purposes. The interview was concluded with an offer from the two experts from IBFD that they would be willing to lend their expertise in implementation of the reform initiative currently under way in CBR. Interviewed by:
M. MUNEER QURESHI (DG DOT)
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DOTGazette A trip down the memory lane
In course of his career Mr. Khawar attended various international courses such as a course on "Computer Systems Accounting and Auditng" held in University of Glasgow, U.K. in 1984 and "Advanced Tax Management Course" organized by the Japanese International Cooperation Agency (JICA) at Tokyo in 1991.
C
ontinuing with our journey into the past, we now move to the 2nd Common Income Tax Batch. The DOT gazette feels honored in having Mr. Khawar Khurshid Butt, Member, ITAT, Lahore to share the memories of his common with us. Mr. Khawar did LL.B. and Masters in Political Science from the Punjab University, Lahore. His display of leadership qualities was apparent even during his student life when he was elected President of Students Union of Forman Christian College, Lahore for the session 196970. He was also an accomplished debater of F.C. College and Punjab University Law College, Lahore in the period 1969-73. In course of his career Mr. Khawar attended various in-
tems Accounting and Auditing" held in University of Glasgow, U.K. in 1984 and "Advanced Tax Management Course" organized by the Japanese International Cooperation Agency (JICA) at Tokyo in 1991. During his distinguished career, Mr. Khawar served on various important assignments. His humility and straight forward approach makes him a model officer and a good human being. As remarked by one of his junior colleague "Khawar Sahib believes in leading not through criticism or coercion but through reposing trust in junior officers especially new entrants to the service". FLASHBACK The 2nd Common Batch of Civil Services Academy comprised of approximately 245 Officers. Continuing with the policy followed in the earlier batch, the service allocation was done by the Establishment Division after completion of the Common Training Program at Civil Service Academy (CSA), Lahore. Learning from the experience of 1st Common Batch where a number of probationers failed to qualify in the Final Passing Out Examination (FPOE), the 2nd Common Batch took their initial training with relative seriousness. In those days, the Academic Block of CSA was located at Montgomery Hall (presently Quaid-e-Azam Library, The Mall). Hostel accommodations were available at three different locations for the probationers namely: The Walton Campus, The International Hotel (Upper Mall) and The DMG Campus. Mr. Khawar
Campus was located in a relatively less prestigious part of Lahore, it was fondly known amongst the probationers as "the Third World". This label was further strengthened by an old dilapidated bus which occasionally transported probationers from Walton Campus to the Main Campus for weekly extension lectures etc. Another honor for Mr. Khawar was his selection as PMC (President Mess Committee) at the CSA (Watlon Campus). Mr. Khawar fondly remembers his departmental training and the teachers who imparted training with all due dedication and devotion. Mr. Muhammad Afzal affectionately known as "Lala Afzal" was the Director at the Academy, which was situated at Income Tax Complex, Nabha Road in those days. Lala Afzal was less of a teacher and more of an Institution who faithfully guided the steps of many new entrants to the service. The most interesting fact revealed by Mr. Khawar is that outstation probationers were not provided with any hostel accommodation or transportation facility during the course of their Specialized Training. A sharp contrast from present day Directorate General of Training & Research (DOT) where a purpose-built Campus provides best possible hostel and transport facilities to the Probationers. The Departmental FPOE of the Income Tax Officers was conducted by CBR itself in those days and the examination hall was located at Nabha Road (presently the Auditorium). Moving to the 2nd Common
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DOTGazette tioners, it comprised of 19 aspiring young Tax administrators who by the Grace of Allah today are holding important assignments inside and outside CBR. The Batch has the distinction of being a very unified group which saw the promulgation and application of three Income Tax Ordinances starting from Income Tax Act, 1922 to the new Income Tax Ordinance, 2001. A brief introduction of the Batch who are now more of a family than colleagues with association of more than 32 years is as under:
1. Malik Bashir Ahmed Hailing from Punjab, Malik Sahib has mostly served in Karachi and has to his credit important assignments in Southern and Corporate Regions at Karachi. He is currently posted as Director Inspection and Audit (I&A), Karachi.
2 Mr. Javed Athar Mr. Javed holds a master's degree in Economics from Karachi University and has also done LL.B. Hailing from Vehari (District Burewala), he has the distinction of having served in almost all major stations within Pakistan. He is interested in music and has a very good collection of rare musical treasures. He has done various foreign training courses including "Train the Trainers" Workshop from U.K. and "Advanced Tax Management Course" organized by the Japanese International Corporation Agency (JICA). He is presently posted as CIT, RTO, Gujranwala.
3. Mr. Ihsan ul Haq Mr. Ihsan holds a master's degree in English and has also
University, Islamabad. A very humble man , who has interest in Sufism. While under training at NIPA (National Institute of Public Administration) in Quetta in the year 1993-94, he took a personal initiative to visit the backward and far-flung areas of Baluchistan. After promotion to Grade-21 in 2003, he was posted as RCIT, Central Region, Multan. He is currently posted as Coordinator Special Initiatives in CBR.
4. Mr. Naseer Ahmad Currently serving as Member, ITAT, Lahore Bench, he commands respect and fond feelings amongst batch-mates and juniors alike. Except for very short period of time, he has served in Lahore which reflects his love for the city.
5. Mr. Liaquat Ali Leghari Mr. Leghari belongs to Leghari tribe settled in Sadiqabad, Punjab. Extremely soft-spoken and sober, he is now settled in Karachi. He resigned from service in the year
2003.
6. Mr. Amjad Javed Hashmi Mr. Amjad is the most proficient in Income Tax Law amongst the 2nd Common Batch. He found the courage to bid farewell to the Income Tax Service after 27 years and established an independent Law Practice at Karachi. He resigned in the year 2002 and is doing very well in Income Tax / Sales Tax and Customs Law Practice. He is currently teaching law in two Universities. He also has to his credit various law related publications.
7. Mr. Muhammad Aslam Mr. Aslam belongs to Mandi Bahauddin. He has done Masters in Economics from Punjab University and has good command over Income Tax and related Laws. He is currently posted as CIT, Appeals, Gujranwala.
8. Mr. Muhammad Istataat Ali Mr. Istataat belongs to Chak-
wal, Punjab. He has mostly served in Islamabad and Rawalpindi. A Law Graduate, he served as a Civil Judge before joining the Income Tax Service. Bold and straightforward, he is known to be a gentleman with command over Income Tax Law. He has also done his Masters in Strategic Studies from National Defense University, Islamabad. He is currently serving as Member, ITAT, Islamabad, Bench.
9. Mr. Mahmood Saleem Mahmood Another outstanding officer of our Common. He has distinguished himself not only amongst the batch but also amongst other contemporary officers in federal bureaucracy. He has successfully served with various governments in different capacities. Currently, he is holding the important position of Additional Secretary (In charge), Women Development Division in the Ministry of Women Development at Islamabad. He has done "Ad-
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DOTGazette Mr. Humayun is currently serving as Regional Director, NAVTEC (National Vocational and Technical Education Commission), Karachi. A thorough gentleman, Mr. Aqeel has done masters in History from Karachi University.
15. Mr. Musharaf Akhund Hailing from Sindh (Urban), Mr. Akhund did his masters in Economics from Sindh University. Opting for voluntary retirement in 2001, he is now permanently settled in USA.
16. Mr. Muhammad Iftikhar Khan
First Row (sitting L to R) Abdul Latif Khan (Secretary Mess Committee II Term), Mohammad Yousaf Alvi, M. Zafar Ali Rizvi (Asstt Director), Kh. Anees Ahmad (Deputy Director), Mr. Mahdi Hassan (Director), Khawar Khurshid Butt (President Mess Committee I Term), Sibtain Fazal Halim (President Mess Committee II Term), Jalauddin Qureshi (Member Mess Committee II Term), Usama Maud Second Row(sitting L to R) Mohammad Hussain Chaudhry (Member Mess Committee II Term), Dost Mohammad Khan (Secretary Mess Committee I Term), S. Muddasir Noor, Fazal Nabi, Ziaul Hasan Siddiqi, Mahmood Salim Mahmood, Zahid Hussain, Tariq Jamil Syed Sardar Hussain Shah (Member Mess Committee I Term), Mohammad Sharif, Ghulam Shabbir Khan Baluch, Nazir Ahmad, Malik Bashir Ahmad Third Row (sitting L to R) Mohammad Ali, Maqbool Ahmad, Sarfraz Khan Habibi, Abdul Rauf Chaudhry (Member Mess Committee I Term), Qaiser Ali Shah (Member Mess Committee I Term), Mohammad Wasim, Mohammad Ayub Khan Tarin (Member Mess Committee II Term), Shahid Najm, Masud Muzaffar, Mohammad Saleem Fourth Row (Standing L to R) Mohammad Ihtesham Khan, Tariq Shafiq Khan (Perfect), Saif Alf, Ashraf Khan, Nazir Hussain, Iftikhar Hussain Tariq
vanced Tax Management Course" under the auspices of Japanese International Corporation Agency (JICA). He has also attended courses at Royal Institute of Public Administration, UK and Management Course at Harvard, USA.
10. Mr. Masood Ali Jamshed Mr. Masood has done M.Com. from Hailey College, Punjab University. Has great command over accountancy and Income Tax Law. He has a jovial personality and commands respect amongst batchmates and juniors alike. He has never believed in compromising his principles even in
Mr. Liaquat has done M.A. Economics from Punjab University, Lahore and Masters in Strategic Studies from National Defence University Islamabad. A very well read and intellectual person, he has also served as Member Directing Staff in NIPA, Peshawar. He is currently serving as Member, ITAT, Peshawar.
12. Mrs. Abdia Ali Mrs. Abida is the only lady officer in 2nd Common Batch. She holds an M.Sc. in Home Economics and has done Masters in Strategic Studies from National Defense University Islamabad. A very soft spoken and gentle person, she has
M. Akram Shaheedi, Mohammad
sionally sound officer. She was the first amongst 2nd Common, to be promoted to Grade-21 (in the year 2000). She is presently posted as DG, RTO, Peshawar, on deputation from Ministry of Law & Justice.
13. Mr. Bilal Khan Mr. Bilal has done Masters in Economics from Peshawar University and Masters in Strategic Studies from National Defense University Islamabad. He is currently serving as Member National Tariff Commission, Islamabad. He attended "Common Wealth Advanced Management Course for In-service Tax Offi-
Hailing from FATA Janni Khel Wazir Tribe, Mr. Iftikhar has done MA Economics from Peshawar University and Masters in Strategic Studies from N.D.U, Islamabad. A good-natured man, he has always displayed the traditional Pathan hospitality. He has mostly served in NWFP and is currently posted as CIT, Appeals, Peshawar.
17. Mr. Muhammad Ishaque Memon Belonging to Deeplo (Tharparkar), he is a graduate from Sindh University. Before joining the Income Tax Group, he served in Habib Bank Limited for two years. He is currently posted as Commissioner, Zone-A, Karachi.
18. Mr. Arjundas Oad (Deceased) Mr. Arjundas hailed from Sindh (Rural). He met with a fatal road accident way back in 1978. A jovial person who died very young which put an end to an otherwise bright and promising young officer. Physically a strong man, he was accompanied by his family when the accident hap-
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DotGazette ANINTERVIEW WITH
Madam Noor Azian Abdul Hamid D i r e c t o r M a l a y s i a n Ta x A c a d e m y Q.5 What are your suggestions to make training more effective? Ans: I think as far as training is concerned, there is a large gap between the levels of training needed for different countries, e.g. as revealed during country presentations by participants of this Conference, some countries lack even the basic level of training, whereas, countries such as
Q.1 What impressions are you carrying back viz-a-viz- our training academy? Ans: I was pleasantly surprised, you have the best at the DOT Academy. Your computer labs are very impressive and upto-date. In fact, these labs are even better than the computer facilities available at the Malaysian Tax Academy. Most importantly, the layout of your hostels and the gardens are beautiful. Q.2 In three adjectives how would you express the ATAIC Conference 2007? Ans: Educative, educative and educative. Q.3 In one line, briefly, how can we follow up on what we have achieved? Ans: We have achieved a lot in getting all the countries together, but I must admit that because of the language barrier, we sometimes had problems. We need to overcome this bar-
concerned, we must come up with concrete suggestions for the future and have regular follow-up sessions. Q.4 Would you say that DOT is comparable with the Malaysian Tax Academy? Ans: Yes! However, you have a little bit more luxury of space whereas we have less space available at our Academy but then we are not comparing apples with apples. The Malaysian Tax Academy handles a number of cross disciplines. We have hostel accommodation comprising of 150 rooms , but sometimes the in-take of new officers is much more than the available accommodation, e.g., this year we have around 475 new officers joining the Academy. Space is a big issue for us and construction work is currently underway to resolve this infrastructural issue. As far as facilities are concerned we are more or less at par, however, your Auditorium
Pakistan are looking towards advanced level of I. T. Training such as data warehousing and simulation techniques. We have to address specific issues for a specific country. We have to tailor training according to the needs of each country. Q.6 Your suggestions for further cooperation between Pakistan and Malaysia in the field of tax administration? Ans: I think we need to sit
and requirements of our countries as revealed during this Conference. There are many areas where we can cooperate in the field of training. Q.7 Finally are you satisfied by the period assigned to the Conference? Ans: I think that three days are fine, but in future we need to differentiate between a "Technical Conference" and a " Conference on Issues related to Training ". Subject matters such as technology needed for improving training can be incorporated in a training conference but a purely Technical Training Conference should be kept separate. In future, we need to confine ourselves to a
"Conference on Training Issues of Heads of Training Institutions" where specific issues related to tax training can be discussed. Technology related issues in relation to training can then be included in such a Conference. Interviewed by MS. IRAM ADNAN (Add Director)
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DOTGazette ANAWARENESS WORKSHOP
Mr. Muhammad Talha, Member (HRM), Mr. Ather Maqsood Ahmed, Member (FR&S) and Mr. Abdur Razzaq, Member (Audit) spoke on the occasion. In his opening speech, Mr. Muhammad Talha explained in depth the HRM initiatives and the progress on projects such as restructuring of offices, the legal framework of reforms, the procedure of job placement through IJP (Internal Job Posting) and the renewed focus on training and development in liaison with institutions such as LUMS, IBA etc.
T
he success of any reform initiative is dependent upon its skillful execution and involvement of a motivated workforce. In order to keep all field officers of CBR well informed of the progress so far of reform initiatives along
with a road map of future, a one day "Awareness workshop" was held in DOT, Lahore in collaboration with HRM (Wing) CBR. Mr. Muhammad Talha, Member (HRM), Mr. Ather Maqsood Ahmed, Member (FR&S) and Mr. Abdur Razzaq, Mem-
ber (Audit) spoke on the occasion. In his opening speech, Mr. Muhammad Talha explained in depth the HRM initiatives and the progress on projects such as restructuring of offices, the legal framework of reforms, the procedure of job placement through IJP
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DOTGazette (Internal Job Posting) and the renewed focus on training and development in liaison with institutions such as LUMS, IBA etc. He informed the audience of the pace of reforms resulting in setting up of regional offices where placement of officers was being done in a transparent manner by advertising the jobs on internet. He explained in depth that the focus was on developing a professional work force whereby the new entrants to service went through a one year MBA Taxation program
tackle macro economic and fiscal imbalances, a three pronged strategy comprising of resource mobilization, expenditure management and debt deduction and exit strategy were envisaged. He explained that as a result of this strategy, tax rates had been lowered to reduce tax evasion, "tax on production and investment" had been replaced by "tax on consumption and income" and there was a gradual reduction of corporate tax rates to make investment internationally competitive. As scheme under the Income Tax Ordinance, 2001. He informed the audience that the audit wing in collaboration with a professionally qualified academy and DOT, Lahore had so far trained 128 Audit Officers/Officials belonging to both Income Tax and Sales Tax to conduct meaningful audits by applying modern investigative techniques. These presentations were followed by a detailed Q & A session where the participants raised important queries related to the future of audit and job placements through IJP.
from IBA, Karachi. For mid career officers , training modules in liasion with LUMS and IBA, Karachi were being finalized. Mr. Ather Maqsood Ahmed, Member (FR&S) dilated upon the Tax policy and Administrative reform initiatives and the outcome so far. He highlighted some of the factors which impeded the growth of revenue collection in Pakistan such as low tax / GDP ratio, narrow tax base due to ex-
a result of these measures collection of direct taxes had increased from Rs. 183.4 (M) in financial year 2004-05 to Rs. 225.0 (M) in financial year 2005-06 or a growth of 22.7%. Overall ,there was an increase in tax collection by 20.8% in financial year 2005-06 as compared to financial year 2004-05. Mr. Abdur Razzaq, Member (Audit) highlighted the performance of the Audit Wing and the initiatives undertaken to de-
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June, 2007
INSIDE THIS ISSUE Tax Base Broadening By: M. Muneer Qureshi Page - 1 By:
M Muneer Qureshi DG (DOT)(DT)
T
he mobilization of tax revenue has a direct nexus with the number of taxpayers participating actively in the system set up to levy and collect taxes. In the case of Income Tax the number of persons filing periodic 'Returns' vis a vis the total population of the country, is a key indicator of the 'Tax Base' for the direct taxation of income earned by individuals and other entities including corporate entities recognized as 'persons.' Over the years Pakistan's (Income) Tax Base has been more or less stable at 1% or less of the total population. In the United States, 72 million Returns of Income are filed annually with the I.R.S which, given a population of 300 million, translates into a tax base of just over 24%. In Malaysia, the tax base is about 20%. In Turkey, 5%.
PATRON M. Muneer Qureshi Director General EDITOR-IN-CHIEF Amna Faiz Bhatty Deputy Director LAYOUT & DESIGN Asad Ali Directorate General of Training & Research (Direct Taxes), Lahore. Ph: +92-42-7842710 PABX: +92-42-7830211 Fax: +92-42-7842702 Web: www.dgtrdt.gov.pk email: dg@dgtrdt.gov.pk
In India, 2%. The 'tax to GDP' ratio has a direct correlation with the tax base size and Pakistan's poor tax base therefore means a poor tax to GDP ratio [ 10%] which ofcourse means poor tax revenues. In fact Pakistan is placed at the lower end of the 'T2gdp' spectrum whereas those at the higher end typically, the Scandinavian countries led by Sweden and Denmark- score well over 40%. What are the reasons for this dismal tax base picture? To begin with, the largest single sector of the Pakistan economy, agriculture, generating 22% of GDP , occupied by 50% of the total population [ ie 80 million plus] and 42.5% of the total labor force [ ie 20 million] pays zero income tax to the federal exchequer because it is 'exempt' from payment of income tax under the statute ie the Income Tax Ordinance of 2001 in fact this sector has been 'exempt' since 1947 and the Income Tax Ordinance of 2001 is the third income tax statute to 'renew' the exemption originally available for agriculture in 1947 when the Income Tax Act 0f 1922 was adopted as the Income tax Statute for Pakistan.
Secondly, Pakistan's huge and burgeoning 'Infor mal sector' also known as the 'black economy' and the 'parallel economy'- appraised variously at 35 to 55% of formal GDP- and employing some 20 million out of the total labor force of 47 million. Thus between them, these two sectors, take away 110 million out of the total population of 165 million from the 'tax net' leaving barely 55 million to bear the burden of tax on income. It is to be noted that in Pakistan there are some 24 million bank account holders. This means in effect that after accounting for the 1.7 million who do file Returns of Income annually, more than 22 million do not do so. Why? Is their 'Income' Exempt? Is is below the taxable limit? No body seems to know. The banks ofcourse have all the relevant data regarding these account holders but the department of Income Tax has no authority to demand these details 'en masse.' Nonetheless this data base is there and is a veritable treasure trove of information that could have a direct bearing on the income earned by the account holders. Thirdly, inequalities in the
Measures to control the unhindered growth of the parallel economy Credible Statutory deterrence. Comprehensive tax coverage of all sectors Minimal exemptions. Expenditure taxation. Rationalizing the tax rate structure. Vigilance to curb flight of capital. Breaking the power of vested interests. Pre-emption law. Meaningful economic surveilliance.
An interview with Mr. Lee M. Niederman Page -5 Performance Report DOT (DT) Page - 8 distribution of Income. On the universally recognized 'Gini Index,' Pakistan scores a poor 41. This means that a very large segment of the population remains impoverished with income levels below the threshold of taxability. If we are to succeed in augmenting income tax revenues significantly then we have to address the core reasons for the narrow tax base pointed out in the preceding paragraphs. Strictly on merit it is neither fair nor logical to make a distinction between agricultural and non-agricultural incomes for purposes of taxation. A distinction so made arbitrarily amounts to creating a preference for one class of income over the other. Instead of creating such a preference for which there appears to be no economic justification, it is suggested by the counter exemption lobby that just as business and salary incomes below a certain level are exempted from income tax, the same principle should be extended to agricultural income. This would take care of the subsistence farmers who
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EDITORIAL
A
s the financial year 2007 draws to an end , it is time to see in retrospect and ponder on the past performance for improvements in the future. The year 2007 witnessed a variety of training assignments professionally & successfully completed by the Directorate starting from the Specialized Training of the 33rd STP , organization of three joint “Audit training “ programs for officers of both Income Tax & Sales Tax and lastly the successful organization of the ATAIC Conference of Heads of Training Institutions (1214th March). In between ,the Directorate also managed to organize a sizable numbers of Capacity Building Programs both for officers as well as officials. All of above mentioned activities, required substantial amount of human as well as infrastructural support. It has always been the underlying philosophy at our Directorate to consistently improve upon the infrastructure & other facilities for imparting quality training to the end users . What lies behind immaculate hostel facilities & most modern teaching aides are months of planning and decision making . In order to keep pace with the changing technology side by side with improvements in physical infrastructure, efforts are made to ensure transparency in the whole process. That is exactly the reason why in the month of May various committees were formed headed by a Chairperson and assisted by two members for purchase of needed items through open tender. It is hoped that the machinery , furniture , I.T software/hardware etc. purchased through this process would continue to serve the growing needs of our institution.
