FBR to implement CRM framework to boost revenue by Rs250 billion

ISLAMABAD: The International Monetary Fund (IMF) is closely examining the administrative strategies implemented by the Federal Board of Revenue (FBR) aimed at raising Rs250 billion through the adoption of a Compliance Risk Management (CRM) framework and incorporating millions of retailers into the tax system.

This focus on CRM surfaced during discussions with the IMF in light of a significant revenue shortfall of Rs604 billion experienced by the FBR in the first eight months of the current fiscal year (July-February).

An IMF review mission has arrived in Islamabad and is set to commence official discussions today with Finance and Revenue Minister Mohammad Aurangzeb and his team. The discussions will revolve around completing the first review of the $7 billion Extended Fund Facility (EFF).

To achieve the targeted Rs250 billion in revenue, the government plans to implement various administrative changes, including the Tajir Doost Scheme aimed at bringing retailers into the tax fold, the execution of the CRM framework, and the expansion of the Compliance Improvement Plan (CIP), reported The News.

The FBR has engaged external services to develop the CRM framework and has informed the visiting IMF team that of the six million tax returns received, Artificial Intelligence (AI) will be utilised to select approximately three to five percent for audit purposes, with the capacity for this process expected to grow over time. The FBR is also considering hiring independent auditors.

FBR’s tax collection crisis deepens with over Rs600 billion shortfall

The FBR has already put CRM measures into practice at Large Taxpayers Units (LTUs) in regional offices located in Islamabad, Karachi, and Lahore.

Additionally, the FBR has bolstered its compliance mechanisms by implementing an automated CRM system that integrates data across 145 agencies under Memorandum of Understanding (MoUs) aligned with the country’s documentation laws. Furthermore, the FBR has pursued the implementation of the CIP and is extending the Tajir Doost scheme to an additional 36 cities.

In line with these efforts, the revenue authority is advancing towards integrating digital invoicing and a track-and-trace system while enforcing tighter controls to curb fraud and tax evasion. An enhancement of the track-and-trace system is proposed, which will include amendments to existing protocols for better aggregation, thereby facilitating thorough monitoring throughout the entire supply chain.

To better equip the FBR for improving tax compliance, the IMF will assess Pakistan’s tax penalty framework across different tax categories to evaluate its effectiveness. The findings from this review will inform the formulation of a General Anti-Avoidance Rule (GAAR).

Separately, during the IMF review mission’s visit, discussions will also cover the performance of various economic sectors during the first half of the fiscal year (July-December), evaluating the need for modifications in the macroeconomic and fiscal framework for the entire fiscal year of 2024-25.

A significant focus will be on establishing broad guidelines for the major aspects of the upcoming budget for 2025-26. If a broad consensus on a staff-level agreement is not reached, discussions may be delayed until Parliament approves the budget for 2025-26.

Speaking during a session on reforms in the power sector, Leghari outlined extensive changes aimed at reducing electricity costs and ensuring affordability for both consumers and industries. Attendees at the session included representatives from the World Bank, IMF, ADB, IFC, KfW, the German Embassy, FCOD, UNDP, and AIIB.

The minister highlighted the government’s decision to halt new electricity purchases and emphasized the reductions made, such as eliminating 7,000 MW from the Indicative Generation Capacity Expansion Plan (IGCEP), resulting in significant cost savings.

Key reforms mentioned include transitioning from ‘Take or Pay’ contracts to ‘Take and Pay’ arrangements, phasing out furnace oil-based power plants, and converting imported coal projects to utilize domestic coal resources. Infrastructure enhancements are also being prioritised, involving the development of new transmission lines, battery storage systems, and regulatory frameworks for Special Economic Zones (SEZs). Plans for privatising power distribution companies (Discos) and improving governance in the sector also remain a central focus.

Leghari presented a clear strategy aimed at eliminating the circular debt within five to eight years, while also discussing the elimination of electricity duties and the rationalisation of subsidies as further steps towards adjusting tariffs. Additionally, the rationalization of net metering, which has been a financial burden amounting to Rs150 billion on other consumers, is being considered.