Islamabad [Pakistan], January 5 : Pakistan Prime Minister Shehbaz Sharif has given the green light to the separation of the Inland Revenue Service (IRS) and Customs, a long-debated reform that has faced staunch resistance from tax groups in the past, Dawn reported.
This decision is part of the government's broader strategy to overhaul Pakistan's maritime sector, with reforms aimed at improving revenue collection efficiency and port operations.
Last month, the Prime Minister approved the recommendations of a task force dedicated to revamping the maritime sector. The task force proposed nearly 100 measures, including significant upgrades to infrastructure and improved facilitation at ports, with specific timelines for implementation.
As per the official documents reviewed by Dawn, the bifurcation of the IRS and Customs will be completed by March 31, 2025.
Currently, both the IRS and Customs are part of the Federal Board of Revenue (FBR), a central body overseeing Pakistan's revenue collection. While the IRS handles sales tax, income tax, and federal excise duties, Customs is responsible for imposing levies on goods crossing borders.
The proposed reform envisions restructuring the FBR into three separate boards to oversee these functions and ensure more streamlined governance.
The plan outlines the creation of a policy board, which will focus on income tax, sales tax, and federal excise duty policies. This board, to be chaired by the finance minister, will include members from the private sector to ensure broad expertise.
Additionally, two independent oversight and governance boards will be established for IRS and Customs. These boards will be chaired by retired tax officials or experts nominated by the finance minister. Both boards will also include private sector representatives to ensure effective management and accountability.
If the reform plan is implemented, the current post of FBR chairman will be abolished, replaced by the chairpersons of these two new boards. This structure is expected to reduce administrative overlap and improve tax collection efficiency. Furthermore, the reform calls for replacing the FBR members with the director generals (DGs) of IRS and Customs, ensuring that each division operates with greater autonomy.
Despite the government's clear agenda, doubts remain about its commitment to meaningful tax administration reform. A senior tax official expressed scepticism, stating that the government has "no intention of reforming the tax administration."
This concern stems from the fact that the FBR has yet to appoint a separate member for Customs administration, despite a prime ministerial directive. Currently, a single member oversees both IRS and Customs operations, which many view as a barrier to efficient reform. The official predicted that, like past attempts, this move would not lead to substantive change.
The government's ambitious transformation plan is part of a broader effort to address a significant revenue shortfall of around PKR 7.1 trillion. As part of this transformation, digital tax collection solutions are expected to play a central role in improving efficiency, Dawn reported.
Additionally, the separation of tax policy formulation from revenue collection is under consideration, in line with Pakistan's commitments to the International Monetary Fund (IMF).
According to sources, the FBR continues to influence Customs policy formulation, a practice that some view as a bottleneck for reform.