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would be automatically excluded. Levy of income tax on agricultural income is also recommended to reduce the evasion of income tax in Pakistan which is by all accounts, considerable. The availability of statutory exemption for agricultural income has resulted in the systematic exploitation of this exemption by those enjoying non agricultural income.
agricultural business contrived artificially through the creation of "ghost" liabilities, has provided legal cover to substantial investments funded by accumulations of untaxed "black" money. Had agricultural income been subjected to income tax then it would not have been so simple a matter to create such liabilities as the affairs of the agriculturist would have been as much subject to scrutiny as the person engaged
June, 2007
reported to the tax authorities only those accounts are reported that "suit" the taxpayer, the cash flow of funds constitute an added impediment in this context as these cannot be monitored. Thus if incomes generated through agriculture were made taxable, the "facilities" presently available through the "devices" mentioned above, for securing huge unwarranted tax benefits, would be effectively
Pakistan Tax Conundrum Econ Sector
Share in GDP
Share in Taxes
Agriculture Mining & Quarrying
20.2 1.9
1.2 4
Manufacturing
17.1
62.2
Construction Electr & Gas Distrib
2.2
2.9 5.3
Transport, Storage & Comm WholeSale & Retail Trade Finance & Insurance Ownership of Dwelling Public Admn & Defence Services Through the simple expedient of attributing part of their income to agricultural activity they are able to secure substantial tax benefits. In reality of course such people are not actually significantly engaged in agriculture at all. However since they have purchased agricultural land-which may be marginal land or even wasteland (banjar) for all they care- it is not too difficult to hoodwink the federal tax authorities on the bonafides of the investments made by them and attributed to the earnings of their agricultural holdings. On another and more subtle plane, the "phantom" flow of funds from agricultural to non
2.4 13.8 16.9 3.2 2.5 5.2 8.3
in business. So far however, the income tax authorities have no direct record of the agricultural activities. Only sketchy information of dubious origin is relied upon to decide on the bonafides of a reported liability shown as owing to the agriculturist. Again, since bank accounts are as a rule not
4.5 2.8 3.9 0.3 5 7.8 neutralized. The feasibility of mobilizing revenues from the agricultural sector through direct taxation of income generated there is also apparent from the fact that the agricultural income tax would be more income elastic than land revenue. With a greater yield per acre, higher
According to researchers and Government statistics, in Pakistan 40% of the richest landowners own 70% the arable land. >>>
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procurement prices and mechanization, incomes in the agricultural sector have risen considerably, but yield, in terms of direct taxes on agriculture, has lagged behind appreciably. To illustrate the point, it is pointed out that between 1972 -
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sector. Progressive rates of income tax, if applied to the income of this rural elite, could, over time, alleviate this malady, the persistence of which can only bode ill for the social stability of agraria and for the politico economic well being of
tax evasion on their part. In a historical context too, in the case of post Meiji era Japan in the 1880's when the drive to modernize the country was launched aggressively, taxation of agricultural income was the principal source of revenue to
Distribution of Income in Pakistan % share of GNP going: - To poorest 20% - To richest 20% - To Poorest 40% - To Top 5% - Rural rich - Urban rich - Rural poor - Urban poor 73 and 1978 -79, the yield from the direct taxation of agriculture (land revenue and irrigation charges) increased by 78%, while value added in agriculture, at current factor cost, increased by 157%. There is every reason to say that this trend continues to this day. That the taxable capacity of the larger farmers (who constitute the rural elite) has improved over time is evident from the considerable increase in consumption expenditure of the rich farmers. According to Alavi, even when there are adverse changes in the terms of trade for agriculture, the rural elite enjoy considerably enhanced real incomes. The conspicuous consumption of the rural elite is not only an indication of the steadily increasing affluence of the rich farmer but it is also a pointer to another evil - that of accentuating differences in income distribution in the agrarian
1980
1987
2006
7.0 45.4 19.1 31.7 40.8 48.1 8.5 6.8
6.1 49.8 16.1 35.7 42.2 45.3 7.8 7.8
5.7 55.0 14.0 45.0 45.0 50.0 6.0 8.5
the country in general. However one looks at it, there appears to be little justification for a blanket exemption for agricultural income. There is no denying that the small farmer with a limited landholding may not be able to bear the burden of additional taxation. However bar ring such exceptions, levy of an income tax would appear to be fully justified - and even necessary if the negative perception in the other sectors of the economy of such blanket exemption from levy of income tax for the agriculture sector is to be corrected. It is now acknowledged that one of the important reasons for tax evasion in Pakistan in the other sectors of the economy is this 'unjust preference' for agricultural income which provides a justification for tax payers enjoying non agricultural income to justify and rationalize
fund the industrialization drive. Paradoxically, the taxation of agricultural income in Japan did not 'ruin' Japanese agriculture as many had predicted. Rather, once the agriculturist realized that agricultural income would 'have' to suffer tax, the agriculturist made concerted efforts to increase agricultural productivity by
June, 2007
systematic use of natural and chemical fertilizers, use of insecticides and pesticides, better crop rotation, use of improved quality seed , improved water management, use of machinery the tractor and harvester- , all of which resulted in greatly increased productivity and consequentially, sharply increased income for the farmer which increase made it possible for him not only to pay tax but also left him with a healthy surplus. Part of this surplus was then used to improve the farmers standard of living and quality of life. It is clear that this improvement in agricultural productivity would not have been possible had there been no 'slack' in the agriculture sector. Prior to the modernization drive launched in Japan in the 1880's, agriculture was entirely feudal in it's organization and structure and absentee landlords owning vast tracts of land let out to harshly exploited tenant farmers had little impetus to increase agricultural productivity. All this changed dramatically once reforms were introduced and taxation levied on agricultural income. In Pakistan, after almost sixty years of independence, there has been little 'real' change in the traditional, feudal complexion of our agriculture. True, land reforms have been e
Distribution of Family Income - Gini Index Namibia S. Africa Brazil Mexico Argentina Thailand Malaysia Philippines United States
70.7 59.3 59.7 54.6 52.2 51.1 49.2 46.6 45.0
China Iran Singapore Turkey Pakistan Russia Japan U.K. S. Korea
44 43 42.5 42 41 40 37.9 36.8 35.8
Australia Egypt Indonesia India Spain European Union Bangladesh Finland Norway Sweden Denmark
35.2 34.4 34.3 32.6 32.5 32 31.8 26.9 25.8 25 23.2
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introduced but these have been largely cosmetic. The powerful feudal families owning much of the rural land have succeeded in making a mockery of the land reforms by resort to phoney land re-distribution on paper with the active connivance and collusion of the provincial revenue authorities whose parasitic dependence on the 'largesse' of the feudals has made them more than willing partners in this reactionary enterprise. As in pre Meiji era feudal Japan, these feudals have little interest in pressuring the tenant farmers to augment land productivity. All they want is their ' share' and once they have received that they call it 'quits' and return to their comfortable lives. They know that they will suffer no tax on their income and this adds to the 'surplus' that is available to fuel a cycle of conspicuous consumption. That there is a considerable 'slack' in the agricultural sector in Pakistan is quite evident from the available statistics [ Source: F.A.O ]. Thus, (in 2004) with a total land area of 0.9% under cultivation, Pakistan's agricultural production index is pitched at 109 [base year 1989-91=100]. With an identical land area under cultivation, Brazil has a production index of 125. Egypt with 0.5% land area under cultivation has a production index of 109 the same as Pakistan's but with far less land under cultivation. Russia has just 0.1% of land area under cultivation and it's agricultural production index is 114. In the case of aggregate cereal production [wheat, rice, maize], Pakistan is ranked 18th in the world [33 mill tons] while in yield it is ranked 87th in the world [2423 kg per hectare]. Similarly, in the case of cotton production Pakistan is ranked 4th in the world [6.6 mill tons] but in yield is ranked 27th [1935 kg per hectare]. Again, in sugarcane production Pakistan is ranked
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5th [57.4 mill tons] and in productivity is ranked 58 t h [49576 kg per hectare]. The above indices clearly show that there is considerable scope for improvement in agricultural productivity in Pakistan and relying on the historical experience of post Meiji era Japan, there is every reason to expect that the right set of policies including taxation of agricultural incomewill increase agricultural productivity significantly and will enable the farmer to not only pay tax on his significantly increased income but to also improve his own standard of life as has admittedly happened in the case of Japan one of the outstanding success stories of our times. Coming now to the informal sector, compulsory (statutory) documentation of all economic transactions is probably the single most important step that can make a significant impact in reducing the size of this sector. A beginning has been made [after 60 years!] and the new income tax ordinance of 2001 now makes it mandatory for all businesses to maintain 'prescribed' accounts. However much more needs to be done especially in the case of the
large 'illegal segment' of this sector where smuggling /hoarding /profiteering and widespread 'underground manufacture' and sale of spurious and counterfeit goods with brazen violation of copyright laws generate huge profits on which no tax is paid. A great deal of deterrence will have to be built into the tax code by enactment of appropriate punitive laws. High profile tax evaders need to be taken to task and prosecuted aggressively. Their successful incarceration in a State penitentiary for a protracted period is essential if the criminal elements in the informal sector are to be deterred effectively. With regard to reducing inequalities in the distribution of income, the traditional reliance on the so called 'progressive' tax rate structure alone does not appear to have been very successful and much more needs to be done by reintroducing Wealth Taxation and also by direct state intervention to help and facilitate the disadvantaged and underprivileged members of society through better education facilities and healthcare and easier access to institutional credit so that they are able to
June, 2007
compete and improve their economic standing. We have to realize that economic prosperity must 'trickle down' to the under privileged sections of society and if the existing institutional arrangements and market forces do not facilitate such a 'trickle down' then the State must intervene and ensure that the fruits of prosperity do flow to all sections of society and do not remain concentrated in a few hands. Given greater sectoral equity with regard to levy of tax on income, meaningful reduction in the size of the informal sector and reduction in income inequalities in the distribution of income, there is no reason why the tax base should not be greatly enlarged in size and scope so that we have not only many more taxpayers who file Returns of Income regularly but also declare significantly higher levels of income and eventually when all is said and done, it is these two aspects that will bring about the quantum jump in revenues that is presently, only a distant dream.
Under Ground Economy in Pakistan - vital statistics Year
UGE-Size
UGE- Tax Evasion
1973 1978 1983 1988 1993 1998 1999 2000 2001 2002 2006
Bill Rs. 15
Bill Rs. 2.15
41.832 104.759 192.752 470.124 1449.891 1146.839 1094.052 1298.233 1388.064 1500
4.644 13.361 26.672 62.913 193.397 152.499 141.077 169.025 176.472 180
UGE- % of GDP 20 % 23.51 28.75 28.54 35.27 54.52 39.03 34.76 38.00 37.25 35.00 %
Source: M. Ali Kemal, Underground Economy & Tax evasion in Pakistan - A Critical Evaluation.
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June, 2007
An Interview With
(Tax Administration Advisor) U.S. Department of The Treasury
M
r. Lee M. Niederman [Tax Administration Advisor] U.S. D e p a r t m e n t o f Tr e a s u r y attended the ATAIC Conference of Heads of Training Institutions held from 12-14th March 2007, at DOT, Laore as an observer Mr. Lee, an expert on designing training modules for developing countries, shared his views on ATAIC Conference and training priorities in an interview with Ms. Iram Adnan (Add. Director) and Syed Imran Raza Kazmi (Add. Director). Extracts from this interview are reproduced as under:
Q: Lee, it is wonderful to have you here for the conference. This fact apart, would you like to set our curiosity to rest and explain as to how exactly did you end up here? Ans: I was doing an I. T. Program for the Jordanian Tax Authority when they received the invitation for this conference. I thought that they should be attending this ATAIC conference, as it was an excellent opportunity for them to establish a net work with other training authorities. As the program sounded interesting I then got in touch with the Malaysian Tax Academy and their D.G. was kind enough to let me know
the details of the conference. I then emailed to authorities concerned in Pakistan. Q: Would you term this conference as a success considering the fact that it was only a three day program? Ans: I think this conference was a huge success in brining countries together so that they can compare the level of their tax training. The countries were able to share their experiences, where the more advanced countries were able to demonstrate what they have accomplished and the less advanced countries could see as to
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where they need to concentrate more. I think the brain storming sessions were very useful in helping to focus as to what needs to be done. This conference is the first step and if the recommendations reached through this conference are implemented on a regional level, it would be a great achievement. Q: In your opinion, what more could be added to the training aspect of the conference? Ans: I am not sure that you could add anything as it was a three day conference, but I think what we have begun to do is to identify
what they can achieve. For countries like Malaysia, Turkey etc. which are technologically advanced, they also need to recognize that they have not reach the end of the road, either. What I have seen in working over years with other countries is that when they come to USA they are overwhelmed by the level of technological advancement in USA and they cannot believe that this level of advancement is ever possible for them. But when they see countries in the same region and having the same economic issues, resource constraints etc., attain technological
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that we coordinated was a training program on “Computer Evidence Analysis Training� and we took this training to countries such as Brazil, Malaysia and the Caribbean. The most interesting thing was that the Brazilians took the software developed by our Federal Enforcement Training Center improved upon it, and handed it back to us with the remark that this is the way a software should have been developed. It was incredible. This is what you call success in transfer of technology that the county benefiting from technological assistance not only
June, 2007
depending upon the needs of the country such as restructuring. We also coordinate our efforts with other international donor agencies such as IMF, World Bank, Asian Development Bank etc. We try to share the expertise and cooperate with other donors, e.g., there were certain on-going projects in Latin America where our budget did not allow us to buy computers. The Inter Development American Bank was working on another project and they had funds available so they bought the computers needed and on another project where the Inter Bank needed outside expertise, we provided the relevant resource persons for that project. We respond to the needs of a country based upon a formal request from that particular country. Q: But that requires timely coordination and response between different agencies. Is the coordination and response always timely? Ans: Yes! The response is timely as the Department of Treasury has ample funding at its disposal to respond quickly in case of immediate assistance.. Nor mally, we also tr y to coordinate our efforts with various donor agencies such as World Bank , IMF etc. while they are working at various projects in countries such as Pakistan.
the agenda for more extensive trainings for the future.
advancement, it seems like an attainable goal for them.
Q: How would you propose that technological gap between the member countries in the field of training can be filled? Ans: For the countries that are less developed there is now a benchmark in shape of member ATAIC countries such as Malaysia, Morocco etc. as to
Q: Lee, we have already talked about forensic audit software in Malaysia. For the purpose of record, could you please once again give us the U.S and Brazilian example? Ans: When I was working with IRS, one of my jobs was coordinating inter national trainings and one such program
utilizes the technology, but can also tailor it according to its needs. Q: Being an ex-IRS functionary, how best can you help any c o u n t r y, r e f o r m i t s t a x system? Ans: The Treasury Department has its own technical assistance program where we provide technical assistance and training to a variety of countries
Q: Does the U.S Department of Treasury has some priority list in terms of assisting certain countries /governments in their reform initiatives? Would you elaborate? Ans: Yes & No! If the United States Department of Treasury as a special interest in a country it can offer assistance. However, we also offer assistance based upon a specific request for assistance from a particular country, e.g., I am here in Pakistan as a representative of
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June, 2007
U.S Department of Treasury and it is up to the Government of Pakistan to come with its requirements for assistance from us. Q: In your views whether for technical services such as Income Tax, Sales Tax, Customs etc. only people with prior knowledge of accounting or background of business administration should be hired and not generalists as is currently being done through the process of competitive exam? Ans: In your country, the people coming through the competitive exam first go through a training period of 2 3 years and are then posted on supervisory positions. In our country the system is different, we first hire people on technical positions and after having served in those positions for 4 5 years, these people are then moved to the supervisory positions. Our system is different as we hire technical people who then go through the necessary experience and training work and eventually work their way up to becoming supervisors. Q: Where would you place DOT as compared to other developing countries in the field of training? Ans: DOT because of its facilities, is an ideal center for regional training. I think that for country specific trainings you have to go into local laws and legislation and then train the people for a particular job. The regional training centre can play an important role where experts from different countries can share experiences
e.g as regards “audit training “ and the countries can take back those experiences to best fit their own needs for training according to their local environment. Q: What measures should be taken to enhance the efficiency of training institutions of the developing countries? Ans: As my expertise is in the designing of training material, one of the things that the countries need to develop to handle technical training delivery system, is to train a team of people who are in turn trained to handle infrastructural technolo-
gies, course design etc. so to deliver training properly. One of the recommendations that we have come up for training institutions such as DOT is that, they should have a mix of faculty on rotational basis in DOT, which comes from the field so that they bring technical expertise with them, but you should also have a permanent faculty here whose expertise is in the training design and not necessarily in tax administration. As a result the professional training experts can then work with the rotational faculty members to develop proper training methodologies. Thirdly you can bring in training staff from outside, if you need expertise such as I. T. expertise, accounting expertise etc. by hiring teachers from outside. Q: Which country paper and approach towards training did you like best? Ans: I was impressed by the Pakistani presentation as regards to your vision of where you want to go. As regards training design, I think both Malaysia and Morocco have come a long way and I think Pakistanis are moving in same direction. Interviewed by: Mrs. Iram Adnan (Additional Director) Syed Imran Raza Kazmi (Additional Director)
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June, 2007
PERFORMANCE REPORT DIRECTORATE GENERAL OF INCOME TAX (TRAINING & RESEARCH) LAHORE AND SUB OFFICES AT KARACHI & ISLAMABAD
I
t has always been the philosophy at DOT to develop workforce capabilities at all levels by equipping them with appropriate knowledge, skills and abilities through a comprehensive training approach based on planned, systematic and continuous training programs. To ensure quality in training, a periodic review of performance is mandatory.
The comparison of first three quarters of the calendar year 2006-2007 with the same period in 2005-2006 reveals that the Directorate keeping up with its past performance has so far conducted 37 Capacity Building Programs (grade 16-19 ) in this year as against 41 such training conduced in the year 2005-06. The slight difference in numbers of trainings offered to grade 16 officers is due to preference given in specialized
pay positions to a more professional workforce. Realizing the value of trained officials to assist in the new system, the Directorate has so far conducted 54 training programs for Stenographers, Inspectors and UDC's this year as against 19 such trainings conducted in 2005-06. As the focus of training has now shifted to training on functional lines as against
generic trainings , the Directorate this year played host to three “Audit Training “ programs developed by the Audit Wing (CBR) in which 128 officers both from Income Tax & Sales Tax participated followed by an evaluation session at the conclusion of each training . This period also witnessed the completion of Specialized Training of 33rd Common batch comprising of 36 officers.
The comparison of performance with percentages is as under:
s. No
Name of Course
1
2
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Capacity Building Training (BS-19) Capacity Building Training (BS-17/18) Capacity Building Training (BS-16) Specialized Training Program (32 Batch) Specialized Training Program (31 Batch) Specialized Training Program (33 Batch) Appeal Management Processing System Training Course on Expenditure / Audit Workshop on Withholding Taxes Refresher Course for Tax Bar Members Orientation Course on TMS Training Course in Acctts. Matters & I.T. Specialized Training Program for ITOs Foundation Course for Sgs / Stenos Special Training Program for Sup. / Supdt. Foundation Course for Inspectors Foundation Course for UDCs Financial Mgt. & Expend. Training Special Course on Audit & Accounting Withholding Tax Management System 3 days ATAIC Conf. of Heads of Training Institutions Foundation Course for Naib Qasids Seminar on Perf. Evaluation of NPOs Seminar by Members TOTAL
2005-06 Full Year
2005-06 9 Months
2006-07 9 Months
01.07.05-30.06.06
01.07.05-31.03.06
01.07.06-31.03.07
VARIATION (+) OR (-) IN % AGE
No. of Courses
No. of Trainees
No. of Courses
No. of Trainees
No. of Courses
No. of Trainees
No. of Courses
3
4
5
6
7
8
11 26 14 2 1 1 3 3 2 2 2 3 1 13 1 10 7
102
157 370 191 55 40 38 45 38 177 40 97 60 59 196 14 155 99
1831
8 21 12 2
135 317 170 55
1 2 1
13 177 24
3 1 7 1 7 5
60 59 102 14 106 69
71
1301
No. of Trainees
9
10
8 20 9
133 259 121
0.0 (-) 5.0 (-) 33.3 (-) 100.0
(-) 1.5 (-) 22.4 (-) 40.5 (-) 100.0
1
36
(-) 100.0
100.0
(-) 100.0 (-) 100.0 (-) 100.0 100.0 50.0 (-) 100.0 53.3 (-) 100.0 30.0 82.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (+) 43.7
(-) 100.0 (-) 100.0 (-) 100.0 100.0 46.4 (-) 100.0 46.6 (-) 100.0 19.7 84.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (+) 46.8
5 6 0 15
75 112 0 191
10 29 9 3
132 458 144 128 12 40 56 300 250 2447
1 1 5 3 1 126
13th Issue
August, 2007
INSIDE THIS ISSUE
By: M. Munir Qureshi DG (DOT)(DT)
T
he 21st century bureaucrat is increasingly being visualized as a sophisticated, highly motivated, super efficient, squeaky clean, 'client' friendly, almost r o b o t l i k e c r e a t u r e p r ogrammed as it were to 'perform' and 'deliver'- quite unlike his / her grasping, domineering, haughty, dependant, highly adversarial predecessor, able and willing mainly to assert authority and show importance. This transformation, if indeed possible, would be nothing short of a sea change. In any work environment the buzzword today is 'productivity.' That is what really matters. For personnel in the taxation services this means of course the amount of tax that they are able to assess and collect. But that is certainly not all that is expected of them. The corporate culture in PATRON M. Muneer Qureshi Director General EDITOR-IN-CHIEF Amna Faiz Bhatty Deputy Director LAYOUT & DESIGN Asad Ali Directorate General of Training & Research (Direct Taxes), Lahore. Ph: +92-42-7842710 PABX: +92-42-7830211 Fax: +92-42-7842702 Web: www.dgtrdt.gov.pk email: dg@dgtrdt.gov.pk
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government organizations is a new phenomenon. A new improved pay package, better working conditions, merit based assignments, functional specialization, fast track career possibilities for high performers, dispersal and delegation of authority from the top down all these are seen as part of the 'make over.' But none of these changes can actually lead to a significant enhancement in worker productivity unless there is also a concomitant change in the mindset of tax personnel. What is this 'mindset?' A mindset refers to a set of assumptions, methods or notations held by one or more people or groups of people which is so established that it creates a powerful incentive within these people or groups to continue to adopt or accept prior behaviors, choices, or tools. This phenomenon of cognitive bias is also sometimes described as mental inertia, "groupthink", or a "paradigm", and it is often difficult to counteract its effects upon analysis and decision making processes. An 'entrenched mindset' that develops over time given little or no change in the underlying assumptions on which an organization work procedures are based thus inevitably leading to a perpetuation of existing attitudes. This can lead to serious problems when the ambient circumstances have changed. It is then that the organization will find itself on a plateau with regard to productivity of its' workforce or maybe even a diminution of it's existing productivity and regression back to an earlier
stage of even lower productivity. This change in the external environment often necessitates workforce mindset change if the organization is to continue to exist as a viable entity. In Pakistan all government functionaries inherited a mindset bequeathed to them by their erstwhile British colonial masters. This was based largely on the use of procrustean methods to achieve given targets. The public at large was usually seen as an 'adversarial entity' that it was necessary to dominate and keep cowed down to ensure obedience to the Master's diktat. Such a mindset did appear to have served the interests of the colonial authorities well. Their colonial administration based on a few thousand civil servants was able to control effectively a population of many hundreds of millions. It levied and collected taxes, including tax on income, policed the realm and opened up the vast expanse of the Indian sub continent with a presence that was both feared and respected. After the partition of India in 1947 and the creation of Pakistan and India as independent, sovereign States, the ambient circumstances c h a n g e d d r a m a t i c a l l y. However the consequential changes in Pakistan in the administrative framework were either slow to come or even non existent. The result was that a free public continued to be dealt with by an administration that was still largely mired in the old colonial mindset. Tax collection is a difficult and sensitive task at the best of times. In a newly independent country with limited financial
Computer Related Staff Training Organized by the DOT Page - 3 Two days course on Corporate Financing (Malaysia) Page - 4 2nd National Audit Working Session Page - 5 Inaugural of IBA, Karachi led Capacity Building Program Page - 6,7 Inaugural of 34th STP Page - 8 resources, low per capita income, a large population, deficient infra structure, serious external military threats and the overly optimistic expectations of a free people, tax collection is especially challenging. Given the exigencies of the situation one would have expected that serious attempts to address the fairly obvious problems that beset tax administration would have been taken soon after independence. That however did not happen. Inertia is probably p a r t l y t o b l a m e . Ve s t e d interests of the entrenched bureaucracy are probably more significant as a causal factor. Whatever the reason, the fact is that the negative mindset of tax functionaries officers and support staff- persisted and there was no meaningful improvement for almost fifty three years ie till 2000. A key initiative taken up by the new government that took office in October 1999 was Tax Reform. A Task Force set up continued on page-2
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August, 2007
continued from page-1
DITORIAL
T
he commencement of new financial year has brought fresh challenges for our Directorate. The year has started off with hectic pace, as DOT pays host to Capacity Building Training Programs for grade 17-19 officers organized in collaboration with Centre for Executive Excellence (CEE), IBA, Karachi. The purpose of these Capacity Building Programs is to impart unified training to all offices of both Income Tax as well as Customs & Excise group. Three such consecutive Capacity Building Programs were organized in the first three weeks of July this year. Thanks to the efficient and professional DOT Administration , all three events were managed successfully to the satisfactions of both trainers from IBA and the participants of these trainings. The last week of July was devoted to the 2nd National Audit Workshop held from 2426th July at the Directorate. The event was organized by the Audit Wing , CBR with an aim to develop a unified Audit Program applicable throughout the country. Member Audit, Mr. Abdur Razzaq & Ms. Yassie Hodges, Consultant CBR actively participated in the deliberations and working sessions throughout the three days event. DOT also welcomed the Probationary Officers of 34th Specialized Training Batch on 27th July, 2007 in a formal Inaugural Ceremony graced by the Director General DOT / Director General Regional Tax Office Mr. Haji Ahmed. DOT Gazette wishes the young officers best of luck for successful completion of their training and for a bright future
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under World Bank specialist, Shahid Hussain, identified critical areas in tax administration that were in need of a drastic overhaul and made specific recommendations in this regard. The CBR then set about implementing the recommendations. A fundamental change in mindset and attitudes was seen as an essential prerequisite to the success of the far reaching tax reform program. To some extent this change was expected to follow consequentially in the wake of the structural, procedural and legal changes introduced in the CBR and its' field formations through the reform measures. However it was recognized that it would also be necessary to take action independently and educate and re-educate tax personnel at all levels to bring home the necessity of mindset and attitude change in the changed work environment. One of the most far reaching changes introduced through the Tax Reform measures, is the scheme of universal self assessment incorporated in the new tax statute ie the Income Tax Ordinance of 2001. This scheme of truly universal self assessment available to all entities has acted as a catalyst in provoking positive mindset change in Direct tax personnel as well as taxpayers. This has happened in a number of ways. Firstly, the self assessment provisions are couched in a language that makes it abundantly clear that they are truly applicable to 'all' tax entities and there is no room or scope for making exceptions on frivolous grounds. This statutory 'finality' went a long way in deterring any 'adventurer' tax officer / official from making an attempt to circumvent the Scheme. Self Assessment of Income put an end to casual contact between tax personnel and taxpayer that was almost the norm previously and this easy familiarity was the
2
cause of much taxpayer harassment and corruption in the tax deptt. Secondly, the all encompassing scope and finality of the self assessment provisions has inspired confidence in the taxpayer and this is reflected in the dramatic upturn in the declarations of taxable income and the resultant tax paid in the tax Returns filed. Tax personnel have now seen for themselves that they can actually collect more tax simply by placing trust in taxpayers and without any need to resort to coercive measures. The positive response of taxpayers over a fairly significant timeframe has convinced a very large number of tax officers and support staff that the tax reform measures taken are indeed beneficial so far as revenue mobilization is concerned. True there are still some intractable, chronic 'doubters' and reactionary elements who miss the 'good old days' when thanks to the constant interaction between tax personnel and taxpayers there was much scope for taxpayer harassment and resultant extraction of extra legal 'benefits.' Hopefully, these obstinate elements will change and learn from experience and from the example of others. If they do not then they will be seen as 'misfits' and will either have to leave the deptt on their own initiative or will have to be weeded out perforce. It is clear that a 'paradigm shift' has taken place within the CBR and its' field formations in which the departmental personnel have themselves become 'agents of change.' This Paradigm Shift may thus be seen as a change from one way of thinking to another. It is indeed nothing short of a revolution, a transformation, a sort of metamorphosis and has not taken place 'suddenly' but rather has been driven by 'agents of change.' Government has shown a great deal of sensitivity to the
undeniable fact that the available deficient compensation package was not seen as a 'living wage' by tax personnel and was a major reason for corruption in the deptt. The scheme of enhanced compensation for those officers and support staff who are able to meet specific performance and integrity criteria has removed much misgiving in departmental personnel and has created an environment in which Tax Reform measures are much more readily acceptable. Tax personnel now understand that given the changes introduced through the Tax Reform measures, henceforth, the only way to improve their career prospects in the deptt will be through performance based on professional expertise and integrity. Tax personnel and taxpayers are both keenly aware of the fact that self assessment does not amount to a license given to taxpayers to declare any income that they wish. In fact rigorous Audit of a limited number of Tax Returns on the basis of well defined criteria goes hand in hand with self assessment and is bound to be an effective deterrence to the chronic under-declaration of income that was commonplace in the past. Taxpayers are also aware that the deptt is putting a great deal of emphasis on meaningful training of tax personnel which is bound to enhance their professional expertise and their ability to detect tax evasion. They also know that given the enhanced compensation package, tax personnel will be much less inclined to overlook tax evasion when detected simply because of the extra legal inducements offered by tax evaders. Taxpayers thus now have a healthy respect for tax personnel and their entire outlook vis a vis the deptt has changed for the better. continued on page-3
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13th Issue
August, 2007
CCentral Board of Revenue is going through fast paced reforms aimed at modernization and up gradation of facilities along with provision of quality service to taxpayers through a professionally trained workforce. The implementation phase of these reforms include establishment of newly created Regional Tax Offices and Large Taxpayer Units. In these refurbished offices efforts have been made to introduce office automation at all levels. The need for Information Technology related training of Income Tax officials from grade 5 to 16 in these newly created offices was being felt for quite
some time, as this small step could lead towards a giant leap of completely automated and paperless environment. For achieving the objectives of developing basic IT skills of officials from grade 5 to 16, our Directorate organized a series of Information Technology related trainings aimed at imparting basic computer skills. These trainings comprised of a crash program course of 18 days (3 weeks) challenging the enthusiasm of trainers as well as trainees. First such batch of officials completed its three weeks training in the first week of July. A group of 70-80 officials from Lahore region partici-
pated in this course. Information Technology basics, MS. Windows, MS. Word, MS. Excel, MS. Power Point and Web Browsing skills are being taught in course of these three weeks training program with a vision to fill the knowledge gap between the non IT people and IT skills. On completion of this training the officials will be able to operate their PC's independently not only for word processing and web browsing but also for preparing animated presentations, work on spread sheets, manage their E-mail accounts and perform other related operations. The course outline for this training is designed
keeping in view the non IT background of the participants and the IT need analysis with a view to develop much needed time based IT skills. At the end of these trainings the trainees shall be able to figure out IT based solutions in a real world scenario In continuation of the first training, the second phase of this three weeks computer related training was commenced from 16th July 2007 and 48 officials from Lahore Region are participating in this training. As the course content of these training is very relevant to the actual job performance, the participants are displaying an active
continued from page-2 Besides self assessment law, other changes introduced through the new tax statute like the statutory requirement for maintenance of records by 'all' taxpayers and stipulation of stiff penalties for those who violate the law have also gone a long way in deterring underdeclaration of income and instilling confidence in tax personnel in their ability to detect and bring to tax unre-
ported income. Coupled with this is the integration of modern technology, especially 'information technology,' in the work procedures within the deptt. This has heightened the sense of confidence in tax personnel in the command that they have over their work environment and has simultaneously led to an increased awareness in taxpayers of the much improved capability of
tax personnel, deterring taxpayers from routine under declaration of income in the Returns of Income filed by them periodically. The net effect of the tax reform measures has been to lead to the beginnings of an almost symbiotic relationship between tax official and taxpayer. Taxpayers are actually showing their eagerness to declare good income in their annual Tax
Returns because they see this as being effective in keeping the tax auditor away from them. At the same time, tax personnel are eager to show their positive conduct and enhanced professional capability because they see these qualities as essential to an improvement of their career prospects within the deptt and an inducement to taxpayers to declare good income.
