In an unexpected turn in the Federal Board of Revenue (FBR) restructuring narrative, the interim federal cabinet granted approval on Tuesday for an overhaul of the tax machinery. However, moments later, the Election Commission of Pakistan (ECP) intervened, deeming the move a violation of election laws.
Led by interim Prime Minister Anwaarul Haq Kakar, the cabinet greenlit a summary for FBR restructuring but decided to defer the implementation to the next elected government. Some cabinet members opposed the restructuring, citing it as beyond the interim government’s mandate and unnecessary due to FBR’s satisfactory performance.
Contrary to the PML-N manifesto, which proposed separating the customs department from FBR, the interim cabinet approved the cessation of FBR and the establishment of two new entities—the Federal Customs Board and Federal Inland Revenue (IR) Board—both placed under the Revenue Division.
Also Read: FBR Faces Tax Collection Setback with Proposed Restructuring
Caretaker PM Kakar stated, “The FBR’s restructuring has been approved by the [interim] cabinet. Now it will be up to the next parliament to make the requisite changes to give effect to its restructuring.”
However, upon news of the cabinet’s decision, the ECP swiftly dispatched a letter instructing the interim premier’s secretary to halt the restructuring exercise. The ECP emphasized that major policy decisions fell under the prerogative of the elected government, as outlined in the Elections Act, 2017.
Interim Finance Minister Dr. Shamshad Akhtar initiated the FBR restructuring, facing opposition within the cabinet, claiming the interim setup lacked the mandate and the plan failed to address corruption and low tax and filer bases.
Last week, the interim cabinet decided to focus on groundwork for FBR structural reforms, leaving legislation to the new elected government. The current decision to split FBR into two organizations and three boards faces uncertainties due to the extensive legal and administrative changes required.
Additionally, a new Federal Policy Board will be formed, chaired by the finance minister, with a redefined mandate for the Tax Policy Board. The oversight boards for customs and IR will be chaired by the finance minister, contrary to the recommendation of appointing finance and customs secretaries.
Decisions, such as the determination of imported goods’ value and tax-to-GDP ratio adjustments, will be made jointly based on consultations with both the DGs. The cabinet also cut the projected increase in the tax-to-GDP ratio from 22% in 2027 to 18% in 2029, with the current ratio at 8.5%.