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S
ince 1938, tax practitioers from all over the world rely on the International Bureau of Fiscal Docu-mentation (IBFD) for authoritative expertise on cross-border taxation. IBFD is the portal to high quality independent tax research, international tax information and education with the aim to enable customers to do their work more quickly and efficiently. The wealth of IBFD experience and knowledge is reflected in the make-up of the organization. IBFD employs over 50 research specialists and teacher's staff from around 25
13th Issue
Products and Services, which covers all publishing, educational, research and consultancy activities, and IBFD Foundation which executes several Academic Activities.
different countries. IBFD has grown from a tax documentation centre into a contemporary online research institute. It caters for both the private and the public sector. It fulfils the information needs of tax advisory firms, multinational enterprises, international organizations, ministries of finance, tax administrations, universities and other tax practitioners in over 150 countries.
Directorate General of Training & Research (Direct Taxes) Lahore (DOT) has recently joined the Galaxy of IBFD members. As a good will gesture IBFD had sent a complementary invitation to Central Board of Revenue for its two days (July 24th to 25th, 2007) course on Corporate Financing in Kula Lumpur, Malaysia. CBR nominated Mr.
IBFD operates on a not-forprofit basis and is completely independent. IBFD organization is divided into IBFD
View from Sky Bridge of Twin Towers (Kualalumpur)
2
August, 2007
Shahid Bashir Additional Director (DOT) to participate in the course and represent Pakistan in the discussions. Almost twenty participants from all over the world attended the course. This course was very elaborate and covered many aspect of Corporate Financing in a concise and precise manner. The course content included topics such as Types of Corporate Financing, Debt versus Equity, Thin Capitalization, Hybrid Instruments, Derivatives, Financing Structures etc.
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13th Issue
August, 2007
T
he Directorate General of Training & Research [Direct Taxes], DOT has the honor of facilitating various functional wings of Central Board Revenue [CBR] in providing the necessary material and infrastructural support in their various assignments and tasks. The Audit Wing, CBR since last year, initiated a series of efforts aimed at strengthening the role of audit in Income Tax as well as in Sales Tax Group. Three Integrated Audit Trainings were organized in our Directorate which trained 128 audit officers / officials belonging to Income Tax and Sales Tax Group in the last financial year. Through these trainings, audit officers were trained in developing their analytical skills through case studies, group discussions, spot tests etc. Side by side with developing the skills of audit workforce, there was a need to develop the necessary techniques for conducting successful audits. In this backdrop, the Audit Wing, CBR under the
leadership of Mr. Abdur Razzaq, Member [Audit] held a three days National Audit Working Session from 13th 15th December, 2006 in our Directorate. The purpose of this Working Session was to arrive at a consensus for developing a unified Audit Program throughout the country. The importance of developing a unified audit program applicable throughout the country for both Income Tax as well as Sales Tax Wings of CBR cannot be over-emphasized. In wake of promulgation of Income Tax Ordinance, 2001, Universal Self Assessment Scheme
[USAS] is available for all classes of tax-payers. As a result, strong audit programs would ensure correct and true filings of returns by tax-payers in spite of existing of USAS. The detailed audit of certain cases filing returns under USAS would ensure compliance of statutory provisions as well as discourage incorrect / incomplete declarations. A strong deterrence in form of effective audit as applicable and in all developed economies is necessary for the success of any USAS Scheme. Audit Wing CBR lead by Mr. Abdur Razzaq, Member (Audit) has made concerted efforts through holding of two consecutive National Audit Wo r k i n g S e s s i o n s f o r developing the unified audit plan. Ms. Yassie Hodges, Consultant CBR was present on both occasions and played a central role in the final deliberations leading to the conclusion of these sessions. The 2nd Audit Working Session which was held in our Directorate from 24th 26th J u l y, 0 7 m a r k e d t h e culmination of efforts by Audit Wing, CBR to iron out the final draft audit plan and draft audit manual applicable for both Income Tax as well as Sales Tax
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Wi n g . T h i s D i r e c t o r a t e provided all the material and infrastructural supports necessary for organizing this event successfully. During this three days working sessions, the participants after detailed discussions, submitted their comments to the draft audit manual and draft audit plan prepared by the Audit Wi n g , C e n t r a l B o a r d o f Revenue. In the concluding session of the 2nd Integrated Audit Training Workshop, Mr. Haji Ahmad, the Acting Director General, Directorate General of Training & Research [Direct Taxes] and Director General, Regional Tax Office congratulated both Member Audit, CBR Mr. Abdur Razzaq and Ms. Yassie Hodges, Consultant CBR, in achieving their objectives of finalization of a draft audit plan. He also lauded the efforts of the Workshop's participants who showed keen interest in the deliberations and in preparation of their presentations. At the end, the Chief Guest, Member [Audit] Mr. Abdur Razzaq, and Mr. Haji Ahmad distributed the certificates amongst the participants of the Workshop.
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13th Issue
August, 2007
T
he HRM Wing, Central Board of Revenue led by the visionary figure o f M e m b e r H R M , M r. M u h a m m a d Ta l h a h a s initiated a series of efforts aim at enhancing the workforce capabilities of officers of Central Board of Revenue. Introduction of IJP post positions based upon merit, renewed efforts for training of workforce inside and outside the country, introduction of MBA Taxation studies in IBA, Karachi for new entrants to the Income Tax as well as to the Customs and Excise Group etc. are some of the initiatives undertaken by the HRM Wing. Realizing the need for on job training of middle and senior level managers through standardized training programs, HRM Wing, Central Board of Revenue signed an agreement with IBA, Karachi for developing Capacity Building Modules for its officers from Grade-17 to 19. As a result, the HRM Wing, CBR has arranged a 6 days training module for officers from grade 17-19 in collaboration with Centre for Executive Excellence (CEE),
IBA Karachi. These Capacity Buildings Programs will be organized at our Directorate which will be providing the necessary infrastructural, instructional and material support. This unified and structured training module is meant for officers of both Income Tax and Customs & Excise Groups. Training in subjects such as c o m p u t e r t e c h n o l o g y, communication skills, presentation Skills etc. is given through interactive training
sessions. The first three days of trainings are devoted to hands on computer training skills and the next three days focus on communication skills in official settings. Our Directorate has committed to provide all the logistics and infrastructural support for this initiative. DOT faculty is actively involved in imparting this training as well as in preparation of training manuals designed for this module. The inaugural ceremony of these IBA related trainings was held on 2nd July 2007 in DOT Auditorium. Mr. Muhammad Talha, Member HRM was the Chief Guest at this occasion. In his inaugural address he highlighted the importance of on job trainings and courses for enhancing the professional skills of officers of Central Board of Revenue. In line with reforms underway at CBR it was necessary to develop the needed human resource potential to achieve the goals of automation, professionalism
2
and quality service. He impressed upon the officers to benefit from the opportunity provided for development of their skills and capabilities in form of these capacity buildings programs. Only officers possessing the relevant skills and knowledge would secure a future based upon quality service, tax-payer facilitation and use of computer technology in an automated office setting. Mr. M. Muneer Qureshi, Director General DOT in his speech welcomed the initiative taken by the HRM Wing for providing the officers of both Income Tax as well as Customs & Excise Group an opportunity to benefit from specially designed training programs from a reputed and world renowned institution such as IBA, Karachi. In the first batch of this IBA related Capacity Building Program 45 Grade-19 officers belonging to both Income Tax and Customs and Excise Group completed their training on 7th July 2007.
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13th Issue
1st batch of IBA related Capacity Building Program
2nd batch of IBA related Capacity Building Program
3rd batch of IBA related Capacity Building Program
2
August, 2007
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T
he officers of 34th Specialized Training Program after successfully completing their mandatory training at the Civil Services Academy, Lahore were formally welcomed for their specialized training program at the Directorate on 27th July, 2007. The Inaugural Ceremony was chaired by Mr. Haji Ahmed, Director General (Acting Charge) DOT and Director General RTO, Lahore. In his welcome address, Mr. Haji Ahmed congratulated the probationary officers on successful completion of their common training program and welcomed them to the Directorate. In his address he highlighted the importance of professional training for becoming successful officers of the future. He added that the young officers were lucky to have entered Income Tax Service at a time when large scale structural reforms were underway. Improvements in salaries, well equipped refurbished offices and automation were some of the hallmarks of these reforms. On the other hand expectations of the tax payers from the tax
13th Issue
August, 2007
collectors in form of provision of quality services and prompt response had also increased manifold. He stressed the need to take the specialized training at DOT in all seriousness for developing the necessary skills to become successful officers. Good discipline and observance of DOT Rules and Regulations were the basic requirements from a young officer under training. Only those who applied their faculties and met the training standards were to succeed in completing this professional training. He outlined the period of training being spread over more than seven months. It was expected of the officers in course of this period to develop the necessary skills required for job performance. He highlighted the importance of observance of officer like behavior and service discipline in course of period of training at the Directorate General. In his concluding remarks, he wished the young officers of 34th STP a successful and long career in service. Senior officers of the Income
2
Tax Group were present at the occasion. The batch comprises of 26 officers from the 34th CTP. Merit wise list of officers is as under: 1. Ghulam Hussain 2. Naheed Ahmad 3. Rukhsana Arif 4. Usman Ahmed Khan 5. Ch. Khurram Aziz 6. Usman Ijaz Bajwa 7. Syed Arsalan Qudus . Bukhari 8. Muhammad Umer Yunus 9. Saher Aftab Butt 10. Amanullah 11. Rais Humayun Abdul . Hayee
12. Falik Shair 13. Ayesha Ranjha 14. Qadir Nawaz 15. Muhammad Shakil Anwar 16. Agha Nabeel Akhtar 17. Adeel Mahmood Shah 18. Bilal Ahmed 19. Mukhtiar Ahmad Shar 20. Huma Sarwar 21. Javaid Ahmed Kumbhar 22. Irfanullah 23. Riaz Khan 24. Sultan Muhammad Nawaz . Nasir 25. Bahader Sher Afridi 26. Muhammad Qasswar . . Hussain
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14th Issue
September 2007
INSIDE THIS ISSUE
T
Celebrations of 60th Independence Day Anniversary at DOT Page-4
Chairman FBR's Address to the Officers of Capacity Building Program Page-6
Presentation at DOT (DT) on new Software developed by Customs Wing (CBR) Page-3
PATRON M. Muneer Qureshi Director General EDITOR-IN-CHIEF Amna Faiz Bhatty Deputy Director LAYOUT & DESIGN Asad Ali Directorate General of Training & Research (Direct Taxes), Lahore. Ph: +92-42-7842710 PABX: +92-42-7830211 Fax: +92-42-7842702 Web: www.dgtrdt.gov.pk email: dg@dgtrdt.gov.pk
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DITORIAL
14th Issue
September 2007
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is one year old!
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at
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Pictorial-Independence Day Celebrations at DOT
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continued on next page
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October 2007
INSIDE THIS ISSUE New initiatives to upgrade FBR's Training Establishments Page-1 Electronic Tax Registers as a fiscal device. Page - 6
Imam Bukhari (194 265 A.H.) Page - 8
PATRON M. Muneer Qureshi Director General EDITOR-IN-CHIEF Amna Faiz Bhatty Deputy Director LAYOUT & DESIGN Asad Ali Directorate General of Training & Research (Direct Taxes), Lahore. Ph: +92-42-7842710 PABX: +92-42-7830211 Fax: +92-42-7842702 Web: www.dgtrdt.gov.pk email: dg@dgtrdt.gov.pk
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continued on page 2
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October 2007
DITORIAL
continued on page 3
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October 2007
Original DOT (DT) Area [1986] = 6.4 Hectares Allotted to I & I [Customs in 2006] = 1.0 Hectare Allotted to DOT [Customs] (2004) = 1.0 Hectare Bal. Land Area under DOT (DT) occupation = 4.4 Hectare Space Satellite “Google Earth” View of DOT (DT), Sutluj Block, Allama Iqbal Town, Lahore.
Tariq Aziz Block Comp. Lab, Classromms & Library
Prob. (STP) Hostel
Residences
Auditorium
Car Parking
Admn. Block, Class rooms & Comp. Labs
Residences
1
DOT (DT) Sutluj Block Allama Iqbal Town, Lahore
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October 2007
Schematic Layout of IT Infrastructure at DOT (DT)
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October 2007
COMPUTER SYSTEMS AND ESD Special secure fiscal device for record signed (SSFDRS) with secure hash algorithm (SHA-1) Computer Invoice / Slip Printer
SSFDRS with SHA-1
ADVANTAGES OF FISCALISATION Correct Disclosure turnover. l
More jobs for technicians
l
More jobs for software houses
l
Better control and management of business by traders
l
Shorter audit periods by tax department
l
Less paper work by traders
l
More revenue continued on next page
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October 2007
COMPUTER SYSTEM AND ESD Electronic Signature Device Request
PC
Signature “Signed” Invoices, Receipts etc.
Printer B4100
OTHER DEVICES
TELECOMS: Ethernet & Internet / email enabled cash registers are low cost, stand alone ETRs. This device may be used by traders with a direct connection to CBR Server to upload their periodical transactions as agreed between the two. EDI: Discussions between CBR and Pak Telecom on installation of EDI linkage should take place. The Pilot program should be for the linkage of large companies and traders.
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Imam Bukhari (194 265 A.H.)
360 degree view of maqam of Imam Bokhari
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October 2007
16th Issue
November, 2007
INSIDE THIS ISSUE
M MUNIR QURESHI DG(DOT)(DT)
Change in a large, complex organization, like the FBR, can be normal, 'evolutionary' change, over a relatively protracted timeframe, or can be deliberate, 'forced' change, artificially contrived, with the clear objective of achieving certain specific ends in a relatively limited time span. Since 2000 the present government has been seized with the exceedingly difficult task of revamping and restructuring Tax Administration in Pakistan. The $ 150 million Tax Administration Reform Program (T.A.R.P) launched with World Bank facilitation in 2002 as a sequel to the indepth appraisal made by the Shahid Hussein expert Committee set up in 2000, is scheduled to achieve fruition in 2009 _ the so called 'year of arrival.' It remains to be seen whether the objectives will be fully achieved.
PATRON M. Muneer Qureshi Director General EDITOR-IN-CHIEF Amna Faiz Bhatty Deputy Director
because endemic departmental corruption inevitably mean't bad assessments of income. One would expect that once the decision was taken to do away with the ubiquitous Department/Taxpayer interface, positive change would follow as a matter of course, all corruption would vanish and efficiency replace inefficiency. Reality however is rarely that simple and direct. In actual fact, the changes were accepted by most FBR personnel (officers as well as support staff) grudgingly and many tried actively to impede and obstruct their implementation and it required all the determination, ingenuity and steely resolve that top FBR executives _ like the redoubtable FBR Chairman Abdullah Yousaf_ could muster to get TARP going. The reasons for such seemingly unjustified resistance to the positive changes sought through implementation of TARP are not difficult to fathom. The fact is that mental 'inertia' is a much more common trait in most human beings than one would like to believe. Many people prefer to continue to remain in their present state rather than have to deal with a largely unknown 'changed state' even though the change is cited as a stepping stone to progress, efficiency and prosperity. Change_ especially
However, given the daunting constraints, it would be a significant achievement even if the major objectives are largely achieved. One of the most important problems confronting tax administration in Pakistan is 'managing change' in a way that FBR personnel at all levels are able to adjust to the demands of the new administrative structures being created based on functional specialization coupled with universal self assessment. Among the most dramatic changes wrought by TARP is the decisive decision to do away with the routine departmental interaction with taxpayers. This is probably the most significant development of the restructuring program. And a development that was not at all easy to accept for the great majority of FBR personnel. Regular departmental interaction with taxpayers gave FBR functionaries their legendary 'clout.' The threat of saddling a taxpayer with huge monetary liability was enough to instill fear and awe of the taxman in the mind of the most hardened of businessmen. Tax personnel reveled in the authority that close contact with taxpayers gave them. And misuse of this authority became the basis of much corruption in the department. What is more, it institutionalized inefficiency
LAYOUT & DESIGN Asad Ali Directorate General of Training & Research (Direct Taxes), Allama Iqbal Town, Lahore. Ph: +92-42-7842710 PABX: +92-42-7830211 Fax: +92-42-7842702 Web: www.dgtrdt.gov.pk email: dg@dgtrdt.gov.pk
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Change Management Page 1 Relational Database Model Page 2 Database
Table Table Column Column
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Row Field
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Capacity Building Program on Management / Leadership Skills Page 6
A course on Organizational Development and Change Management Page 7 DOT (DT) Charts Page 8 dramatic, decisive change_ is often viewed with skepticism, fear and trepidation. Fear of the unknown is deeply ingrained in the human psyche and can only be overcome with conscious, intelligent effort. It is this conscious, well directed effort to coax FBR personnel to break with the past and willingly accept new realities based on new norms and values that is at the heart of 'Change continued on page 4
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16th Issue
November, 2007
DITORIAL October and autumn are synonymous are to each other in Pakistan. The gentler October sunrays and the mild breeze provide a soothing healing for the man kind having endured long torturous summer months. This year October had a special relevance in addition to being the harbinger of changing season, as the holy month of Ramazan and Eid-ul-Fitar both fell in this month. At DOT the training of the 34th Specialized Training Program continued in full swing and the first mid term examination of the 34th STP took place before the Eid holidays. It is hoped that probationary officers fared well in the exams mindful of the practical challenges ahead. The Eid break provided the necessary respite to the probationary officers before the commencement of the 2nd and final term at the Directorate. On the first day of return from Eid holidays, a tea party was arranged for the probationary officers in the Old Mess. The second phase of the IBA, Karachi led Capacity Building Program for officers in BS 17-19 also commenced from 22-27th October at our campus. This module captioned “Management /Team Building and Leadership Skills Module “is the 2nd and last training module organized in collaboration with Centre for Executive Education, IBA, and Karachi. A total of 49 officers both from Income Tax and Sales Tax participated in the first batch of Capacity Building. Program. The second batch of this training commenced from the 29th October and shall continue till 3rd November. The Director General, Mr. M. Munir Qureshi represented our Directorate at a three days “Change Management Wo r k s h o p “ o r g a n i z e d i n Islamabad and presided over by the Chairman FBR Mr. M. Abdullah Yusuf from 22-24th October.
Relational Database Model T
he relational data base model represented a landmark in the history of database modeling, as it allowed files to be related to each other by means of a common field. In order to relate any two files to be related to each other by means of common filed. In order to relate any two files, they simply need to have a common field, which makes the model extremely flexible. Formally introduced by Dr. E.F. Codd in 1970, the relational model provides a simple, yet rigorously defined, concept of how users perceive data. The relational model represents data in the form of two dimension tables. Each table represents some real-world person, place, things, or event about which information is collated. A relational database is a collection of two dimensional tables. A basic understanding of the relational model is necessary to effectively use rational data base software such as Oracle, Microsoft SQL Server, or even personal database system such as Access or Fox, which are based on the relational model. Relational tables have six properties: 1. Values are atomic. 2. Column values are of the same kind. 3. Each row is unique. 4. T h e s e q u e n c e o f columns is insignificant. 5. The sequence of rows is insignificant. 6. Each column must have a unique name.
columns in a table whose values uniquely identify each row in a table. A foreign key is a column or columns whose values are the same as the primary key of another table. You can think of a foreign key as a copy of primary key from another relational table. Keys are fundamental to the concept of relational databases because they enable tables in the database to be related with each other. Navigation around a relational data base depends on the ability of the primary key to unambiguously identify specific rows of a table.
Normalization is a design technique that is widely used as a guide in designing relational database. Normalization is essentially a two step process which puts data into tabular form by removing repeating groups and then removes duplicated data from the relational tables. After having a basic understanding of relational database modeling let's have a DATA INTEGRITY look at some of the applications This means, in part, that you t h a t a r e d e s i g n e d u s i n g can correctly and consistently relational database modeling navigate and manipulate the concepts. tables in the database. There are two basic rules to ensure Oracle Database 10g data integrity, entity integrity, Express Edition. and, referential integrity. This is a no-frills edition of The entity integrity rules the proven Oracle Database states that the value of the product. It can be installed on primary key can never be a null any machine, supports up to 4 value [a null value is one that GB of user data, runs on a single has no value and is not the same process or and uses a maximum as a blank]. of 1 GB memory. The referential integrity rules states that if a relational Main features table has a foreign key, then Available for 32-bet Linux every value of the foreign key and Windows; must either be null or match the value in the relational table in which that foreign key is a primary key.
DATA MANIPULATION Relational tables are sets. The rows of the tables can be considered as elements of the set. Operations that can be performed on sets can be done A relationship is an associa- on relational tables. tion between two or more tables. Relationships are The eight relational expressed in the data values of operations are: the primary and foreign keys. A Union; primary key is a column or Difference;
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Intersection; Product; Projection; Selection; Join; and Division.
Database
Table Table Column Column
Table
Row Field
Field
The Anatomy of a Database continued on page 3
16th Issue
November, 2007
continued from page 2 May be installed on a multiple CPU server, but only executes on one processor in any server; May be installed on a server with any amount of memory, but will only use up to 1 GB RAM of memory. FACTbroker: FACTbroker's data-centric approach powered by the XML driven framework has lent the product to position itself in the forefront in the arena of business intelligence reporting. Main features: on existing RDBMS knowledge; Seamless integration with existing security infrastructure; uthorization driven user interface, and; Intuitive, yet powerful Control Centre for SML configuration . Kdb database platform: Kdb is a high-performance relational database platform for 32-bit architectures. =R e l i a n c e
Main features
This is a full-featured and zero administration Java relational database that enables software vendors to accelerate development cycles and reduce time to market.
Relational database optimized for fast search; Unlimited data capacity at main-memory speeds; Times series analysis built in; Billions of records analyzed in seconds, and; 32-bit architecture runs on Solaris, Linux and Windows. NRG Global DbVisualiser: This is a cross-platform database tool for all major relational databases. DbVisualiser enables simultaneous connections to many different databases through JDBC drivers.
Main features Delivers cross-platform p o r t a b i l i t y, a s m a l l footprint and comprehensive security; Offers a low cost, high results solution to effective storage of metadata, application-specific data or out-of-box tutorials and demonstration materials, and; It can be integrated directly within your application making it completely transparent to the end-user.
Main features Browse database structure; View detailed characteristics of database objects; Edit table data graphically; Executive arbitrary SQL statements or SQL scripts, and; Reverse engineer primary/foreign key mappings graphically.
Pervasive Postages: This is a validated and supported distribution of Postgre SQL, the world's most advanced open source database. Main features Often support, updates, and value added tools in a subscription model, as well as professional services for migration and training, and; Pe r v a s i v e ' s b a c k i n g , support and ser vices provide the assurance that enterprises need to confidently put open source to work.
Point Base Embedded:
Objects Tables Queries Forms Reports VistaDB: This is an alternative to Microsoft Jet/Access, MSDE, and Xbase for building robust small to midsize .NET database applications. Main features First real alternative for professional programmers that rely on the Microsoft Jet engine and Access databases to store and mange data, and; VistaDB is a true RDBMS specifically designed for .NET to give developers a robust, high-speed embedded database solution with minimal overhead. Solid FlowEngine: This uniquely combines two enabling technologies. Relational data management, and; Advanced, bi-directional multi-point synchronization. It fuses these two elements into an embeddable distributed data management platform the Solid Flowengine. Solid FlowEngine provides an underlying foundation for high performance distributed applications built to meet stringent car rier-grade requirements. Sahar Majid [Sci-tech World]
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16th Issue
November, 2007
continued from page 1 Management' within FBR. Human beings are more prone to accept change when the benefits of change sought to be implemented are made clear in a simple, easily comprehensible manner and also widely publicized. It is also important that these benefits be perceived as significant and directly relatable to a marked improvement in the human condition of the affected players. I n Pa k i s t a n , f i n a n c i a l compensation at twice the basic salary for selected, meritorious FBR personnel is at the heart of the IJP (Internal Job Posting) process. It is probably the single most important factor in motivating FBR personnel to accept the changes sought to be implemented through TARP. While this has undoubtedly boosted morale the fact remains that FBR salary scales are still way below what the private sector has to offer in comparable positions, especially in the case of officers.' The major change with regard to the manner in which work gets done in the Direct Tax Department is the reorganization on the basis of functional specialization. Essentially, what this means is that whereas in the old field formations of the then CBR where jurisdiction was based on the (contiguous) 'territory' assigned to each 'circle', the office of the Income Tax Officer (ITO) was where all aspects of work related to the levy and collection of income tax got done _ viz requisition of the Income Tax return, summons for case 'hearing,' proceedings incidental to the determination of Total Income, levy of due tax, collection of the tax levied, determination and issuance of refunds of tax, penalties for default, conduct of local enquiries, conduct of external 'survey,' generation of periodic reports including reports sent to appellate authorities etc etc , in the changed environment of the reorganized FBR, field forma-
tions deal with a particular, specialized area of work. Thus the (exclusive) determination of total income takes place in the 'Audit' charge. Collection of tax levied- including levy of penalties to enforce collectionONLY takes place in the 'enforcement' charge. Similarly, issuance of refunds of excess tax collected ONLY takes place in the Enforcement charge. All aspects related to interaction with appellate authorities only gets done in the Legal charge. So far as jurisdiction is concerned, there is now no concept of contiguous 'territory.' The ACIT (BS 17 18) equivalent to the ITO- may now be assigned any case by the Commissioner of Income Tax pertaining to any part of the Region. And ofcourse universal self assessment now means that MOST Returns of Income are bound to be accepted 'as filed.' Previously, most Returns were subjected to Normal Law Scrutiny which mean't that there was a steady procession of taxpayers to the Income Tax Officers' office. This drastic reorganization of the Direct Tax Deptt is nothing short of a 'sea change' and the net result of this is that the individual officer charged exclusively with assessment of income, or collection of tax / issuance of refund or some other specific area of work has only nominal interaction with the taxpayer population and the
great majority of this population have no interaction whatsoever with any officer or official as their Returns are accepted 'in toto' the moment they are submitted. The very act of submission of the Return too is soon to undergo a dramatic change as evermore Returns are filed 'electronically.' For the individual ACIT, all this entails a drastic reduction in his 'authority.' Actually, 'clout' would be a better expression. And this dramatic diminution of 'clout' has traumatized many an officer who joins Government Service because of the sense of personal importance that such Service conveys. This is where Change Management assumes enormous significance. Those individuals of the FBR workforce who find it difficult to reconcile with the changed realities of the post TARP era, need expert counsel-
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ing to convince them through reasoned argument that the changes sought to be implemented through reorganization and restructuring are for the better for the entire FBR workforce and also for revenue collection. They need to be told of similar changes made in other jurisdictions worldwide that have brought about dramatic improvements in workforce efficiency. And they need to be counseled on the dynamics of mindset change and the connection between such change and positive attitudes that produce results and overcome obstacles. FBR personnel also need to be counseled on the efficacy of teamwork vis a vis individual enterprise. Effective Teamwork harnesses focused effort and releases synergy that magnifies the effort put in by individual team members. However it is important to know that an ce of
16th Issue
continued from page 4 effective team is not a simple collection of individuals. A good team will have a Leader who understands the potential of the individual team members and who is able to unite them in achieving a common goal. The composition of the team is also significant. There has to be a harmonious balance of requisite skills pertinent to the objective that the team seeks to achieve. Change Management also seeks specifically to identify the obstacles to change. These obstacles may be abstract such as negative mental attitudes or something tangible like physical infrastructure involving the efficient use of Information Technology. T h e Fe d e r a l B o a r d o f Revenue is fully seized with the necessity of instilling a sense of purpose in FBR personnel without which the achievement of TARP objectives will be put in jeopardy. FBR has not hesitated to seek outside expert assistance to implement an effective Change Management program. M/s Gordon Gullan (T & D Adviser) and Alan Gilmour (HRM Adviser) are two such foreign (U.K) specialists engaged by FBR and from Oct 22 to 24, 2007 they conducted a Change Management Workshop at NIBAF, Islamabad, in which FBR Board- in- Council Members and DG's DOT (Direct Taxes & Customs) participated. In three days of intensive focused effort the Workshop participants were organized into three teams that concentrated their effort in identifying the obstacles to change sought to be implemented through the Tax Administration Reform program. The teams further made specific recommendations to overcome the obstacles identified by them. There was consensus among the participants that the efficient use of Information Technology has the potential of generating
Abdullah Yousaf further emphasized that the imaginative use of ICT in Chile, in which local software developers played a major part, had made it possible for Tax Administration to closely monitor transactions of all kinds that had a bearing on government tax revenues and the resultant documentation of the economy had made it extremely difficult for potential taxpayers to evade due tax or understate due tax liability in the Returns filed. Chile was thus an excellent role model for Pakistan and the best practices there could be usefully emulated by Pakistan in it's own effort to modernize tax administration. Chile's experience in modernizing it's tax administration as narrated forcefully by Mr Abdullah Yousaf has very important lessons for Pakistan and FBR would do well to take immediate notice of how critical ICT is to lift tax administration on to a new, significantly higher, threshold of performance. The participants also agreed that monitoring of TARP needed to be significantly improved so that the various projects could be implemented synchronously. The use of Timelines (GANTT Charts) to ensure efficient
enough momentum to FBR's TARP effort to overcome the negative effects of the many obstacles that were in the way. Rather than try and 're-invent the wheel' needless to say, a futile exercise- there was consensus that world wide 'Best Practices' in the field of I n f o r m a t i o n a n d Communications Technology (ICT), be identified and adopted by FBR. M r A b d u l l a h Yo u s a f , Chairman FBR who, along with Mr Usman Khalid Mirza, Member, Direct Taxes, came to participate in the Workshop straight from a hectic tour of Latin America, drew attention to the remarkable progress made by Chile in the use of ICT in Tax Administration. Coupled with doing away completely, literally in a single dramatic move, all exemptions from income tax hitherto clad in the garb of so called fiscal incentives, the efficient use of technology has made it possible for an extremely lean workforce of a few thousands only to deal with a taxpayer population more than twice the size of Pakistan's, which, given the huge differences in the total population of the two countries, translates into a very impressive tax base indeed. Concomitantly, the tax to gdp ratio has also registered a significant surge. Mr
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November, 2007
monitoring of project implementation was strongly recommended. It was also recommended that Benchmarking be used to judge and evaluate performance in different areas. FBR Member (Administration), Maj Gen 速 Muhammad Yaseen , drew the participants attention to the pressing need to use Training Needs analysis to design effective training programs at the 2DOTS. Mr Muhammad Talha, FBR's Member HRM, practically demonstrated how a good team leader could effectively mobilize team resources and come up with innovative solutions to complex problems. 'Team-B' led by him was cited as the best of the three teams participating in the Workshop. Finally, towards the end of the Workshop sessions, M/s Gullan and Gilmour impressed on the participants the pressing need to evolve atypical approaches to problem resolution. ['Out of Box' thinking and 'Lateral Thinking']. All in all, an extremely useful learning session indeed! Gordon Gullan and Alan Gilmour deserve full credit for the inspired thinking that is clearly reflected in the very well s t r u c t u r e d de s i g n o f t h e Workshop.
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16th Issue
November, 2007
Capacity Building Program on Management / Leadership Skills Organized By Centre for Executive Education, IBA, Karachi 22-27th October
T
he HRM, Wing , Central Board of Revenue, has initiated a series of training and development programmes aimed at fulfilling the training requirements of the in- service officers in the post reforms phase of CBR. In addition to the regular Capacity Building Programs organized by the Directorate Generals of Training & Research ( both Direct as well as Indirect Taxes), the HRM, Wing has signed memorandums of understandings with the two premier Business Schools of Pa k i s t a n n a m e l y L a h o r e University of Management Sciences(LUMS) and Institute of Business Administration , (IBA) , Karachi for imparting training to its officers. The purpose of above programmes is to better equip the CBR work force in a post reform environment based upon automation and transparency.
module of this programme was conducted by the DOT faculty.
While LUMS will handle the training of senior officers in grade 20-21, IBA, Karachi shall be responsible for the training of officers in grade 17-19 of Income Tax as well as of the Customs, Sales Tax & Excise Groups of CBR.
The second and the final phase of the IBA, Karachi related Capacity Building Programme has commenced from 22-27th October at our Directorate. The six days module is captioned “Management / Team Building and Leadership Skills.� The topics of study include Change Management in Government Sector, Motivating f o r P e r f o r m a n c e , Organizational Vision & Culture, Conflict Management etc.
The first phase of IBA , Karachi related Capacity Building Programme commenced at our Directorate from June this year. The first module comprised of topics such as Computer skills, Presentation& Communication skills. Through a series of seven separate training programmes , a total of 269 officers of both Income Tax as well as Customs groups were exposed to concepts such as listening skills , presentation skills etc. Our Directorate provided all the necessary infrastructural and logistic support for this phase of the Training. In addition, a part of computer related training
Eminent speaker, federal minister and Chairman National Commission for Government Reforms (CNGR) Dr. Ishrat Hussain addressed the participants of the course on the second day. He highlighted the background, scope and objectives of NCGR . The global
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challenges of effective and responsive governance have imposed an imperative task u p o n t h e b u r e a u c r a c y. Government must respond to the challenges ahead for the uplift of the common man. The proposed reforms are thus necessary for making the Pakistani Civil Ser vice responsive to the needs of the t i m e s . D r. I s h r a t t h e n highlighted the priority areas of reforms along with the proposed strategy for the way forward. His lecture was followed by a lively Q & A session. It is hoped that the officers of CBR have derived maximum benefit from the two modules of the IBA, related Capacity Building Program and shall practically utilize the training in the coming implementation phase of the reform agenda of CBR.
16th Issue
November, 2007
A course on Organizational Development and Change Management Dr. Yasmin Fatima Deputy Director
A
c o u r s e o n Organizational Development (OD) & Change Management (CM) arranged by Establishment Division, Management Services Wing at Secretariat Training Institute, Islamabad from 3rd to th 8 September, 2007. Out of 133 candidates about 38 were selected by the Establishment Division. The Course was designed for the Public sector officers of BS-19 & above. But I was amongst the few young officers who were selected for the course. At the end of the course I & an officer from Air Force were declared as the “Potential talent in future for their Organizations”. Topic of the course was very relevant with the growing importance of Reform & Privatization in the Public Sector of Pakistan. Hence, The Director General of the institute Mr. Muhammad Shahid Siddiqui has professionally designed, managed & supervised the course in a manner to optimize its utility. Organizational Development & Change Management were inculcated in the mind of the participants through interactive sessions, revision/ recapitulation sessions of the previous day proceedings, case studies & group exercises in the form of group discussion & presentations. The course was inaugurated by Zafar Ahmad Khan, Chairman Pakistan International Airlines Corporation (PIAC) & Sheikh Naseer-ul-Haq, Additional Secretary Establishment Division. T h e Tr a i n i n g c o u r s e comprise Six modules, In first module an overview of OD& C M , C h a l l e n g e s &
Group executive Human Resources & Organizational Development Habib Bank Limited. Fourth module was about OD through Skill enhancement by Sahibzada Naveed Jan, Director HRM, NADRA and Role of HRM in OD & CM by Kusro. P. Malik, Professor CASE University. D r. I s h r a t H u s s a i n Chairman, National Commission for Government Reforms despite his hard pressed commitment had taken out some time to discuss OD challenges in Public Sector of Pakistan. Many bold but apt questions were asked by the participants of the course regarding reform processes in different Public sector organizations in Pakistan. In Fif th Module two success stories each from the Public & Private Sector was narrated by Muhammad Talha, Member HRM, Federal Board of Revenue & Mr. Zouhair Khaliq C E O, M o b i l i n k P a k i s t a n Limited. It is a matter of pride for FBR to act as the Role-model for the other aspirants of Reform, Organizational Development & Change Management in Public Sector. In the Sixth & last Module two case studies were discussed vigorously by Mr. Ahsan Kamal, Director HRM, State Bank of Pakistan Karachi & Dr. Mirza Abrar Baig SEVP & Head HR National Bank of Pakistan,
Opportunities during transformation from Public to Private Sector & Gender Diversity in the Organization were discussed by some of the distinguished Speakers like Zafar Ahmad Khan, Chairman (PIAC), Mr. Akram Durrani, Executive Director Karachi Electric Supply Corporation & Dr. Syed Ta u q i r H u s s a i n S h a h , International Labor Organization, Islamabad. Second Module of the course emphasized on Global aspects of OD & CM, future challenges & Issues in the OD & CM through group presentations. Presentations were evaluated by the panel of e x p e r t s M r. Ya s i n Ta h i r, Director General IPO & Sahibzada Naveed Jan, Director Human Resources National Database and Registration Authority (NADRA) valuable observations/suggestions were given by the experts as well as by the participants. Third module was related to Organizational Planning, Exter nal Inter nal Issues, Change management strategies/Planning organizational development interventions and Tools. This was ably handled by Mr. Naeem-ul-Haq, Member National Reconstruction Bureau, (NRB), Prof Dr. Anees Ahmed, Vice chancellor RIPHAH University, Islamabad & Mr. Zafar Aziz Osmani, Senior Executive Vice President/
followed by certificate distribution ceremony. The crux of the training can described as under: “Organizations are like natural persons they grow & mature in healthy environment (organizational culture). Fall sick or even die in unhealthy environment”. The remedy for the sick & stunted organization is to bring about transformational change (Institutional & systematic) rather than transactional (personality dependant & e p h e m e r a l ) . Fo r t h e Organizational Development, change should also be managed appropriately & simultaneously. M o u n t a i n o f Pa t i e n c e i s required by the top brass of the organization in the transitional phase of change to combat resistance to change, mind set & status quo. Change should be brought about in a very methodical, well planned manner by employing professionals of relevant fields. For an effective reform process i.e Organizational Development & Change Management, strong leadership is integral. Leaders ensure consistency & continuity of Policies and maintenance of the pace of change. Mr. Zafar Ahmad Khan, Chairman Pakistan International Airlines Corporation (PIAC) was of the view, “Leadership should not be brought in but evolved from within the Organization”.
continued on page 4
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16th Issue
November, 2007
Training Activities at DOT (Hqs), Lahore. July - Dec 2007. Timeline Training Activity
July, 2007
August, 2007
September, 2007
October, 2007
November, 2007
December, 2007
1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 31
43th STP IBA Capacity Building Phaes-I IBA Capacity Building Phaes-II Staff Foundation Courses I Staff Foundation Courses II Staff Foundation Courses III Staff Foundation Courses IV
34th STP Training Schedule July
Timeline
Subjects
August, 2007
September, 2007
October, 2007
November, 2007
December, 2007
27 28 29 30 31 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 28 29 30 31
Income Tax Foundation Accountancy Foundation
Audit - II TMS
Eid Holidays
Enforcement
Country Study Tour
Sales Tax & Other Acts
Eid Holidays
1st. Term Exam
Audit - I
Extension Lectures Syndicate
DOT(DT)- 34th STP 80
70
70
70
70 60 Hours
50
55
57
59
70
65
66
66 Lecture Hrs. allocated
60
40
Lecture Hrs. completed till 31-10-2007
46
41
30
33
20
25
10
20
0 ITFC AFC Aud-I IP/ TMS Subjects
ST
Aud-II ENF 8
SYN
Key: ITFC AFC Aud-I IP/TMS ST Aud-II ENF SYN
: Income Tax Foundation Course : Accountancy Foundation Course : Audit-I : Information Processing/TMS : Sales Tax & Other Acts : Audit-2 : Enforcement : Extension Lectures
Final Term Exam
Information Processing
17th Issue
Training Methodologies at DOT(DT)
M MUNIR QURESHI DG(DOT)(DT)
L
ecture based instruction had been the norm at DOT (DT) since its inception_ as in most training institutions in the country. And training of probationar y officers was mostly restricted to “technical instruction” in subjects like accountancy, tax laws, office procedure etc. These are the areas that officers inducted into the Income Tax Department were expected to be mostly engaged in during the course of their career in government service and it was reasonable that they be prepared to play their “role” as tax officers by teaching them the subjects relevant to their occupation.
PATRON M. Muneer Qureshi Director General
Since 2002 a comprehensive tax reform policy has been put into play to revamp and restructure the organization charged with the assessment and collection of all federal tax levies. As a result, the “CBR” [now FBR] has gradually undergone a sea change in the way that it transacts business i.e. the assessment and collection of direct and indirect taxes. Besides a new tax code [the Income Tax Ordinance of 2001] and changes in the work procedure and structure of the organization, changes in the manner in which officers newly inducted in service are trained have also become necessary. This is because in order to work effectively in the new work environment a new breed of officer is required, one far removed from the ITO of yesteryears. The new breed of FBR officers are of course required first of all, to be professionally competent. But that is not all. They now have to have a whole new “mindset”
that entails a “mix” of qualities not easily defined but nevertheless required if they are to discharge their new responsibilities efficiently. One of the key objectives of tax reform in Pakistan has been to instill confidence in the tax paying public in the governmental machinery charged with the assessment and collection of taxes. Universal self assessment faithfully put into practice in letter and spirit has gone a long way in building such confidence. The change in the mindset of departmental functionaries_ officers and subordinate staff_ is however the most important quality that will, when all is said and done, impact on the world view of the tax paying public vis a vis the FBR. As pointed out above, “mindset” is not easily defined. However it does involve a mix of mental attributes that officers must have in the new post reform environment in which they are placed. One pf these
EDITOR-IN-CHIEF Amna Faiz Bhatty Deputy Director LAYOUT & DESIGN Asad Ali Directorate General of Training & Research (Direct Taxes), Allama Iqbal Town, Lahore. Ph: +92-42-7842710 PABX: +92-42-7830211 Fax: +92-42-7842702 Web: www.dgtrdt.gov.pk email: dg@dgtrdt.gov.pk
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Role Play session in progress
December, 2007
INSIDE THIS ISSUE Training Methodologies at DOT(DT) Page 1 Mahasil “Technology as Force Multiplier” Page 5 Our CST experience Page 6
Message by Mr. Mumtaz Ahmad Member Legal, FBR Page 8 attributes is to understand and emphasize with the tax paying public. In order to do that officers must build bridges that will enable them to reach out to the public and involve them willingly in the entire process of recourse mobilization. This is easier said than done because “role play” is not something that is in-born in everyone. It is both continued on page 2
17th Issue
DITORIAL
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s the Specialized training of the 34th STP draws towards its conclusion, it was time for the Country study tour arranged in the last quarter of the term. The tour is meant both for an exposure to the working of the FBR headquarter and various FBR units as well as an opportunity for excursion and mental stimulation. With these objectives in mind, a 5 days tour was organized commencing from 5th November. After the successful conclusion of this memorable tour, the probationary officers are expected to complete the remaining STP with due diligence and seriousness necessary for the development of career officers. The pace of work at the Directorate in the meantime remained busy. Four successive IBA related Capacity Building Modules were organized in the month of November. This module is captioned “Team building/Management skills module “comprising of six days of interactive learning. In addition to above IBA related trainings, the Business Process and Re-engineering (BPR) team of FBR also launched the training of its new software “Mahasil” at our Directorate. “Mahasil” in addition to having the Tax Management System (TMS) capabilities is simpler and more user friendly, having capability of being web based. The Directorate in order to facilitate the simultaneous organization of both above trainings in addition its own Specialized Training of the 34th STP, managed all the infrastructural resources in a way that all modules proceeded smoothly to the satisfaction of all organizers. The DOT administration led by the Director General Mr. M. Muneer Qureshi, deserves a well earned kudos for all the above efforts.
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December, 2007
continued from page 1 an art and a science that needs to be mastered by a great deal of effort and a willingness to change and take on a new role. Such “acting” skills are of course best imparted in a professional institution dedicated to work in the theatre. And DOT (DT) has certainly no intention of preparing FBR personnel for any such deployment!! But as has been aptly said, the whole world is a stage and we are all actors playing out our respective roles. Given such a context, it is imperative that public functionaries acquire personal communication skills to help them interact effectively with members of the taxpaying public and to enable them to improve public perception of FBR.
“Role Play” sessions as part of a training routine help participants acquire the sort of skills that are necessary for FBR functionaries in the post reform era. At DOT (DT) such sessions are now part of the training imparted to probationary officers of the Income Tax Group. In Oct. 2007 the probationary officers of the 34th STP went through a role play exercise in which the probationers were divided into four groups of two teams representing Pakistan and India and they were tasked with negotiating a treaty to resolve outstanding disputes between the two countries, including the seemingly intractable, Kashmir dispute. Background documentation was researched largely in the DOT (DT) library and the internet and a briefing
session was also held by DR Hassan Askari Rizvi, authoritative political commentator and noted columnist, who has a number of well received publications to his credit as well. The “final” treaty session was held on the 1st of Nov. 2007 and the “parleys” were video recorded. There was a great deal of posturing- and some angry gesticulating as well!! -by the participants and it all appeared quite “natural” and shows the human capacity for adaptability and resilience. Both “teams” were able to negotiate a peace treaty- and maintain good humor as well! Hopefully, the “real” players will also be able to do that someday in the not too distant future !
Briefing session by DR Hassan Askari Rizvi
17th Issue
December, 2007
34th STP - “Role Play” Session_ Pakistan India Peace Parleys Pictorial of Group A
Group A - “Commencement of final day of Negotiations”
Group A - “Signing of Treaty and exchange of documents”
Briefing session by DR Hassan Askari Rizvi
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Group A - Pakistan: Treaty Parleys
Group A - India: Treaty Parleys
Group A - Pakistan: Treaty Parleys
Group A - Press Conference
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December, 2007
34th STP - “Role Play” Session_ Pakistan India Peace Parleys Pictorial of Group B
Group B: Signing of treaty and exchange of documents Group B: Press Conference
Group B - India “Peace Parleys”
Press Conference
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Group B - Pakistan “Peace Parleys”
Group B - “Peace Parleys”
17th Issue
December, 2007
Mahasil “Technology as Force Multiplier”
By FBR, BPR Team
Mahasil, the new enhanced version of the already existing official software of Central Board of Revenue (CBR) Tax Management System (TMS) was released this month by TMS development team. TMS is given the name “Mahasil” because it has been developed indigenously by the officers from CBR and PRAL. Mahasil in addition to having the Tax Management System (TMS) capabilities (which provided end to end solution to all business processes of the Income Tax), is simpler and more user friendly, having capability of being web based and is going to be maintained on a centralized server. It supports scanned and other documents paving the way to a complete automated and paper less environment. Mahasil is also einteractive and the taxpayer can directly communicate under statutory provisions to the department in the form of declaration, applications or explanations to any statutory notices by connecting to his user through his user ID allotted to him and vice versa. Mahasil has been successfully
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implemented in LTU, Lahore as a pilot project and is planned to be implemented in all Income Tax field formations throughout Pakistan. Thus, there was a need of a committed team of Master Trainers that could impart the required training at their respective stations to ensure the success of Mahasil's smooth and timely implementation. A comprehensive training session of “Mahasil Train the Trainers Programme” was held at DOT, Lahore from 12th to the 14th of November, 2007. The objective of the program was to introduce domain officers to the more user friendly version of the TMS and to train them on the additions made in the latest version so that they would be able to impart training to all users at their respective RTOs and LTUs. Twenty two domain officers from Income Tax Department ranging from BPS-16 to BPS-19, selected from all over the country, attended the program. On the first day of training, the participants were given a detailed overview of Mahasil. They reviewed the fundamental modules of the system and its basic working. The participants
were explained the detailed theme of workflow and practiced the business processes of Declaration, Refund and Amendment. On the second day, the modules and processes including amendment, record transfer, record management, profile management, performance management, rectification, Audit, MIS and Help etc were explained, discussed and
practiced. The participant's feedback showed that they were very comfortable with the new system and after the two days of training believed that they had the capability to transfer the expertise to the other users gained from the programme. All the processes were revised by the participants on the third day. This training program was a major step towards the implementation of the software and hence, the automation of CBR. DOT has also planned to conduct a similar program to train the Database Administrators (DBAs) from Pakistan Revenue Automation Limited (PRAL) selected from all over the country, from 19th to 21st of November, 2007. The domain officers and the DBAs will complement each other while imparting training during the implementation of Mahasil.
17th Issue
December, 2007
Our CST experience By SaherAftab Butt 34th STP
O
ften we encounter such days, which leave a great impact on our lives. Our recent 5 days country study tour was the most unforgettable one for all 27 of us. The entire trip was a wonderful learning experience. It also provided us with a much awaited break from the hectic and demanding routine of DOT. Our group comprised of 27 probationers accompanied by Mr. Imran Kazmi , Mr. Attiq and Ms. Yasmeen Fatima from the DOT faculty. We left Lahore on a bright sunny morning on Monday, 5th of November around 10.30 am. Our first stop was at Mirpur where a briefing followed by lunch had been arranged by the District administration of Mirpur. Later we visited Mangla Dam. The boating in one of the lakes of Mangla dam was one of the most exciting experiences ever…Ayesha Ranjha along with Madam Yasmeen Fatima were seen riding a water scooter with great enthusiasm
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and resisted giving any other probationer the chance of riding it (and they did succeed in doing so ) From there we headed to Islamabad and went straight to the National Police Academy for a brief visit and an overview of the functions and responsibilities assigned to the academy. This was followed by a lavish tea arranged for us by our batch mates from the Police Service. Next morning, we visited the Federal Board of Revenue (FBR) for our meeting with the C h a i r m a n , F B R , M r. M . Abdullah Yusuf. A long walk to the FBR all the way from the Parliament Lodges helped in the digestion of the heavy breakfast we had at our hotel. First of all we were briefed on all the functions and responsibilities of various
divisions within FBR followed by an introduction to all the Functional and Line Members of FBR. The Chairman FBR, Abdullah Yusuf took time out of his busy schedule and briefed the probationary officers on reforms measures underway at FBR. He informed the officers that their induction into the Income Tax group was very timely as the new system based on functional division was under implementation which had brought about some
fundamental changes in the old system. Previously one officer was assigned a wide range of functions from assessment to collection and the subsequent imposition of penalties. Under refoms, functionalization has been introduced where different jobs were being assigned to different people resulting in specialization of functions and t r a n s p a r e n c y. T h e w o r k environment in the newly created RTOs and LTUs was extremely conducive to producing quality output at a
17th Issue
greater pace. Similarly all internal taxes were being brought together under one roof in RTO and LTUs for improved administration and facilitation of the taxpayers. He impressed upon the young officers for their commitment towards their
future careers. At the end of the discussion, the Chairman, Mr. Abdullah Yusuf and Member HRM , Mr. Muhammad Talha answered the queries of the probationers. Our visit ended with a lunch arranged by the FBR authorities.
After this meeting , we headed for Muree. Throughout the journey Umer Yunus, Usman Bajwa and Ghulam Hussain chattered incessantly and pleased everyone with their amusing jokes. In the evening we reached our destination. Our hotel had the most beautiful interior and the scenery around was breathtaking. In the morning we went to Patriata Resort and enjoyed our chairlift rides. In the evening we went shopping to the famous Mall Road of Muree. Next day the group went to Nathiagali where we toured the 4km walking track of Ayubia Park. Our lunch was at Greens Retreat Hotel, a beautiful place where we thoroughly enjoyed our meal.
December, 2007
The bus ride from Muree to Abbotabad included singing by the probationers in the most hideous voices imaginable. However, the show was stolen by Umer Yunus who sang the most tragic songs one could think of. Our journey back to Lahore was also full of surprises. Exhausted souls took their seats in the bus but it was not over yet . Along with the immensely enjoyable company of Ms. Yasmeen and Mr. Imran Kazmi , we visited almost all the intriguing places during our entire tour. The impressions left on our sub conscious cannot be expressed in words. Overall, the entire CST was a great experience to reckon and our group harmony was exemplary. Accolades are reserved for DOT administration for arranging such an event for us.
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December, 2007
Message by Mr. Mumtaz Ahmad Member Legal, Federal Board of Revenue By MumtazAhmad Member (Legal)
T
he Federal Board of Revenue, is a reformed and vibrant revenue collecting organization and is conspicuously very different from the one of the yesteryears. Lack of trust, between the taxpayer and tax collector, for number of reasons in the past hindered development of proper tax culture, made tax collection a difficult task with not so impressive achievement of budgetary targets. 2. In order to tackle the multidimensional problems, ranging from trust deficit between the public and the tax machinery to loss of revenue, poor performance level etc, the Government initiated a comprehensive strategy to completely reform the apex tax collection agency of Pakistan through the Tax Administration Reform Programme. 3. In order to overcome the technical and legal difficulties in implementing the Tax Administration Reform Project and also considering the global advancement in tax laws and to achieve the reform objectives, inter alia, relating to adequate autonomy in administrative and financial matters it was necessar y to enact a comprehensive statute to replace the three sections CBR Act, 1924. The
comprehensive statute was passed to come in existence from 1.7.2007 and provision of law except section 1, case into forth from November 1, 2007. 3.1. A comparative analysis of both laws show that the FBR Act, 2007 has immensely widened the scope of the Board related activities and functions empowering it to better achieve reform objectives such as developing tax payer friendly culture , creating investment and business friendly environment thereby accelerating the economic growth of the country and increasing efficiency of work force etc 3.2. The FBR Act, 2007 has provided space for enhancing the capacity of the tax system to collect due taxes through application of modern techniques , providing assistance to taxpayers , building a motivated satisfied , dedicated and c o m p e t e n t professional workforce that is required to perform at an enhanced efficiency level. 3.3. Its objectives can now be more easily achieved such as to be a modern, progressive, effective, autonomous a n d c r e d i b l e organization providing quality services and promoting compliance with tax laws, while practicing values such
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a s i n t e g r i t y, professionalism, team w o r k , c o u r t e s y, fairness, transparency and responsiveness. The new Act, has widened the role of the FBR to regulate matters relating to fiscal and economic p o l i c i e s , administration m a n a g e m e n t , imposition and collection of duties and taxes. The Federal Board of Revenue while remaining a government department will be provided with greater autonomy in determining its own policies and strategies in relation to salaries , investment and operation methods. increased use of i n f o r m a t i o n technology will further increase administration efficiency and ensure benefits of shared information such as higher levels of compliance. improvements of the productivity of the FBR personnel t h r o u g h a comprehensive Human resource d e v e l o p m e n t programme has started through training, monitoring, restructuring etc. refurbishment of accommodation , equipment and resources to accommodate the new processes and
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programmes is already being reflected in the RTOs and LTUs etc. The Federal Board of Revenue is now a modern, progressive effective and credible organization for optimizing revenue by providing quality service and promoting tax laws compliance through the availability in the FBR Act, 2007 of comprehensive provisions pertaining to powers, functions, activities, incentives etc. At the national level change for the better in perception of tax payers and general public has already been achieved and should be continued relentlessly. Reduction in corruption has been acknowledged by t h e Tr a n s p a r e n c y International Report. The OICCI one of the important tax-payers organization in its recent sur vey has observed that “the CBR has further improved its performance this year. This is a result of timely reforms, consistency in policies and professional management of the regulatory.� And the ultimate result is that the FBR has surpassed the revenue targets in the five consecutive years from 2001-02 to 2006-07. A lot more is to be done, to achieve a booming economy and prosperous homeland, the Federal Board of Revenue is now better equipped than ever to efficiently manifest these goals.
18th issue
January, 2008
D.O.T (DT) By: M. Muneer Qureshi DG DOT(DT)
T
he Directorate General of Training & Research (Direct Taxes) is FBR's principal training establishment for it's Direct Tax personnel. It's predecessor, the Directorate of Training from which the acronym, DOT, derives, was set up as a separate functional unit in 1954 and for the first time it found specific mention in the then tax statute. The Income Tax Act of 1922 (as adapted in 1947 in Pakistan). Prior to that, training was mainly on the basis of informal arrangements like mentoring by senior officers after the officers joined the Income Tax Department on the basis of competitive civil ser vice examination conducted by FPSC.
PATRON M. Muneer Qureshi Director General
Till 1976, DOT was situated at Karachi in rented premises. In 1976 it moved to Lahore again to rented premises. In 1986 it finally moved to it's present , custom built, permanent location in Allama Iqbal Town. In 1986, DOT's 'training' mandate was enlarged to include 'Research.' Till 1988 DOT was headed by a 'Director' a grade-20 officer and thereafter by a Director General, a grade21 officer. While the main DOT campus is at Lahore, it also has two sub offices at Islamabad and Karachi. These are smaller establishments each headed by an Additional Director. The DOT campus at Lahore is situated in a sprawling 6.4 hectare area and the main administrative block, I.T Labs, classrooms, Library, syndicate rooms, auditorium, Conference room, gym, faculty residences, plant nursery, green belt and two hostels, with capacity to house 54 resident trainees, actually occupy some 4.4 hectares. Out of the total DOT
area, two plots of one hectare each have been allocated to DOT(Customs) in 2005 and to Customs, Intelligence & Investigation Wing in 2006.
The total expenditure budget for DOT including the two sub-offices- aggregates Rs 64.343 mill in fiscal 200607 out of which Rs. 44.263 mill relates to the main campus at Lahore. Over the years FBR CBR of yester years- has made a significant investment in building up necessary infrastructure incidental to it's training activities. Presently it has three, state of the art, I.T Labs equipped with 90 Hewlett Packard Pentium IV, dual core PC machines and TFT display in a fully networked environment backed by three dedicated servers, two UPS units of 15 KVA & 30 KVA capacity and an independent electricity power generation plant of 210 KVA capacity. High speed, DSL internet connectivity soon to be upgraded to Broadband- is available for the entire DOT
campus. All classrooms, I.T. labs, auditorium and Conference Room have multimedia projection facility and public address system. The Library has four, internet ready PC workstations with loaded proprietary software to access Income Tax case law and, since 2007, also the vast, online data base of the 'Bureau of Fiscal Documentation' [IBFD] at Amsterdam, Holland, after DOT acquired full membership rights. continued on page - 2
EDITOR-IN-CHIEF Amna Faiz Bhatty Deputy Director LAYOUT & DESIGN Asad Ali Directorate General of Training & Research (Direct Taxes), Allama Iqbal Town, Lahore. Ph: +92-42-9260347 PABX: +92-42-9260341-2 Fax: +92-42-9260346 Web: www.dgtrdt.gov.pk email: dg@dgtrdt.gov.pk
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18th issue
DITORIAL
T
he editorial team of the DOT Gazette wishes its august readers a very new year. May the year 2008 bring much desired peace and prosperity to our homeland. It is time now to tread the path of national reconciliation and work collectively for achieving the national goals of development and social justice. Our nation born out of fierce opposition and challenges shall negate all counter claims to its existence and solidarity. The year 2008 commenced at the Directorate General with a farewell organized for the outgoing 34th Specialized Training Program (STP) on Wednesday, 2nd January. Mr. M. Abdullah Yusuf Chairman FBR/ Secretary Revenue Division was the chief guest at the occasion. The ceremony was attended by the senior officers of the Income Tax group as well as by the family members of the probationary officers especially invited for the occasion. Ms. Arooj Mehwish Rizvi was declared the best probationer of the 34th STP. The formal ceremony was followed by a bon fire lit dinner in the spacious DOT lawns.
January, 2008
continued from page 1 The entire built up area is air-conditioned. DOT Lahore has a fleet of 11 vehicles including one coaster, two Vans and 9 saloon motorcars. The DOT (main campus) workforce comprises 11 faculty members headed by a Director General. It also has 116 support staff. The entire DOT workforce main campus and two sub offices comprises 143 support staff personnel and 16 faculty members. All faculty members and some support staff enjoy a special compensation package ( double the basic salary) after they have qualified in a rigorous selection procedure. All DOT faculty appointments are made by FBR in exercise of express statutory stipulation and as per a transparent, Internal Job Placement Policy based on competitive selection.
training at the Finance Services Academy, Lahore and later, the Common Training at the Civil Services Academy, Lahore. Any other training activity was seen as incidental to this basic function. After 2002 and the launch of the far reaching CBR ( l a t e r F B R ) Ta x R e f o r m Program under World Bank auspices, training acquired a whole new meaning and came to be seen as a crucial factor in the performance of FBR in terms of revenue mobilization capability.
DOT was originally set up mainly to impart specialized training to Income tax officers inducted to the department of Income Tax of the then CBR after they had completed initial
Beginning 2005, after the probationary Income Tax Group officers have completed their STP training at DOT(DT), Lahore, they are then required to under go training at the Institute of Business
Administration, Karachi after they have completed Specialized Training Program at DOT, leading to an MBA degree in Tax Administration. For admission to the IBA MBA program it is essential that the probationers clear the STP Internal Exam held at the end of the probationar y officers' second term at DOT. The two terms that the Income tax Group officers spend at DOT constitute one term for the IBA MBA degree program. The syllabi and curricula at DOT is thus now finalized in consultation with IBA, Karachi. A total of 21 credit points are awarded for the DOT training segment. To date, the 31st, 32nd and 33rd STP batches have completed training at IBA and most of the continued on page - 3
The officers of 34th STP shall now leave for IBA, Karachi for one year MBA in Tax Management. The DOT gazette wishes the young officers of 34th STP best of luck in their future careers as tax professionals.
DOT Gazette wishes all its readers a very happy New Year 2
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January, 2008
trainees have been successful and have been awarded MBA degrees. Af ter the probationar y officers have appeared in the STP Internal Exam at the end of the probationar y officers' second term at DOT(DT), Lahore, they are also required to appear in a Final Passing Out Exam (FPOE) conducted by the Fe d e r a l P u b l i c S e r v i c e Commission. Their position in this exam has a bearing on their i n t e r- s e s e n i o r i t y i n t h e Common Training Program, Income Tax Group Batch in which they are placed and is also an essential pre-requisite to their confirmation in the regular Income Tax Group and the end of their probationary status. Failure to clear the FPSC FPOE can lead to a termination of their appointment in Government Service. Another major change has been the enlargement of the DOT training mandate to include the training of FBR support staff especially the clerical staff and departmental Inspectors. Over time this has acquired ever increasing significance and this is evident from the fact that in 2007 some 1500 support staff have received training at DOT,man campus, Lahore and the two sub-offices, especially in I.T. and communication skills.
Since 2002, a mandatory capacity building program for departmental field officers was also implemented at DOT. Initially, the departmental field officers underwent two weeks of capacity building training at DOT. Subsequently, this was modified so that the skill development of the capacity building program spread over one week was implemented at DOT while the concept development segment of the program was implemented at IBA, Karachi. Finally, beginning 2006 the capacity building program for all departmental officers is carried out in it's entirety at IBA, Karachi and LUMS, Lahore.
The Target Population for DOT is some 750-1000 direct tax officers of the FBR placed in BS 17-20 and some 5000 support staff personnel who qualify for various kinds of training under the tax reform program. Although the Capacity Building program is now designed and implemented by IBA , Karachi and LUMS, Lahore, in it's entirety, for officers placed in BS 17-19 posted in the Punjab and the NWFP, IBA uses DOT, Lahore, premises and facilities to impart training. Notwithstanding the fact that capacity building is no longer a DOT responsibility,
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nevertheless specialized training for field officers has been started at DOT. Thus specialized training in the conduct of Audit including Audit conducted jointly by sales tax and income tax group officers- is being conducted at DOT since 2006. DOT has also become the preferred venue for the launch of many important learning initiatives by FBR. In this context it is important to mention the launch of the h u g e l y s i g n i f i c a n t Ta x Management System [TMS] in 2006 at DOT. TMS was the first significant I.T. based initiative in automation on the Direct Taxes continued on page-4
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January, 2008
continued on page -
side since the launch of the Tax reform Program in 2002. TMS was seen as especially significant because it represented also the first 'in-house' software development initiative as all the programming was done at PRAL CBR's wholly owned corporate entity dedicated to revenue automation. A core group of officers was trained at DOT to become master trainers in TMS.On the express directions of the Chairman, CBR, STP participants were also given training in TMS by DOT technical personnel. However, TMS had many teething problems and has now been superseded by an improved version called 'Mahasil.' This new, improved version of TMS has also been launched at DOT and a core group of instructors trained in it's use. Although 'Mahasil' too will eventually be superseded by I -T M S [ I n t e g r a t e d Ta x Management System] being developed by a foreign developer, 'Mahasil' will nonetheless provide extremely useful 'hands on' experience to departmental direct tax personnel in automation of the work cycle. Since 2005 an international dimension to DOT's training capability has been in evidence. In 2005 direct tax officers from t h e A s s o c i a t i o n o f Ta x Authorities of Islamic countries
[ 20 countries in all with Turkey participating as an 'observer'] attended an intensive two weeks training course in revenue forecasting at DOT using software developed by IRS Canada consultant, Dr Anil Gupta, who came over to personally conduct the simulation exercises. This was followed in March 2007 with the first ever conference of Heads of ATAIC direct tax training establishments. In 2008 DOT hopes to play host to members of the Economic Cooperation Organization [ECO] conducting a specially designed capacity building program for them. Various training methodologies have been put to use at DOT to impart training. The traditional in-house faculty lecture based training method is still in use but is being increasingly supplemented and even superseded by more advanced methodologies like the conduct of syndicate sessions, role play sessions, simulation exercises using proprietory computer software, extension lectures by specialists and hopefully soon by other more advanced methodologies using video conferencing and dedicated elearning modules. This new 'multi-dimensional' training methodology is of considerable significance in the dynamic environment in which FBR
personnel can realistically expect themselves to be placed in the years to come in which they would be required to interact intensively and extensively with members of the tax paying public. Expertise in communication skills is especially important in this context. Although DOT has a great deal of independence with regard to the conduct of training programs nonetheless DOT does function under FBR oversight and especially with regard to the design of training programs for various categories of FBR personnel consultation with FBR through the Member (HRM) is essential. The Member (HRM) in fact plays a key role in the selection of all DOT personnel as he oversees the selection process for ALL FBR personnel. The Member (HRM) also provides guidance to the DG(DOT) on all STP related training initiatives and is closely associated with Specialized Training initiatives such as Audit Training. Also with regard to the MBA program for FBR Income Tax Group probationary officers, all interaction with IBA Karachi is through the Member (HRM). It is thus clear that DOT has come a long way from the once, dedicated, training establishment for Income Tax Officers ONLY. As many as 3052 FBR personnel in all categories [ officers as well as support staff]
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received training of some kind at DOT in 2006-07. This is a 67% improvement over the immediately preceding year. DOT hopes to further augment it's capabilities by setting up a specialist Forensic Investigation L ab on it's premises, by enlarging it's faculty and by imparting advanced training to faculty members in training centers of excellence abroad. In this context a presentation has already been before a World Bank Team and the initial feedback appears to be encouraging. Once the required improvements in infra structure have been carried out, DOT aims at becoming a regional training hub in which ATAIC and ECO tax personnel as well as tax personnel from non member countries come to DOT on a regular basis to receive training in a quasi commercial context so that the payments made by foreign participants not only cover costs but also a modest surplus to help fund further i m p r o v e m e n t s a t D O T. Furthermore, by 2010 DOT also hopes to be able to award the MBA degree to Income tax Group officers by conducting a Business Administration program of it's own. There will then be no need to send departmental officers to outside institutions like the IBA for an MBA degree.
18th issue
January, 2008
Pictorial - 34th STP Pass Out
T
he 34th Specialized Training Program batch of Income Tax Group probationary Asstt Commissioners of Income Tax completed their training at DOT(DT) on the 31st of Dec 2007 and for mally ended their assignment with a passing out ceremony on the 2nd of January 2008. Mr M Abdullah Yusuf, Secretary General, Revenue Division and Chairman of the Federal Board of Revenue was the Chief guest and gave away certificates to the batch of 27 officers that included five lady officers. The Director General, DOT(DT), Mr M Muneer Qureshi addressed the jam packed auditorium recapitulating the training activities carried out over the preceding one year. He also explained the development of training infra structure and teaching methodologies, over time, at DOT(DT). The Chairman FBR also spoke on the occasion. He appreciated the DOT invitation extended to the newly elected office bearers of the Lahore Chambers of Commerce and industry to attend the passing out ceremony and congratulated them on their assumption of office. He emphasized that under the new dispensation in place consequent to various tax
reform initiatives launched by FBR, tax administration was no longer a one sided affair but a partnership in which the tax paying community was an equal partner. He pointed out that it is the private sector that should take the lead in the development of the economy while the public sector should create the necessary environment conducive to strong economic growth. The Chairman said that this development pattern or
model was not peculiar to Pakistan but was today the norm globally. Mr Abdullah Yusuf lamented that although Pakistan had considerable potential and the workforce was second to none but unfortunately we had not been able to get the fundamentals right and resultantly many countries that had been able to do so were now overtaking us on the economic development front although they had been far
b e h i n d u s i n i t i a l l y. T h e Chairman said that only those countries would be able to move for ward that are able to maintain their competitive position in a challenging international environment. Finally, he congratulated the graduating class of Income Tax Group officers and exhorted them to take full advantage of the opportunities for self improvement given to them. He also appreciated the improvements made in DOT training infra structure but observed that these were not enough and more needed to be done if DOT was to become a world class institution. The Chairman then distributed certificates and prizes to the 34th STP officers. After the closing address and vote of thanks, there was a very well attended dinner / bonfire for the probationary officers passing out and the guests invited to the function.
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January, 2008
Pictorial - 34th STP Pass Out
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January, 2008
Pictorial - 34th STP Pass Out
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January, 2008
MESSAGES FOR THE PROBATIONERS OF THE 34th STP. Mr Usman Khalid Mirza, Member (DT), FBR.
Mr Muhammad Talha, Member (HRM), FBR.
â€œâ€ŚI extend my heartiest congratulations to all of you for showing great commitment to a national cause by preparing yourself intellectually as well as professionally to serve your country through this dynamic and vibrant organization. I am sure your perspective is very clear and you are thoroughly conversant with your renewed role in the era of transformation and reforms. You have been groomed by very able and competent faculty in such a manner as would enable you to ensure that the paradigm shift in Revenue Division is smoothly handled, thereby yielding unprecedented results. This transition was inevitable obviously in the back drop of a hackneyed, out dated, rotten and counterproductive department. The founding fathers of the current reforms identified several bottlenecks in the previous circle based system of the Income Tax Department. The system of taxation as had evolved in Pakistan prior to the introduction of reforms, was marred by adhocism, unwarranted legal and administrative swings, wide gap between tax payers needs and their awareness, rigidity of the administrative framework, adversarial relationship between taxpayers and tax collectors, poor pace of organizational business processes and system, lopsided management of human resources and paucity of
I feel great joy in felicitating you on successful completion of your training at DOT. With this passing out ceremony you will be moving to the final leg of your training at IBA. The excitement and enthusiasm with which you are bearing today should be kept alive as it will help you steer your way through the tough schedules n the weeks and months to come. I advise you to treat this training as a valuable opportunity and make the most of it. It is not just an academic pursuit with an end result in the shape of a degree rather it is a life time learning experience. You will learn not just the theoretical aspects of taxation and management but also learn how to manage your time, how to work under pressure, how to prioritize among conflicting and pressing tasks, how to organize your life so as to get optimum results with your efforts. These skills will help you through out your life. The IBA experience will give you a favor of working in the private sector. FBR is being run on corporate lines to make it more efficient and productive. The experience of learning in an environment led by top private sector managers and leaders will be very useful to you in business process reengineering and revamping old systems at FBR. I wish you the best in future.
resources vital to give a boost to productivity. The Think Tanks of the reforms have now laid much emphasis on human resources, business processes, information management and facilitation rather than coercion and stringency. Tangible steps have now been taken after prolonged deliberations and consultations amongst all stakeholders. A new relationship with taxpayers has been conceived which is primarily based on facilitation as its foremost principle. Functional division has now become the core tenet of the process of organizational restructuring. Professionalism, transparency and integrity are the major slogans of our times and do constitute the major fabric of reforms. Promotion of voluntary tax compliance remains the prime focus of the tax administration reforms. You have seen that substantial investment has been made in infrastructure development, end-to-end automation of business processes, and human resource development. We have won taxpayer's confidence through Universal Self Assessment Scheme [USAS] in the Income Tax structure, yet the provision of a transparent and effective deterrence for the tax evaders has a very important role in the new system. Therefore, a fair and judicious mechanism of audit is in the process of evolution. The future tax system envisages a clear separation between all domestic and international taxes. Hence there is a dire need to prepare our work force for the formidable challenges linked with the reforms. Lastly, I would like to register a few words of caution i.e. as you would be taking up your new assignments, never miss sight of the spirit of reforms as introduced by the architect of change Mr. Abdullah Yusuf, Secretary Revenue Division and Chairman, FBR. He in fact is the anchorperson who in a very short span of time, endeavored single handedly in changing the besmeared and polluted image of the organization. My other advice for you would be to spread out your intellectual capacity in the best interests of the organization which would include interalia the power of analysis, professionalism and best practices. These are crucial times for you when you are entering a new phase of your carrier. This period is in fact a mix of the old and new system which compels us to carefully and discreetly shun away the legacies of the old system which would with the passage of time be finally obliterated as the process of reforms continues and reaches its logical conclusion, most probably by 2009.
8
21st Issue
Asymmetric Initiatives for Revenue Mobilization M Muneer Qureshi DG(DOT)(DT)
R
evenue mobilization is a taxing proposition in the best of times. Given an extremely narrow base, poor tax consciousness, serious anomalies in the underlying legal framework, corruption, (largely) manual work procedures, workforce 'mindset' problems, a huge, very poorly understood, informal sector, inadequate workforce compensation, deficient automation in the workplace, highly skewed sectoral tax contribution to the exchequer etc the task is made that much more difficult. However, that is not to say that nothing can be done to increase government revenues. Infact looking to the peculiar environment of developing countries, apart from the routine initiatives like tinkering with tax rates and exemptions and
support staff, which is an unprecedented development as in the past support staff hardly ever had any access to the regular training establishments of the then CBR for training purposes. For the new entrants, training does not end with the specialized training program [STP]. Since 2003 probationary officers of both the Income Tax and the Customs, Federal Excise and Sales Tax groups go on to the Institute of Business Administration at Karachi to complete the customized MBA in Tax Administration, getting credit for the training received at the Civil Services Academy [Common Training Program CTP] and the Income Tax and Customs, Federal Excise and Sales Tax Directorates General of Training and Research [ D O T ( D T ) a n d D O T ( C u s t o m s , Fe d e r a l Excise & Sales Tax] at Lahore and Karachi, respectively. Beyond the IBA MBA, there is the Capacity Building program for officers at IBA Karachi and LUMS (Lahore). Additionally, t h e r e i s t h e m a n d a t o r y, promotion related training [for ALL Civil Servants] at the National Institute of Public Administration [NIPA] and the National Management College, p r e v i o u s l y, t h e Pa k i s t a n Administrative Staff College, Lahore. All in all, on the face of it, this is a pretty stiff training regime that should turn any raw recruit into an accomplished tax sleuth. But
enacting new tax levies, unconventional measures can and should be taken to bring about fundamental changes in the underlying causal factors seen as germane to revenue mobilization in a holistic context.
What can be done: Invest in training the workforce. An army is as good as the quality of its' fighting men. Proper training is hugely important. In a complex environment in which tax evasion is a significant issue, those who evade taxes are getting ever more sophisticated in the techniques that they employ to dodge the tax authorities. They have access to top flight tax counsel and usually also have good connections within the establishment which they often use to telling effect through pressure tactics that are very difficult for the taxman to counter. The only way the tax officers can deal with the problems that beset them is through good training. There has undoubtedly been a significant improvement in the quality of specialized training provided by the training arms of FBR [the 2DOTS] to it's workforce on both the direct and indirect taxes side. Training methodologies have improved, as has the content, and information technology is being used much more systematically than ever done before as a teaching aid for both officers as well as
April, 2008
Asymmetric approaches to Revenue Mobilization Page - 1 Training cum Workshop on Audit of Direct Taxes Page - 4
Abd al-Rahman b. Muhammad Ibn Khaldun Page - 8 is that really the case? Unfortunately, hard facts do not support such a conclusion. Many of the problems that beset tax administration in Pakistan like the chronically poor, tax to GDP ratio are relatable, to a significant extent, to deficiencies in high level training that in turn are the result of weaknesses in training infrastructure. Take for instance, the art and science of forensic investigation in cases involving tax fraud and in the use of computers by taxpayers to store tax relevant data [computer forensics]. Presently there are n o s p e c i a l i z e d Fo r e n s i c laboratory facilities at the 2DOTs. There is no specialized Simulation Lab to recreate real life scenarios in a simplified, artificial, 'virtual', environment, using dedicated software and hardware. Countries like Malaysia that have made great advances in enhancing the effectiveness of their Tax Administration, have continued on page 2
-ICT prowessDuring fiscal 2006 the IRS (USA) electronically processed 168,808,955 Direct Tax Returns [All categories] collecting $ 2.2 trillion in taxes net of refunds issued. This translates into a tax base of 56% + ! 1
21st Issue
April, 2008
continued from page 1
T
he DOT administration has always prioritized the genuine needs and requirements of the staff associated with this institution. Since the initiation of process of Internal Job Postings (IJP), some officials of DOT had not been selected for IJP pay positions. The DOT organogram as prepared by the HRM wing, FBR recommended a certain officers to staff ratio. This ratio fell short of the actual staff requirements for a sprawling campus like DOT. It was through the personal efforts of the Director General DOT, Mr. M. Munir Qureshi that the HRM wing was convinced of the reasonable staff/officers ratio needed to run the administration effectively. Thus, a major achievement in the month of March was the IJP selection of the support staff at DOT through the tireless efforts of the DOT administration. It is hoped that the support staff continue to perform their duties diligently and honestly. Meanwhile the training calendar at the Directorate remained busy with two successive computer training programs for officials (BS 5-16) p o s t e d a t R T O, L a h o r e . Similarly a three days training cum workshop on “AUDIT OF DIRECT TAXES” was held from 24th-26th March 2008 at the Directorate. In this training cum workshop officers from the Audit wing of the Audit & Accounts Department and I n c o m e Ta x g r o u p w e r e sensitized to the changes brought through reforms introduced in FBR. This training was arranged by DOT (DT) Lahore in collaboration with the Direct Taxes Audit wing of Audit & Accounts Department and was a successful effort in collaborative interface between two different departments.
invested hundreds of thousands of dollars (US) in setting up such specialized facilities and they continue to invest in improving the quality of their specialized technical infrastructure. Ofcourse, highly developed countries like the United States take such facilities for granted. But as the example of Malaysia shows, even countries that are not as highly developed also recognize the importance of building up their prowess in imparting meaningful training to their tax personnel in these new areas seen as very important to enhancing their skills at detecting tax evasion. The difficulties of training tax personnel in Pakistan effectively are compounded by the fact that we continue to induct generalists into the Civil Services through the Central Superior Services [CSS] Exam conducted by the FPSC. Many of the new entrants have no technical background at all in Economics, Accountancy or Business Administration having earned their Master's Degree in subjects like History, Political Science, Literature etc [and many have only a Graduate Degree the minimum entry level requirement] and have a hard time coping with the rigors of going through these technical subjects for the first time at the t r a i n i n g a c a d e m y. Tr u e , generalists can be trained as tax specialists but in order to be able to do so effectively in a reasonable timeframe, modern, state of the art training infrastructure, is a condition precedent. Second best is just not good enough. And, as explained, in Pakistan, presently, we do not have these specialized facilities at all. But, given continued, strong, executive support, this could change in the near future. The Tax Administration Reform Program [TARP] launched in 2002 has World Bank funding [long term soft loan] of $ 150 million expressly to modernize Tax Administration in Pakistan.
GROWTH OF THE INFORMAL SECTOR IN PAKISTAN (Percentage of GDP) 60
54.52%
50 39.03%
40
35.27%
34.76%
38%
37.25%
35%
28.75% 28.54% 30
23.51% 20%
20 10 0 1973
1978
1983
1988
1993
1998
1999
2000
2001
2002
Source: Mr. Ali Kemal, Underground Economy & Taxation in Pakistan. A critical evaluation..
And there can be no better use of these resources than to acquire the latest training infrastructure, notwithstanding the skepticism that still exists in some quarters as to the need and more importantly, the efficacy, of (expensive) modern technology in improving Tax Administration. Forensic and Simulation Labs are not the only areas in which investment is required to upgrade FBR's training establishment. Faculty and Program development are equally important. We need adequate numbers of well qualified teaching staff. P resently, DOT(DT) main campus at L ahore has a teaching faculty of [14] in allincluding the Director General and the Director and two 'visiting faculty members from the private sector- , out of which [3] are permanent faculty members while the rest are departmental officers on temporar y assignment or visiting faculty from private sector professional institutions. Only two faculty members have had any foreign training of significance. And although DOT(DT) faculty enjoys an enhanced compensation package (double the basic salary), it is still nowhere near the market salary for equivalent positions. Contrast this with the [100] strong permanent, teaching faculty at the
2
2006 (Est.)
Malaysian Tax Academy- all highly trained ( many of them abroad) and recruited expressly as Instructorsat “market salaries.” Besides reasonable numbers of suitably trained permanent faculty, specialized training programs for trainees at the academy are essential in order that they derive optimum benefit from the specialized facilities referred to above. These programs include financial investigative techniques course, financial forensics techniques training program, digital evidence acquisition specialist training program, computer network investigation training program, transfer pricing, international taxation courses and workshops and management courses including leadership and motivational courses. Naturally, physical infrastructure would also be required to install the specialized laboratory facilities. Classrooms, hostel and mess facilities, gym and other sports and recreational facilities, conference room, admin block etc would also be required. While all this will take up significant resources there can hardly be any doubt that these are all necessary for a training institution to have any credibility. Monitor Financial Data. There are more than [80] million continued on page 3
GROWTH OF TAX REVENUES IN PAKISTAN
Deal decisively with the Informal Sector. The informal sector, characterized by 'unreported,' undocumented or more aptly, improperly documented- (business) transactions, robs the exchequer of much needed tax revenue that has increased significantly over time. Pakistan has a burgeoning
201
1994-95
77.40 99.5 100 59.18 89.87 72.29 1990-91
1978-79
30.70
1982-83 1983-84 1984-85 1985-86 1986-87
9.76 1972-73
6.98 1965-66
3.45 1960-61
1949-50
1947-48
(Rs. in billion)
There is practically no systematic monitoring of financial data in Pakistan. In the United States all financial transactions above $ 10,000 are monitored and details logged in a central 900 data base to 800 build up a 700 profile and c o n d u c t 600 analysis. 500 Besides, Banks 400 are required by law to formally 300 report all 200 suspicious 100 deposits and 1.25 they do send 0 p e r i o d i c reports. In Pakistan, the State Bank of Pakistan requires Commercial Banks to report similar deposits under a “Know Your Client [KYC]” policy but there has hardly been any significant reporting to date.
ties. FBR must be empowered “to look at” a great deal more of the financial data held by the banking system than is presently possible. This is not to say that such empowerment will automatically lead to investigations being launched in the case of the many millions operating bank accounts who do not file Returns of Income. But over time “intelligent” automated systems, may be used to gradually generate profiles that could eventually suggest whether or not taxable income is indicated in an individual case. A blanket amnesty for past years will decisively remove the fear of being saddled with huge
informal sector whose size has variously been estimated at between 35 to 50 percent of GDP and even higher by some economists. All this “unreported and undocumented income” is a veritable treasure trove for the plethora of commercial banks that dot the economic landscape in Pakistan currently. The horde of “black money” entrepreneurs placed in the vast and growing informal sector do not stash their liquid wealth at home as some of us are wont to believe. They do not have to do so. “Laundering of black money”is a profitable enterprise and has many “facilitators”, institutional and
tax liability for any tax evasion in those years while maintaining deterrence in the future. Presently, the data required to be appended with the Return of Income in the case of noncorporate taxpayers, who form the great majority of the taxpayer population, is, at best, 'minimal' and will thus generate ver y few “leads” for tax authorities to follow. In the Pakistan environment, it is certainly not advisable to demand “copious data” to be appended with the Return of Income. However a meaningful reporting of data is essential if any meaningful analysis is to be conducted.
otherwise. Courtesy a legal embargo, details of bank accounts of even existing taxpayers cannot be routinely requisitioned by the income tax authorities. And those who do not “exist” on the tax rolls, live blissfully, secure in the knowledge that “out of sight”- of the FBR- (usually) also means, “out of mind.” An effective way of dealing with the informal sector is to create systems that make some form of documentation inevitable for as many economic transactions as possible. And using technology and the law, the system has then to be policed by the tax authori-
3
Use Technology to monitor Turnover. Information and communications technology is the great “force multiplier” of our times and tax people must learn to put it to use effectively. The wholesale and retail sector in Pakistan contributes more than 17% to GDP and just over 4% by way of tax revenue to the federal exchequer. A major loss to revenue here emanates from the systematic underreporting of turnover. The underreporting is especially serious in the case of major wholesale and retail outlets. One way of dealing with the problem that is already in use in as many as [18] countries at the present time is the installation of electronic tax 847 registers [ETR] in select wholesale and retail outlets. This device is a variant of the 402 o r d i n a r y electronic cash register [ECR] with which we are all familiar and is already being used in many retail outlets. The ETR has a special, so called, secure, “fiscal memory” chip that records all tax relevant transactions and displays tur nover on the machine as each transaction is made. The 'fiscal memory' itself can only be directly accessed by the tax authorities to download particulars either in real time or, periodically, at the end of a given timeframe. The device in conjunction with suitable additional, peripheral equipment, authenticates all transactions using a secure hash algorithm and stamped with this electronic signature, copies of the sales invoices 2006-07
continued from page 2 bank accounts of individual customers in Pakistan and only [2.2 million] taxpayers who file annual Returns of Income. While it is not at all axiomatic that anyone who operates a bank account would definitely be earning taxable income, and one individual may be maintaining several bank accounts, it is indeed very odd that there are so few bank account holders out of the total population of [80] million who do earn taxable income in Pakistan.
April, 2008
2001-02
21st Issue
continued on page 6
21st Issue
April, 2008
Training cum Workshop on Audit of Direct Taxes at DOT (DT), 24th March to 26th March, 2008 Internal Control, Importance of Internal Controls, assessment of control risks, which processes to be selected for sampling, how to draw samples from population, financial reporting manual, accounting policies and procedures etc. were covered by resource persons coming from the Audit & Accounts department. Similarly important topics s u c h a s I T b a s e d Ta x Management System (TMS), an overview of audit of direct taxes, desk audit of tax profiles, and amendments through Finance Act, 2007 relating to Direct Taxes which the auditor must know for effective tax audit were dealt with by the Income Tax side. Surprisingly! Resource persons from both sides were young & energetic, another sign of Reform. The closing session, of this training session cum workshop was chaired by Director General (DOT), Mr. M. Munir Qureshi. In his speech he, highlighted the importance of
Taxes Audit Wing of Audit & Accounts Department from 24th to 26th March, 2008. By: Dr. Yasmin Fatima Deputy Director
W
ith the implementation of Tax Administration Reform Program (TARP), Federal Board of Revenue has emerged as an automated, modern and transparent organization. One proof of the above claim is that Transparency International in its latest report has lowered the ranking of FBR in its list of corrupt departments. FBR however like all other Government departments is liable to regular audits by the Federal Audit Wing. For the effective Audit of a reformed organization like FBR it was, essential to update and reform the audit methodology. Hence, a training cum workshop was arranged by DOT (DT) Lahore in collaboration with Direct
The workshop was inaugurated by the Mr. Usman Khalid Mirza, Member Direct Taxes, FBR. In his speech he praised the effort made by both the departments and appreciated the innovative idea of an Interactive workshop. He then highlighted some of the important features of the Income Tax Ord. 2001, such as introduction of Universal Self Assessment Scheme (USAS), and systematic audit of selected cases. Mr. Omer Farooq (DG LTU), Lahore, Mr. Anwar-ulHaq (Commissioner Audit LTU, Lahore), Mr. Javed Athar (Commissioner Enforcement) were amongst the guests in the inaugural ceremony. It was a first ever interactive session in which auditors were trained not only from the Audit and Accounts department but also from the Income Tax Group. Important areas like
4
collaborative workshops among related government departments for exchange of knowledge & skills. Syed Imtiaz Hussain Bukhari, DG Income Tax Audit, was also present at the occasion and gave his feedback regarding the workshop. He thanked the DOT Administration for its indelible support for the workshop. In the end Mr. Khalid Ali Shah (Director General Training Audit & Accounts) distributed the certificates among the participants. Mr. Zafar Ullah Khan (DG Revenue Receipts), Mr. Tahir Mahmood (Director Audit & Accounts Training Institute, Lahore) were among the guests at the closing ceremony. It is hoped that this effort by DOT DT shall pave the way for further collaborative workshops to improve the understanding amongst Government departments.
21st Issue
April, 2008
Pictorial - Training cum Workshop on Audit of Direct Taxes
21st Issue
April, 2008
continued from page 3 issued can be safely admitted in audit and presented as reliable evidence before the tax authorities or a court of law, if the need so arises. Significantly, a real time video link can also be installed along with the ETR to ensure that the machine is actually used to record all transactions. The statute (in Pakistan, the Income Tax ordinance 2001) will have to be amended to empower the Commissioner to order installation of such a device in a particular wholesale or retail outlet and amendments will also have to be made in the income Tax Rules. On- line access of the data stored on the machine by tax authorities can be enabled by linking it to a dedicated, secure, large area network [LAN]. This technology which is fairly straightforward will impose no great burden on the exchequer as it will be required to be 'purchased' by the outlet suspected of underreporting turnover and it would be possible for such business to claim depreciation on the machine, including accelerated depreciation. The machine itself will be sold by authorized dealers only at nominal markup over cost price and may be paid for in installments thereby imposing minimal burden on
the purchaser. Alternately, the tax department may keep such machines in stock and install them, as need be, on a rental basis. It should not be necessary to order the installation of such machines on a very large scale and it is the deterrent effect that is significant. The experience of those countries that are using the technology is positive and it appears to have had a salutary effect in curbing underreporting of turnover. And the use of such machines need not be restricted to wholesale and retail outlets only. They can be easily modified for use by professionals like practicing doctors many of whom are known to have thriving private practices but do not declare income consistent with the scale of their practice.
FEDERAL RESOURCES IN PAKISTAN 2007-08. Privatization Proceeds 5% Bank Borrowing 8%
Change in Provisional Cash Balance 3% Self Financing of PSDP by Provinces 8%
External Receipts 16% Net Revenue Receipts 56%
scheme of self assessment– as is in vogue in Pakistan at the present time- it is not possible to take up each and every case for detailed scrutiny (audit) and moreover such personal expenditure as may be reported [expenditure on education of children including education abroad, on public utilities, private clubs, stay at hotels, airline travel, travel abroad, purchases through credit cards, on personal transportation etc ] is not properly collated on an institutional basis by the tax authorities making it extremely difficult, if not impossible, for any quick comparison of expenditure with declared income to be made.
Monitor personal expenditure. For obvious reasons, Income Tax Law lays down a great deal of emphasis on the earning of income. That is quite understandable given the nature of the enactment. However, it is a fact that in many cases an individuals' personal expenditure is not consistent with the Total Income reported in the Return but the mismatch generally escapes the scrutiny of tax authorities. In a universal
Given the fact that we are committed to a fully integrated
Illumination Illumination DOT DOT (DT) (DT) 23rd 23rd March, March, 2008 2008
6
Net Capital Receipts 4%
tax management system for FBR, it should be possible to deploy suitable technology to collect and collate information from institutional sources on a continuous basis [from educational institutions, banks, clubs, airlines, hotels etc] on a regular basis and compare the same with Income and expenditure declared on the Return of Income . Any mismatch in either / both areas would throw up a red flag and the matter can then be taken up for scrutiny by the tax authorities. Income and expenditure are really two sides of the same coin and by looking at expenditure carefully it should be possible to make a much better assessment of income. In the most glaring cases, thousands of Pakistanis travel abroad and in quite a few cases fail to report any extraordinary expenditure at all in many cases they may even fail to (deliberately) intimate 'any detail' of the trips made. Now with the advent of machine readable passports, every exit from Pakistan to a foreign destination is electronically logged and it should be possible to transmit details of the same to the FBR data base in real time. Once this is done on a regular basis, it would be a powerful deterrent to underreporting / non- reporting of expenditure on foreign travel.
21st Issue
April, 2008
continued from page 8 Ibn Khaldun is well known for his explanation of the nature of state and society and for being 'the founder of the new discipline of sociology.' Ibn Khaldun fully realised that he had created a new discipline, 'ilm al-'umran, the science of culture, and regarded it as surprising that no one had done so before and demarcated it from other disciplines. This science can be of great help to the historian by creating a standard by which to judge accounts of past events. Through the study of human society, one can distinguish between the possible and the impossible, and so distinguish between those of its phenomena which are essential and those which are merely accidental, and also those which cannot occur at all. [30] Ibn Khaldun's contributions to the field of history must also be noted. He analysed in detail the sources of error in historical writings, in particular partisanship, overconfidence in sources, failure to understand what is intended, a mistaken belief in the truth, the inability to place an event in its real context, the desire to gain the favour of those in high rank, exaggeration, and what he regarded as the most important of all, ignorance of the laws governing the transformation of human society. [31] On the development of the state, and the relationship between the state and society, Ibn Khaldun believed that …human society is necessary since the individual acting alone could acquire neither the necessary food nor security. Only the division of labour, in
For Ibn Khaldun, history is a constantly changing cycle, with essentially two groups of people, nomads and townspeople, with peasants in between. He characterizes each group:
and through society, makes this possible. The state arises through the need of a restraining force to curb the natural aggression of humanity. A state is inconceivable without a society, while a society is wellnigh impossible without a state. Social phenomena seem to obey laws which, while not as absolute as those governing natural phenomena, are sufficiently constant to cause social events to follow regular and well-defined patterns and sequences. Hence a grasp of these laws enables the sociologist to understand the trend of events. These laws operate on masses and cannot be significantly influenced by isolated individuals. [32]
Nomads are rough, savage and uncultured, and their presence is always inimical to civilization; however, they are hardy, frugal, uncorrupt in morals, freedom-loving and selfreliant, and so make excellent fighters. In addition, they have a strong sense of 'asabiya, which can be translated as 'group cohesion' or 'social solidarity'. This greatly enhances their military potential. Towns, by contrast, are the seats of the crafts, the sciences, the arts and culture. Yet luxury corrupts them, and as a result they become a liability to the state, like women and children who need to be protected. Solidarity is completely relaxed and the arts of defending oneself and of attacking the enemy are forgotten, so they are no match for conquering nomads. [34]
Ibn Khaldun proposed that …society is an organism that obeys its own inner laws. These laws can be discovered by applying human reason to data either culled from historical records or obtained by direct observation. These data are fitted into an implicit framework derived from his views on human and social nature, his religious beliefs and the legal precepts and philosophical principles to which he adheres. He argues that more or less the same set of laws operates across societies with the same kind of structure, so that his remarks about nomads apply equally well to Arab Bedouins, both contemporary and preIslamic, and to Berbers, Turkomen and Kurds. These laws are explicable sociologically, and are not a mere reflection of biological impulses or physical factors. To be sure, facts such as climate and food are important, but he attributes greater influence to such purely social factors as cohesion, occupation and wealth. [33]
With regard to the political and social cycle, Ibn Khaldun suggests the following sequence of events: Nomads conquer territories and their leaders establish a new dynasty. At first the new rulers retain their tribal virtues and solidarity, but soon they seek to concentrate all authority in their own hands. Increasingly they rule through a bureaucracy of clients - often foreigners. As their former supporters lose their military virtues there is an increasing use of mercenaries, and soldiers come to be more important than civilians. Luxury corrupts ethical life, and the population decreases. Rising expenditure demands higher taxes, which discourage production and eventually
7
result in lower revenues. The ruler and his clients become isolated from the groups that originally brought them to power. Such a process of decline is taken to last three generations, or about one hundred and twenty years. Religion can influence the nature of such a model; when 'asabiya is reinforced by religion its strength is multiplied, and great empires can be founded. Religion can also reinforce the cohesion of an established state. Yet the endless cycle of flowering and decay shows no evolution or progress except for that from the primitive to civilized society. [35] Ibn Khaldun acknowledges that there are turning points in history. He wrote that in his time, he believed the Black Death and Mongol invasions were turning points, as was the development of Europe. Ibn Khaldun's observations and research focused on the etiology of civilizational decline, “the symptoms and the nature of the ills from which civilizations die.” [36] Ibn Khaldun's thesis, that the conquered race will always emulate the conqueror in every way, [37] and his theory about asbyiah (group feeling / party spirit) and the role it plays in Bedouin societies is insightful. The genius of this work is his study of the science of human culture, the rise and fall of empires, Ibn Khaldun termed this the science of umran (civilization), and it contains many pearls of wisdom. His “Introduction” is his greatest legacy, left for all of humanity and generations to come.
[Center for Islam and Science] http://www.cis-ca.org/ voices/k/khaldun_mn.htm
21st Issue
April, 2008
Abd al-Rahman b. Muhammad Ibn Khaldun (1332 - 1406 A.C.E. / 732 - 808 A.H.)
I
bn Khaldun was born in Tunis on May 27, 1332 A.C.E. (Ramadan 1, 732 A.H.). [2] He received a traditional education that was typical for one of his family's rank and status. He learned first at the hands of his father, who was a scholarly person, not involved in politics like his ancestors. He memorized the Qur'an by heart, learned grammar, jurisprudence, hadith, rhetoric, philology, and p o e t r y. H e reached a c e r t a i n p r o f iciency in these subjects and r e c e i v e d certification in them. In his autobiography, he mentions the names of the scholars with w h o m h e studied. [3] Ibn Khaldun continued his studies until the age of nineteen, when the great plague swept over the lands from Samarkand to Mauritania. It was after this plague that Ibn K h a l d u n received his first public assignment, marking the start of his political career, and forever changing his life. [4] HIS MAGNUM OPUS, “AL-MUQADDIMAH.” Ibn Khaldun's magnum opus, “al-Muqaddimah” can be divided into three parts. The first part is the introduction, the
second part is the Universal History, and the third part is the history of the Maghrib. In this section, I concentrate on the first part. The second part is similar to the standard histories of Muslim historians, and there does not seem to be much divergence. The third part, which is concerned with the history of the Maghrib, is considered a primary source work. [27] Much of the informa-
months. [28] It can be divided into six parts as follows: 1. Human society ethnology and anthropology 2. Rural civilizations 3. Forms of government and forms of institutions 4. Society of urban civilization 5. Economic facts 6. Science and humanity
including history and historiogr a p h y. H e r e b u k e s s o m e historical claims with a calculated logic, and discusses the sciences of his time. He w r o t e a b o u t a s t r o n o m y, astrology, and numerology, and dealt with chemistry, alchemy, and magic in a scientific way. He freely offered his opinions and well documented the “facts” of other points of view. His discussion of tribal societies and social forces is t h e m o s t interesting part of his thesis. He illuminated the world with deep insight into the makings and workings of kingdoms and civilizations. The following quotation describes his philosophy of the historical process of civilizations, including, for example, the role of economics.
tion in this section is from Ibn Khaldun's personal travels and contacts in the area, and is replete with first hand accounts. An additional work that is not usually considered a part of this book is an appendix, which is an autobiography of the author. The first part, the “Introduction,” is popularly known as “alMuqaddimah;” Ibn Khaldun wrote this in a span of five
8
This impressive document is the essence of Ibn Khaldun's wisdom and hard ear ned experience. Ibn Khaldun used his political and first-hand knowledge of the people of Maghrib to formulate many of his ideas. This document summarizes Ibn Khaldun's ideas about every field of knowledge during his day. He discusses a variety of topics,
…in the field of economics, Ibn Khaldun understands very clearly the supply and demand factors which affect price, the interdependence of prices and the ripple effects on successive stages of production of a fall in prices, and the nature and function of money and its tendency to circulate from country to country according to demand and the level of activity. [29] continued on page 7
22nd Issue May, 2008
TAX ADMINISTRATIONINTERNATIONAL BEST PRACTICES
M Muneer Qureshi DG(DOT)(DT)
T
he effectiveness of Tax Administration is evidenced by a) the quantum of tax collection expressed as a percentage of GDP; b) the financial cost of tax collection for every Rupee of tax brought in; c) the extent of the tax base; d) the efficacy of fiscal policy in achieving specific socio-economic objectives [ like reducing inequalities in the distribution of income; bringing in foreign investment; reduction in the size of the informal sector]; e) the workforce required to assess and collect tax ; f) the extent of tax compliance [Total Tax Returns filed vis a vis the total number of taxpayers borne on record and g) how equitable is the sectoral contribution of tax payment.
Benchmarking is a useful way of comparing standards achieved by our own tax administration against specific parameters referred to above and the standards set by other administrations. To illustrate, in the case of tax collected as a percentage of GDP, in Pakistan it is just over 10% whereas it is much higher in most countries that have levels of development broadly similar to Pakistan's viz Turkey [32.3%] and Malaysia [24.8%].. Again, in Pakistan the tax base is 1.3% of population as against 20% in Malaysia and 10% in Turkey. In the case of tax collection cost, in Pakistan it is 0.7% of total revenue collected which is very low compared to all developed countries and is also low compared to most developing countries. However this does not translate into 'efficiency' of our tax administration because the 'apparent' better performance is due to an abnormally depressed compensation package for tax employees. As regards income inequalities, Pakistan scores 30.6 on the gini index as against 36.3 for Indonesia, 36.8 for India, 43 for Turkey, and 46.1 for Malaysia- which means that income inequalities in Pakistan are less than that prevalent in these countries - the lower the index the lesser is the extent of inequality. [ The most equitable income distribution in the world is in Sweden which is placed at 23 on the gini index. ] Generally speaking, the performance of tax administration reflects the quality of it's workforce, the effectiveness of fiscal policy and the systems in place for processing and
collating tax related data. The simplest way to improve tax administration would be to adopt [ and in some cases 'adapt'] international best practices rather than try and experiment with different policy regimens and design everything anew from scratch. If it is acknowledged that the better performance of tax administration is directly relatable to a significant degree to the quality of training imparted and the policies and systems in place for the assessment and collection of tax then it follows that these areas in Pakistan need to be looked at critically and it needs to be seen how far these arrangements stand comparison with the arrangements in place in other countries. In the case of training arrangements, we see that the more successful tax administrations
Tax Administration International Best Practices. Page - 1 The IBFD connection Page - 6
IBFD Inaugural of three week “Train the Trainer Course” Page - 8 with which we can reasonably compare ourselves have elaborate training facilities and well structured programs for training their tax personnel. They have dedicated and well equipped campuses and well qualified and permanent faculty in sufficient numbers in all the different areas that are germane to the training of a tax administrator. They also use specialized methods of instruc continued on page 2
SEQUENCE OF TRAINING AT DOT(DT), PAKISTAN Induction on the basis of CSS Exam. by FPSC (for University Graduates) MBA Program for Income Tax Group Officers
1
16 Credit Hours
21 Credit Hours
33 Credit Hours
C.S.A., Lahore C.T.P (10 months)
DOT (DT), Lahore S.T.P (5 months)
IBA, Karachi MBA Final Phase (12 months)
• Foundation Courses (6 weeks)[ English writing skills, Public Speaking, Research Methodology, IT] • 4 Core Subjects: (28 weeks, 4x7) 1. National Issues of Pakistan & Contemporary issues of Islam 2. Public Admin. & management. 3. Economics & Public Finance. 4. Govt. Functioning in Pakistan & Office Management.
1. Income Tax Foundation Course 2. Accountancy Foundation Course 3. Audit-I 4. Audit-II 5. Information Processing 6. Enforcement 7. Sales Tax Other Acts
1. Analysis of Financial Statements Business Maths. & Stat. Audit Financial Management Business Policy/Stragic Management 6. Business Process Reengineering 7. International Trade 8. Financial Accounting 9. Management Accounting 10. IAS Financial Reporting Systems 11. Business Laws 12. Public Economics 13. HRM 2. 3. 4. 5.
Capacity Building Training (Annual) BS-19/18/17 at DOT (DT) Conducted by IBA 2 Cohorts 6 days each • PC, Communication, and Presentation Skills Module. • Management / Leadership Skills Module
22nd Issue May, 2008
continued from page 1 Board Malaysia [IRBM] is carefully planned to inculcate skills in a phased manner throughout the career path of the individual. A similar situation obtains in Japan. Extremely well equipped training institutions staffed by well qualified faculty and very well structured programs of study and evaluation to instill basic and advanced level skills in the workforce is the norm.
high at [111] [ as against [12] faculty]. International best practices would appear to suggest that in order to ensure effective training of tax personnel adequate numbers of permanent instructors and a well structured training program are a necessary requirement in order to achieve optimum results. TRAINING METHODOLOGY
In Pakistan we are woefully deficient in terms of adequate permanent teaching faculty at the training academy for FBR's direct tax personnel, the Directorate General of Training and Research, [DOT(DT)] at Allama Iqbal Town, Lahore. DOT(DT) main campus at Lahore has a faculty of [12] only -that includes the Director General and Director; ( [3] permanent faculty; [7] temporary faculty- regular officers of the Income Tax Group and PRAL temporarily posted at DOT(DT)-; [2] visiting faculty from the private sector professional institutions). The deployment of support staff at DOT(DT) is disproportionately
How we impart training is fundamental to it's practical efficacy in instilling skills in the workforce. The traditional 'lecture' based training methodology is now being increasingly supplemented by other methodologies and one very promising approach is that of 'simulation' and in Malaysia we find that the simulation method of imparting training has shown it's practical effectiveness in building and enhancing the skill level of direct tax personnel. Simulation seeks to recreate real life situations in an artificial class room environment. Complex scenarios are duplicated using computer program continued on page 3
FBR induction _ Direct Taxes Promoted in BS-16 from Departmental Ranks as Income Tax Officers
MBA Program for Income Tax Group Officers
Common Training Program (10 months) 16 credit hours
Exam.
Specialized Training Program (5 months) 21 credit hours
Specialized Training Program (5 months)
F.P.O.E. by F.P.S.C. IBA, Karachi
Employed through FPSC in BS-16, as Income Tax Officers for University Graduates
Exam.
MBA Final phase (12 months) 33 credit hours
Exam. BS- 20, 19, 18, 17, 16 Short Term Training Programs
BS- 20, 19, 18, 17, 16 Short Term Training Programs
2
BS- 20, 19, 18, 17, 16 Short Term Training Programs
Short Term Training Programs
DOT (DT), Lahore
Civil Services Academy, Lahore
Employed through F.P.S.C. in BS -17, after passing C.S.S. Exam. for University Graduates
DOT (DT)
T
he May issue of the DOT Gazette coincides with the swirling heat waves sweeping across the country and the blazing sunlight. If the extremity of weather is not enough to test human endurance, add to this the pressure of attaining budgetary targets towards the end of each financial year. Hence the job of a tax collector is never an easy one!! The preoccupation of most tax collectors at the end of financial year 2008 with achieving the desired targets is thus understandable. The Directorate and its sub offices at Islamabad and Karachi had to postpone week long training modules on “Effective Monitoring & Collection of Withholding Taxes” to be initiated simultaneously at all of these venues due to reasons cited above by the field offices. This module is based upon practical aspects of monitoring of withholding taxes using case laws and hands on training on “e-portal”. It has been decided to postpone this training to July 2008 to derive maximum utility from this module. In the meantime the Audit wing Federal Board of Revenue (FBR), led by Member Audit Mr. Abdur Razzaq has decided to organize a standardized training program for all officers posted in the Audit Wing through out the country. In the first phase a group of thirty (30) officers from the Income Tax and Sales Tax groups shall be trained to act as “Trainers” for future training modules. Commencing from 28th April 2008, this training module for co-trainers shall be conducted by PAC (Professionals' Academy of Commerce) at DOT Campus, Lahore. The module is based upon discussions, case studies especially developed for FBR personnel, industrial visits etc.
tion like simulation learning to reinforce the classroom teaching. Furthermore, they have also introduced automation in a big way. Malaysia is one country that has received a lot of attention in Pakistan because of the rapid strides that it has made in economic development generally and in improving tax administration particularly. It set up it's training academy, the Malaysian Tax Academy (MTA) in 1995 on a sprawling [15.10 hectares] acres campus and today (march 2008) it has a permanent faculty [full time teaching professionals especially recruited for the purpose] of [100] in Management studies, International & Research studies, Taxation studies, Information Technology and e-learning . Besides the permanent faculty there are [92] support personnel [ Administrative Staff [30] ; Logistic, domestic, maintenance & security [62] ]. The training regimen devised for specialist career professionals inducted into the workforce not as generalists through a general civil service exam but recruited separately by Internal Revenue
22nd Issue May, 2008
continued from page 2 ming and information technology and trainees are then placed in this abstracted and simplified 'virtual world' - as opposed to the very complex real worldand asked to make decisions given different variations of the basic theme in a particular area in which training is being imparted. At the heart of the simulation methodology is a dedicated 'simulation centre' where the information technology essentials are located including the 'data base' on which the simulation exercises are to be based as well as the training area where the trainees participate in the simulation exercise in a 'work group' environment. In Malaysia the simulation technique is being used to impart instruction in Tax Audit and Bookkeeping. Tax Audit simulation training is also included in the General tax Administration Course (GTAC) and the Tax Enforcement Course both of which include participants from tax administrations outside Malaysia. It is proposed that a similar simulation centre be set up at DOT(DT) main campus at Lahore. Besides simulation learning, e-
learning is also in use in all major tax jurisdictions. Once the learning module has been developed only a PC or laptop is sufficient to start e-learning and regular 'coaching' and instruction and elaborate lab facilities are not required. It is therefore an economical and effective training methodology but is not a substitute for classroom instruction through lectures or simulation learning in a lab environment where such methodologies are necessary. It is best used to reinforce training already given through other methodologies.
Sequence of Training - Malaysian Tax Academy Elementary Elementary Level Level
1 to 3 years from appointment Induction course Basic taxation course Basic management course
Organization Chart, N.T.C., Japan Research Research Department Department Tax Museum Tax Museum
Wako Campus Wako Campus
Executive Executive Director
Education Education Department I Department I Education Education Department II Department II
President President
Campus office Campus office
Vice Vice President President
Training Centers in charge of Training Centers in charge of all Primary Courses and the all Primary Courses and the Basic Training for Beginners Basic Training for Beginners (3 centers) (3 centers) Tokyo, Nagoya, Osaka
12 Regional 12 Regional Training Centers Training Centers
• Accounting principals
and concept • Principals & rationale to decision made under Malaysian & other countries law cases • Income Tax Act 1969
problems posed by manual systems is the use of business process reengineering and information technology to study work processes, eliminate redundant processes, optimize the work cycle in processes deemed most important and useful to achieving the task in hand and then put information technology to use to speed up the work cycle and manipulate vast amounts of data with complete accuracy. 3) In the case of I.T. Systems, the rule of thumb is to adopt a fully integrated system that has a proven record of effectiveness. Attempts at experimentation and development of a 'new' system from scratch on an adhoc basis should be avoided as they are usually counter productive and expensive in terms of time and financial resources and only delay the introduction of new technology and systems. 4) The most advanced I.T. based system in the world in the area of taxation is in the United States. Well over 100 million tax returns are processed electronically and data appended thereon matched with that available on a comprehensive data base. Any mismatch automatically throws up a red flag and is then available for detailed scrutiny and evaluation. However every red flag
1) Manual procedures to collect, collate and disseminate tax data are inimical to efficiency as they are slow, cumbersome and prone to error, besides being vulnerable to manipulation with ulterior motive. The risk increases directly with the increase in the scale of operations undertaken and the complexity of the task in hand. 2) An effective solution to the
Central Central Institute Institute
3 to 10 years from appointment Advance Tax Course:
Specialize Training • PLAS • PULADIT • PULATEM • BPO
I N F O R M A T I O N & COMMUNICATIONS TECHNOLOGY AS 'FORCE MULTIPLIER' The United States of America as model.
Kasumigaseki Kasumigaseki office
Intermediate Intermediate Level Level
Training Centers in charge of Training Centers in charge of all Course in the Comprehensive all Course in the Comprehensive Training Program (5 centres) Training Program (5 centres) Sapporo, Sendal, Kanto Shinetsu Sapporo, Sendal, Kanto Shinetsu Hiroshima, Kumamoto Hiroshima, Kumamoto Training Centers in charge of Training Centers in charge of Courses IV of Comprehensive Courses IV of Comprehensive Training Program (4 centers) Training Program (4 centers) Kanazawa, Takamatsu, Fukuoka Kanazawa, Takamatsu, Fukuoka Okinawa Okinawa
3
Advance Advance// Specialist Specialist Level Level More than 10 years Transfer Pricing Forensic Computer Criminal Investigation Advance Auditing Advance Stamp Duty Higher Level financial & management skills
Transaction Level
5 to 2 years before retirement Psychological counseling & planning for retirement Employments Dividend Fund responsibilities towards emoployees retirement Nutrition & healthcare management Financial & investment Management Business opportunities & second career after retirement
does not necessarily lead to a taxpayers audit. 5) The selection of taxpayers cases for audit is an art in itself. The random method of selection is now thoroughly discredited as it is statistically heavily biased in favor of those cases that are most numerous which are invariably not the type of cases that are expected to be most fruitful in terms of the possibilities of realization of additional tax revenue over and above that declared along with the return of Income filed. 6) The method of choice for case selection for audit is parametric selection. However the identification of the parameters is problematic and requires great deal of expertise in economics, tax law and accounts. Once the parameters are identified the next task is to develop a mathematical equation in which the parameters identified are placed and an algorithm is then developed to search the taxpayer data base to pick up cases in conformity with the parameters identified. The required number of cases is then short listed and notified for audit. 7) The United States employs top flight economists, financial experts and mathematicians to identify parameters and
continued on page 4
22nd Issue May, 2008
continued from page 3 This was not an 'integrated' all Pakistan Report even for tax collection. 10) The Tax Management System (TMS) developed by CBR's BPR Team and PRAL in 2006 and it's subsequent alleged improved variant 'Mahasil' developed in 2007-08 have been praised as FBR's automation solution in the direct tax area. However by now the realization appears to have sunk in that both TMS and Mahasil are partial ad-hoc solutions that are not part of a fully Integrated ICT System for the FBR 11) Unlike Pakistan, the Tax Deptt in Turkey has put in place a fully integrated system basically modeled on the U S IRS system adapted for it's own use. The result has been a quantum jump in efficiency. Today 70% of the total Returns of Income- not merely the corporate Returns- filed in Turkey are through e-channel and the tax base has almost [7] million taxpayers. Furthermore, they are fast moving towards making a 'paper less office' a practical reality and are already saving a
Those employed through the Principal Classes III Entrance Examination (Taxation)
Those employed through National Tax Expert Service Examination
(High School graduates)
(University graduates)
Primary Course (1 year)
Work experience (1 year) Basic Training for Beginners
Work experience
Basic Training (4 months)
Exam
Work experience (2 year)
Advanced Course I (1 year)
Exam
Advanced Course II (7 months)
Selection
Selection
International Tax Seminar • Basic Course
International Tax Seminar • Advanced Course
(2 months)
(4 months)
Specialized Training
Comprehensive Training
Courses based on Work
Accounting
Tax accounting
English I, II
huge amount of expenditure by completely eliminating paper work entirely in many areas. 12) If Turkey can show such impressive results with I.T. and
4
Research Course (15 months)
Short Term Training Programs
Central Institute
(a minimum of 7 years)
Long -Term Programs
(3 months)
Comprehensive Training Courses
Regional Training Centers
Sequence of Training at the National Tax College, Japan
Central Institute & Regional Training Courses
develop the equation referred to supra. This pool of experts remains anonymous and the equation that is finally to be adopted is assigned a very high level of secrecy [ level 3, U S Deptt of Defense ]. 8) At first glance it might appear odd that the system and procedures used by the United States are recommended to be used in Pakistan. However it is my very carefully considered opinion that when it comes to I n f o r m a t i o n a n d Communications Technology Systems only the best systems are good enough and it would be a grievous mistake to adopt a second best system [ or third best for that matter] on the ground that for a developing country [like Pakistan] the best system is 'too good.' When much of the technology is in the 'public domain' and is commercially available at a competitive price there is no reason why the same should not be put to use even in a 'developing economy' like Pakistan. If any part of the technology is not in the publicdomain like the latest 'super computer' for example that may be put to use to 'crunch' the vast amount of raw data in the IRS database, it does not really matter that much for a country like Pakistan as we do not have that much data to deal with and do not need the latest super computer. To that extent therefore we are free to 'adapt' the U S IRS Model to our own peculiar needs. Conceptually however it still has to be an advanced system modeled on that used by the US IRS as it is a proven, fully integrated, very high performance system. 9) In Pakistan we have had an approach that is precisely the opposite of what is stated above. Although computer based data processing was first put to use by CBR in the mid 1970's that was only an ad hoc solution used for tabulating local collection of direct taxes and generating a periodic tax collection report.
automation there is no reason at all why we cannot do so too. adopted is assigned a very high level of secrecy [ level 3, U S Deptt of Defense ].
22nd Issue May, 2008
PICTORIAL - INAUGURAL OF THREE WEEKS “TRAIN THE TRAINER COURSE”
5
22nd Issue May, 2008
The IBFD connection I
t was on the initiative of the Directorate General of Training and Research (Direct Taxes) in 2006 that FBR first took a close look at IBFD and eventually gave the “go ahead� for Full Membership for DOT(DT) in March 2007 when the first ever International Conference of the Heads of Training Institutions (Direct Tax) of the Association of Tax Authorities of Islamic Countries (ATAIC) took place at this Directorate General. However, full membership mean't as many as five access points to IBFD's vast on-line data base.
Tw o a c c e s s p o i n t s w e r e retained by DOT(DT) at it's main campus at Lahore, two were allocated to FBR (Members HRM & FR&S) and one given to DOT(Customs) at Karachi. Unlimited access to IBFD's data base has led to a quantum jump in FBR's capacity to i) prepare position papers on issues of fiscal significance, ii) make recommendations on fiscal policy issues and iii) to carry out research. The IBFD is an independent not-for-profit research and educational foundation,
Mr. M. Muneer Qureshi DG(DOT)(DT), presenting memento to Dr. V. Van Kommer, Manager, Government Consultancy, Holland, at DOT(DT), Lahore, March 13,2007.
established under the laws of the Netherlands in 1938 by the founders of the International Fiscal Association. Its mission is to research, develop, process and disseminate information and insight in the fields of international and comparative taxation and foreign investment legislation. The IBFD is completely independent, both organizationally and financially. This is essential when providing objective and unbiased content on research and educational projects. The organization's professional research group includes multilingual lawyers and economists from 45
Dr. V. Van Kommer with Mr. Aurobindo Ponniah, at DOT(DT), Lahore, March 13, 2007.
countries, supported by a worldwide network of correspondents who monitor, report on and evaluate the latest tax changes and trends. Research findings are published in the IBFD's publications, incorporated in training programs, included in the IBFD's Library and Information Center, and on its Web site and CD-ROMs. The IBFD has clients in 150 countries, including governments and tax administrations, international organizations such as the OECD and European Commission, internationally operating enterprises, accounting and law firms, international tax continued on page-7
IBFD IBFD, Your Portal to Cross-Border Tax Enterprise
6
22nd Issue May, 2008
continued from page 6 consultants, law and business schools and libraries, as well as individuals with international interests. The IBFD publishes more than 5,000 international tax and social security treaties, as well as supporting documents. Based in Amsterdam, the Netherlands, the IBFD serves the needs of the world's leading accounting and law firms dealing with, amongst other things, the intricacies of international treaties on crossborder taxation and social securities. The IBFD offers a unique service to a demanding group of professionals who need the right information, at the right time, in the right form Since 1938, tax practitioners from all over the world rely on the International Bureau of Fiscal Documentation (IBFD) for authoritative expertise on cross-border taxation. IBFD is the portal to high quality independent tax research, international tax information and education with the aim to enable customers to do their work more quickly and effi-
ciently. The wealth of IBFD's experience and knowledge is reflected in the make-up of the organization. IBFD employs over 50 research specialists and teacher's staff from around 25 different countries. IBFD has grown from a tax documentation centre into a contemporary online research institute. It caters for both the private and the public sector. It fulfils the information needs of tax advisory firms, multinational enterprises, international organiza- Mr. M. Muneer Qureshi DG(DOT)(DT), with Mr. Aurobindo Ponniah, IBFD Country Head, Malaysia, at DOT(DT), Lahore, March 14,2007. tions, ministries of finance, tax adminisMondriaan and Rietveld remain still influences many art and trations, universities and other two of its most famous ambassa- design forms. Both 'De Stijl' and tax practitioners in over 150 dors. Bauhaus use clarity of form and countries. Closely related to the colour to express modernity and The design used in IBFD's Bauhaus style, this movement timelessness. brochures, website etc. is was truly international and (Contributed) inspired by 'De Stijl', a style started only two decades before developed in the Netherlands in IBFD was founded in 1938. This t h e e a r l y 2 0 t h c e n t u r y. style has remained relevant and
DOT (DT) at Pakistan Center for Philanthropy Workshop at Avari, Lahore on 26th Feb. 2008
DOT (DT) Fairwell luncheon for Mr. Haji Ahmad DG, RTO Lahore on his Retirement on 24th April, 2008
7
22nd Issue May, 2008
INAUGURAL OF THREE WEEKS “TRAIN THE TRAINER COURSE” for Master Trainers arranged by Audit Wing FBR in collaboration with DOT(DT) & PAC by Amna Faiz Bhatty Deputy Director
T
he Income Tax Ordinance 2001 is based upon a Universal Self Assessment Scheme (USAS) enjoyed by all categories of taxpayers. Side by side with USAS, the Ordinance envisages a strong Audit regime to act as deterrence against misreporting and understatements of incomes by taxpayers. Audit Wing Federal Board of Revenue (FBR) has therefore assumed an important role in the post reform phase in FBR. This wing headed by Member Audit Mr. Abdur Razzaq (himself a Chartered Accountant) has initiated a string of efforts aimed at strengthening the Audit function in wake of reforms underway. Last year the Audit Wing FBR in collaboration with the Directorate General of Training & Research (Direct Taxes), and a professional Chartered Accountant training academy organized the first ever “Integrated Audit Training Program” for officers of both
Income Tax and Sales Tax Groups. A total number of 128 officers were trained in modern Audit techniques through this program. The Audit Wing also spear headed a series of working sessions resulting in a “National Audit Plan” for introduction of standardization of steps / procedures involved in conducting meaningful audits. Realizing the need to further develop the skills and capabilities of Audit Officers to conduct effective audits, the Audit Wing led by the visionary Member Audit Mr. Abdur Razzaq has decided to organize a standardized training program for all officers posted in the Audit Wing through out the country. In the first phase a group of thirty (30) officers from the Income Tax and Sales Tax groups shall be trained to act as “Trainers” for future training modules. The aim of this 3 week long training is to train in house FBR personnel as future trainers. This training module for co-trainers shall be conducted by PAC (Professionals' Academy of Commerce) at DOT Campus, Lahore. The module is based upon discussions, case studies especially developed for FBR personnel, industrial visits etc. The profile of officers
8
selected for this training reveals that they professionally competent officers having educational qualifications such as MBA, M. Com, Masters in Economics etc. In the 2nd phase a massive training scheme for officers posted in the Audit Wing of Income Tax and Sales Tax Groups shall be launched. Commencing from July 2008, a specially designed training module titled “Accounting and Au d i t Tr a i n i n g ” s h a l l b e conducted in different stations namely Karachi, Lahore, Islamabad, Multan, Hyderabad, Pe s h a w a r, G u j r a n w a l a & Faisalabad. Comprising of 2 weeks long training, these twenty six (26) especially tailored courses shall continue till February 2009 in different locations. The departmental trainers trained earlier shall assist the teaching faculty from PAC in conducting these modules. It is hoped that the ambitious Audit training program envisaged by the Audit Wing shall be successful in training the field audit officers in the much required skills needed to conduct result oriented audits. The Directorate General
remains committed to provide all the material and logistic support to the Audit Wing FBR and PAC for this venture. The inaugural ceremony of the “Train the Trainers” segment of this training was held on 28th April in the Directorate General. Chairman Federal Board of Revenue Mr. M. Abdullah Yusuf was to be the chief guest at the occasion but he could not attend the ceremony due to his official commitments. However Member (HRM) Federal Board of Revenue Mr. Muhammad Talha and Member (Audit) Federal Board of Revenue Mr. Abdur Razzaq graced the occasion with their presence. In his speech Mr. Abdur Razzaq impressed upon the trainee officers to derive maximum benefit from the training module specially designed for officers of FBR. Director General DOT Mr. M. Munir Qureshi in his address highlighted the significance of effective audits in detection of concealments and under statements of incomes. Member (HRM) Mr. Muhammad Talha reiterated the need to develop work force capabilities necessary for audit officers to perform their jobs efficiently.
24th Issue
July, 2008
The
Federal Budget _ some loud thinking.
The Federal Budget _ some loud thinking. Page - 1
“It's clearly a Budget. It's got a lot of numbers in it.” _ George W Bush.
M Muneer Qureshi DG(DOT)(DT)
Y
es, for the average Pakistani, that is precisely what the Federal [or for that matter, any of the provincial] Budget(s) are - a lot of numbers. Things like the size of 'The Public Sector Development Program,' or the magnitude of 'The Federal Deficit,' or how that [yawning] deficit is proposed to be filled in, do not bother him a great deal. That is not to say of course that this is a good thing. It is not. But given the average Pakistani's multiple distractions and many seemingly intractable problems, his
'apparent' disinterestedness in the Budget is quite understandable. Subconsciously however, he does 'wish' that there would be 'something' in it for him something 'good' that would give him some relief from the dead weight of his many problems especially those that entail a monetary outlay. This would be especially true if he were told that a 'Poor Man's Budget' is being announced. There is indeed a pressing need to 'de-mystify' the budget document. Understanding the Budget should not be seen as 'the art of the occult.' The lack of formal education for many of our citizens is certainly a limiting factor in this regard but still, no justification for ignorance so profound as to render the budget completely meaningless. Indeed it is the job of government to 'educate' the public even when a great chunk of that public is bereft of the benefits of formal education of any significance. Surprisingly, there are aspects of the Budget that are not properly understood even by those who have had the benefit of formal education. Here probably apathy is more to blame than anything else. Take for instance, the 'budget deficit.' Many of us cannot recall when last we came across a 'balanced budget' [in Pakistan, that is]. A 'surplus' federal budget is an even greater rarity. For most of us there is something quite sinister
about a budget deficit while a balanced budget is seen as an ideal that we have failed to achieve. A surplus budget is viewed as the prerogative of only the most affluent of societies and hence forever out of our reach. The economics behind all this is barely understood even by those who may be categorized as 'literate.' Much of our conception of the budget has to do with the role we assign it in the economic life of the nation. Traditionally, the budget has been given, what we may call, a 'governmental housekeeping' role. The federal budget is seen as performing largely the same functions as a family's budget. The government had certain functions to perform which had been assigned to it by society: maintaining order, distributing ‘dak’, running the courts, providing a monetary system, regulating commerce between the provinces and with foreign countries, maintaining the armed forces. A responsible government will ensure that in carrying out these functions it would live within it's means, a feat of good housekeeping comparable with that of the prudent household. Taxes were levied only to provide the revenue needed for the performance of the services which society required. If special circumstances - most commonly a war- obliged the government to borrow funds, this was to be viewed as an
Workshop on international tax avoidance & evasion. Page - 5 Pictorial Post Budget Seminar. Page - 6 Profile of an Unusual Taxpayer. Page - 8 unfortunate but temporary expedient. The sooner the debt was extinguished, the better. To produce a surplus at the end of the fiscal year, which could be put to use to clear the outstanding debt was viewed with special appreciation. This conception of the budget as a device which disciplined a government to strive systematically to live within it's means, year by year, took such firm hold of the popular imagination that the few professional criticisms leveled against it were scarcely heard. The ground for professional criticism of this housekeeping conception of the federal budget lay in the limited view which it took of governmental functions. It conceived the government's economic role in the same terms as it would any other economic unit, private or public: private business performed certain economic functions, such as providing goods; households performed other economic functions such as performing labor services, and
continued on page 3
24th Issue
July, 2008
From the Editor's Pen
T
he July issue of the DOT Gazette, being the 24th issue holds a special significance for the Editorial Board as well as for the readers. This issue coincides with the completion of two years of continuous publication of this literary effort. The idea of an informative journal detailing the training initiatives and activities of this Directorate General was conceived by our Director General, Mr. M Munir Qureshi. The transformation of this vision into a reality was a feat accomplished by the first editorial board comprising of the probationary officers of the 33rd STP. The editorial board was fortunate to have able guidance from Dr. Hamid Ateeq Sarwar (Additional Director/staff advisor) who had to his credit a long history of association with literary pursuits. The combination of all these positive factors paved the way for the launch of the first issue of DOT Gazette “the August 2006-issue”. Officers of the 33rd STP Mr. M. Ijlall Khan (the first Chief Editor), Editor (English) Rafia Illyas Awan and Aisha Dilshad, Editor (Urdu) Asam Aftab and Aamir Ilyas and Azher Jehangir (Design & Layout) deserve special mention for their efforts in materializing this project into a reality. DOT Lahore Campus bid
farewell to the officers of 33rd STP in January 2007 who then left for IBA Karachi in order to pursue a degree in Masters in Tax Management. The January 2007 issue (6th issue) of DOT Gazette was the last issue published under the editorship of 33rd STP. The following eighteen (18) issues have been published under the editorship of faculty members with contribution from office of 34th STP to ensure continuity of the whole exercise. This publication overtime has evolved into a credible resource house of tax related discussions and fiscal issues invading the Pakistan economy. The google search engine on internet recognizes this potential source by making available articles on issues such as Universal Self Assessment Scheme USAS under Income Tax Ordinance, 2001, Fiscal Evasion etc. through DOT's Official web site www.dgtrdt.gov.pk.com Some other topic covered in the 24 (twenty four) issues included “The Taxation of Agricultural Income in Pa k i s t a n” , “ Ta x a t i o n o f Business Profits”, “Direct Taxation of Income in Pakistan, 1947-2006 an overviews”, Tax B a s e B r o a d e n i n g ” , “ Ta x Reforms and Mindset Change in Tax Personnel & Taxpayers”, “Change Management”, “Automating the Taxman's
workplace in Pakistan”, “Tax Administrative International Best Practices” etc. In addition book reviews, interviews with senior tax managers in Pakistan, International tax consultants such as Dr. V. Van Kommer ( M a n a g e r, G o v e r n m e n t Consultancy, IBFD Holland), Ms Yassie Hodges (Consultant FBR), Mr. Lee M. Niederman (Tax Administration Advisor, U.S Department of Treasury) and economists have also been regularly featured in some of the issues. In a span of just two years DOT gazette has come to be recognized as a standard journal highlighting the taxation issues confronting the country as well as the strategy implementation underway through reforms at FBR to tackle the economic woes of our times. Chairman FBR Mr. M. Abdullah Yusuf, Member FATE Mr. Kawar Khurshid Butt, Former Member HRM Mr. Muhammad Tallha are some of the names having high praise for this literary contribution by DOT. In short the horizon of DOT Gazette has not been restricted to only reporting the training activities centered at DOT Campus. In the domain of training the preceding 24 months superceded all past training records of this institution. In the year 2006-2007 a total
number of 3052 FBR personnel were trained through 168 training programs. Out of these, 72 training courses were organized for FBR officer through which a total number of 1671 officer from BS-16 to BS-19 were trained in different disciplines. Similarly a total number of 1381 officials were trained through 96 different training programs specially designed for each category of officials. In the year 2007-2008 a total number of 2643 FBR personnel were trained through 170 training programs. Out of these, 39 training courses were organized for FBR officer through which a total number of 1188 officers from BS-16 to BS-19 were trained in different disciplines. Similarly a total number of 1455 officials were trained through 93 different training programs. It is worthwhile to mention here that during the current financial year there is renewed focus on training programs for officials to be posted in newly created reform units. DOT organized crash computer training courses at its Lahore campus commencing from December 2007 which went up till April 2008 for officials in BS-7 to BS-16. The purpose of these trainings was to make the support staff computer literate for working productively in automated office environments at LTU's and RTO's.
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continued from page 1 s i m i l a r l y, t h e f e d e r a l government performed still other economic functions. The federal budget was the largest of all budgets, to be sure but this was a difference in degree and not in kind. Or was it? Was there something about the government's budget that distinguished it from a regular family budget or the budget of a corporate entity engaged in business? Was there some special function connected with it which gave it a purpose other than the economical provision of particular services? There was indeed, said a school of economists, whose minority voice failed to attract much notice until the late 1930's, when John Maynard Keynes became it's spokesman. Their view gained ascendancy largely as a consequence of the Great Depression, which lingered on until finally dispelled by wartime activity, and memories of which provided the emotional undertow on which full employment policies rode to legislative approvals in post-war Western Europe and North America. The second stage of budgetary history was thereby ushered in. PROSPERITY MADE TO ORDER The second-stage school of economic theorists looked on the budget as performing not just one function proper federal housekeeping - but two. The second function was to preserve the economic health of the nation as a whole. It was the government's duty, said this group, to see that the nation remained prosperous, a duty no less important than maintaining law and order and maintaining courts and other such timehonored governmental services. The nation's economic health was the business of the government because no other agent or institution could serve
as doctor. The doctor's instruments were not only monetary policy making money cheaper to use in depressions so that businesses and households would use more of it, hopefully returning the nation to prosperity; the instrument kit of the federal government as economic doctor included it's budget as well. In times of depression, it could spend more than it took in, thereby directly putting people and plants to productive use. It did not have to wait for businesses and households to become optimistic enough to borrow money at lower rates of interest. It could put money in their pockets directly by cutting it's tax cake, or it could itself spend on a variety of projects, or it could increase the amount of money it transferred to people who could be counted on to spend it. All these ways would put the government budget in the red, but it would increase the nations economic activity. It would put people and plants to work whose services would otherwise be irretrievably lost. All very well, said more traditional economists, but how long could this go on? How many times could the medicine be repeated? If the government persisted in deficit spending, it's debt would double, it's credit would crumble, and it would find no buyers for it's buyers. Fiscal responsibility could not be evaded. The balanced budget was not a luxury to be dispensed with under pressure but a necessity of a solvent government. BUSINESS 'CYCLES' & REMEDIAL ACTION BY GOVERNMENT The 'discovery' of 'business cycles' - alternating phases of 'boom' and 'bust' [depression] provided another 'solution' to the problem of exercising 'fiscal responsibility' solely through
the medium of a 'balanced budget.' The upward phase of the 'business cycle' brought in it's wake inflationary pressure and the governmental prescription for that was to take in more then it spent and use budget surpluses to restore economic normality. On the other hand, in the downward phase of the cycle, 'depressed' prices and economic activity are the problem and the prescription for this malady is the opposite spend more than the government takes in and use budget deficits to bring the economy back to normal. It was thus not really necessary to 'balance' the budget annually on a continuing basis. Rather, it made much more sense to balance it over the period of the business cycle. Annual balancing was an error since it ignored the cyclical rhythm of the nation's health. Outgo and income could be matched over an appropriate span of years, in which the minuses of some were wiped out by the pluses of others. This 'solution' too however was not really an answer. For one thing, the nation's needs seemed to expand with time, so that the federal budget tended to rise in good years as well as bad. For another, the 'cycle' was really a myth especially in terms of it's regularity.' And then there were many 'cycles' - inventory cycles, building cycles, short cycles, long waves etc etc. Which one of these to adopt as a reference point for initiating 'corrective action' was hugely problematic. Some other 'explanation' had to be found and with it a different policy prescription. “PLANNED� BUDGET DEFICITS A policy of regular budget surpluses in good times matched by budget deficits in bad times so that the one cancelled the other over the full
phase of a business cycle though attractive as a theoretical proposition was not really a viable 'answer' to the 'problem.' For one thing, what precisely was a 'good year' - when the budget may be kept in 'balance' or even in 'surplus?' Casual observation and hearsay could obviously not be relied on to initiate 'corrective measures' in an 'ad-hoc' manner. And then, what was to be the 'scale' of these corrective measures? Again one needed a much more rigorous set of criteria to determine precisely 'how much' corrective action was called for to appropriately deal with a problem properly quantified on a given scale. After mulling over the problem, economists found that 'full employment' came close to what one could reasonably expect in a 'good year.' But full employment did not usually mean 100 percent employment of every able bodied (adult) man and woman making up the nation's labor force. An English economist, A.W Philips, ran a correlation of unemployment and price levels in England as far back as 1861 and found that when unemployment dropped below 2.5 percent of the labor force, prices rose. Similar statistical studies showed that the ' Philips effect' operated in the United states as well, though not in exactly the same manner - the upward pressure on prices came earlier than in England. Given these parameters the implication was that if we wanted to avoid unemployment and inflation we could do so only in terms of a marginal trade off of one for the other. At what degree of 'full employment' would the upward pressure on prices still be tolerable? A compromise point could be selected on the 'Philips curve' say a 3 percent rate of unemployment accompanied by a 2
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continued from page 3 percent rise in prices, or a 4 percent rate of unemployment with perhaps only a slight price creep. Balance the budget? Of course, but what budget? The answer which is now being given is the full employment budget. At levels short of full employment this means balancing not an actual but a hypothetical budget, the budget as it would be if we were operating at potential GNP. This is not a matter of running in the red in a vague hope that this will do the economy some good, as the bloodletting of earlier days was expected to restore a patient's health. It is the incurring of deficits in an amount which is guided by calculations of potential GNP, which in turn is based on computations of the level of acceptable compromise between unemployment and price increases. As recurring budget deficits add to the national debt there is a perception that such a national debt creates a burden on future generations for the self gratification of the present. Aside from failing to grasp that present gratification was not the object, but only the removal of a budget barrier to future economic progress, those of this persuasion persisted in believing that future generations would somehow have to pay off that larger debt to someone else. This is certainly true in the case of the proportion
of the national debt held abroad. Other than that however, future generations will not have to pay someone else but only themselves. All will pay taxes to the government in varying amounts, and some will receive interest from the government on the bonds which they hold. Some will pay more and receive less than others, proportionately, and vice versa, but what is involved is a redistribution of the income at that time and not a transfer among the generations. The discussion supra should clear some of the popular misconceptions about budget deficits in general. However one cannot help but observe that much of the economics that has been formulated would appear to be more applicable to a 'developed economy' like the United States or Britain and less so to a 'developing economy' like ours. Budget deficits in developed countries are taken in stride because the economic managers are confident that given the size and depth of the formal economy that dwarf's the size and depth of the informal sector the residual capability of the economy to eventually generate resources sufficient to offset the consequences of budget deficits is hugely significant. This of course is not so in a developing economy like Pakistan where the informal sector may be anywhere between 35 - 60 percent of the GDP - if not more. Then again
huge expenditure on 'unproductive' areas, like Defense, means that if the budget deficit caters to such areas disproportionately it is of no help to the economy. The ability of government to mobilize revenues in developing countries is also severely restricted. Not that there is not enough 'income' to yield the required tax. As pointed out, a large chunk of the economy is placed in the informal sector generating significant 'income.' But such income is largely out of reach of the federal authorities. Tax administrations in third world countries generally lack the expertise required to deal effectively with the burgeoning informal economy. To make matters worse, the formal economy too makes no meaningful contribution to the federal exchequer as the woefully inadequate tax to GDP ratios bear out so vividly - only 10 percent in the case of Pakistan, when it ought to be in the region of 18 - 25 percent at least. As pointed out, 'ad nauseam,' only 2.2 percent of the population of 165 - 170 million is registered as taxpayers. This of course translates into an exceedingly narrow tax base. Given executive will, revenues can and should be increased dramatically. The 'problem areas' are well known. The anomalies identified. With strong executive support a revamped, modernized and well trained, I.T. savvy tax adminis-
tration must deal with the problem 'head on.' There are no short cuts. Effective legislation to plug the loop holes has to be a starting point. Once this is achieved, progressive expansion of the tax base should follow and in it's wake, significantly increased revenues and an escalation in the tax to GDP ratio. Besides the ramifications of recurring budget deficits what everyone needs to understand is that the key to a 'dream' budget is adequate resources, which in our particular context, would be, mosly tax revenue. All said and done, a 'dream' budget for me would be that which can steer the economy towards full employment. One budget will not do that in Pakistan's case. But if resources enough [ ie taxes] are forthcoming then we will be headed towards full employment and successive 'dream' budgets mobilizing adequate revenues can take the economy towards full employment - or very close to that objective. The people of Pakistan will only get what they desire when they are willing to 'pay' for the things that they yearn for. This 'payment' is through taxes. Handouts from foreign sources will never succeed in making the economy self sufficient. And there is only so much that the country can mobilize through contracting loans abroad and the dead weight of such loans is already daunting.
In a lighter vien. “ The budget is like a mythical bean bag. Congress votes mythical beans into it, then reaches in and tries to pull real ones out.”. _ Will Rogers “The only way you can do that [decrease taxes, balance the budget, and increase military spending] is with mirrors...” _ John B. Anderson “The defense budget is more than a piggy bank for people who want to get busy beating swords into pork barrels.” _ George H. W. Bush
“As fighting in Iraq intensifies, President Bush delivered his supplemental war budget to Congress. The money will cover 30 days of fighting, then we’ll be sent one war every other month until we cancel our subscription.” _ Craig Kilborn “ A billion here, a billion there – sooner or laterit adds up to real money.” _ Senator Everett Dirksen
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WORKSHOP ON INTERNATIONAL TAX AVOIDANCE & EVASION
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HELD IN MEXICO CITY, MEXICO FROM 2nd 6th JUNE, 2008
he Organization of Economic Cooperation & Development (OECD) held a 5-days workshop on International Tax Avoidance & Evasion in Mexico from 2nd -6th June 2008. The delegation from Pakistan included Mr. Shahid Bashir, Director DOT, Mr. Faiz Illahi Memon, Additional Commissioner of Income Tax, RTO Karachi and Mr. Shabihul-Aijaz, Deputy Commissioner of Income Tax (LTU Lahore). The focus of this workshop was to examine some common techniques used by enterprises and individuals to evade and avoid taxes. The emphasis was on tax avoidance and evasion in international transactions and cross border situations. The workshop specially dealt with avoidance and evasion using “Tax Haven� jurisdictions, preferential tax regimes, transfer pricing techniques, thin capitalization, cross border leasing arrangements, hybrid structures and other financial market innovations. The forum also provided an opportunity to the participants to look at common responses introduced by government in the domestic laws, international and national tax treaties to counter inter national tax avoidance and evasion. The common responses discussed in the workshop were as under:
- Improving access to bank and other information. - General antiavoidance/ anti-abuse rules - Controlled foreign company and foreign investment fund legislation - The arm's length principle - Rules addressing treaty shopping - Thin capitalization rules - Rules to deal with certain financial market innovations, and - Effective international exchange of information. The panel of experts addressing the workshop included Mr. Karsten Fluchter, Event Leader (OECD, Ms.Maria Garcia, Program Manager ( Internal Revenue Service, Ecuador), Mr. Carlos Serrano, Coordinator (Spain) a n d M r. J o r g e L i b r e r o s Calderon (Mexico). List of countries participating in the workshop included Argentina, Chile, Ecuador, Guatemala, Panama, Venezuela, Morocco, Jamaica, Pakistan and Mexico. Director DOT, Mr. Shahid Bashir in his presentation discussed in detail tax evasion and avoidance provisions introduced in Pakistan through the Income Ta x O r d i n a n c e , 2 0 0 1 . H e explained to the participations
Pakistani delegates with Instructors
Pakistani delegates at the workshop that the legislative frame-work applicable in Pakistan until the year 2002 did not include provisions to ensure proper incidence of taxation on nonresident and foreign controlled entities. With the introduction of Income Tax Ordinance, 2001 provisions relating to transfer pricing, arm's length transaction, thin capitalization and the concept of permanent establishment (PE) were made part of local taxation legislation. He further explained the role of double taxation treaties entered with 54 countries by the Pa k i s t a n G o v e r n m e n t t o encourage international trade and commerce. Mr. Shahid Bashir also highlighted the infrastructure and function of the Directorate General Training & Research [Direct Taxes], Lahore in providing quality training to the
workforce of Federal Board of Revenue , Pakistan. He invited the participants to utilize the training infrastructure and facilities available at DOT for o r g a n i z i n g i n t e r- c o u n t r y taxation seminars and workshops. He specially invited the organizer of the event i.e. OECD to DOT for exploring avenues for future international seminars. This seminar was a great success in bringing together members OECD countries for constructive debate and discussions on important issues such as international tax avoidance and evasion. It also gave the Pakistani delegation an opportunity to present to the participants an over-view of large scale reforms underway at FBR for improving the tax collection machinery of the country.
Mr. Shahid Bashir Addressing the participants
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Profile of an Unusual Taxpayer
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1970 as a Grade-17 officer with starting salary of Rs.450, per month. He continued to serve the government for 25 years and his terminal salary at the time of seeking premature retirement in 1995 was around Rs.15,000, per month. Assuming that his average monthly emoluments throughout his period of service were around Rs.8,000 (a generous assumption), the total emoluments received by M r. J a v e d M a s u d him from government joined the Civil Service during his entire service (Income Tax Group) in do not exceed Rs.2.5 m. skeptic once defined a taxpayer as one who works for the government without having to appear for the Civil Ser vice Examination. Again, according to popular perception, public functionaries lead luxurious lives at the expense of the “poor taxpayers�. It is in this background that Mr. Masud's story is unusual and interesting.
After obtaining premature retirement, Mr. Masud became the chief executive of a private company (Pakistan Credit Rating Agency Limited) and worked in that capacity till the end of 2007. During this period, the total direct income tax paid by him to the government amounts to Rs.14.5m*. This means that what Mr. Masud received from the government in 25 years, he paid back almost 6 times as much to the government.
In other words, not only did he devote the best years of his life to the government without any compensation, he has paid a substantial amount merely for the privilege of carrying the honorific title of a 'retired government servant'. Here is a person belonging to our service who should make us all proud and should be considered as role model for the taxpaying public.
Mr. Javed Masud graduated from Government College, Lahore and obtained his Master's Degree in Economics from Punjab University in 1967. He remained an average student throughout this period. However, the only point of distinction was perhaps his varied interests: dramatics, debating and sports. He was a member of Government College Tennis Team in 1962-63 and captain of the Punjab University Squash Team in 1967. During his period of government service, he got the opportunity to study abroad and obtained Master's Degree in Finance & Economics from Boston University in 1977 (passing with distinction). While his stay in the Income Tax Department covered only the initial three years of service, he acquired a very diverse and enriching experience by serving in different economic ministries of the Federal Government (Finance, Planning, Production). He also served on the faculty of Civil Service Academy for three years. Mr. Masud held a diplomatic assignment for four years as a Consul General / Commercial Counsellor in South Korea. Given his strong background in Finance, he was also deputed to a DFI (Bankers Equity Limited) for four years as SEVP in the regional office in Lahore. Mr. Masud's last assignment in government was Member of the erstwhile Corporate Law Authority (a Grade-21 position). Mr. Masud has also distinguished himself through his various publications and papers published and presented, both locally and internationally. From time to time, he also worked as an international consultant with organizations like the World Bank and IFC. He has been invited as a guest speaker at various local training institutes including the NDC, the Administrative Staff College and NIPA, Lahore. Mr. Masud is currently leading a blissful retired life but remains a Civil Society activist. He is also the Chairman of IGI Finex Securities Limited, member of the Board of Advisors for the Centre for Public Policy & Governance (F.C. College, Lahore). He continues to be a member of the Punjab Finance Commission.