The Federal Board of Revenue (FBR) of Pakistan

Pakistan’s central agency for executing the country’s tax structure and customs tax is known as the Federal Board of Revenue (FBR). It is one of the most important institutions in Pakistan’s financial infrastructure because it ensures tax collection, which eventually funds government programs, public services, and national debt. The Federal Board of Revenue of Pakistan is not only responsible for collecting taxes but also plays a major role in implementing tax laws and preventing tax evasion, which is a huge challenge for the country’s economy. 

History and Formation of the Federal Board of Revenue of Pakistan

The Central Board of Revenue

The FBR, as the predecessor organization, known until 1991, was formed on July 1, 1950, when the Central Board of Revenue (CBR), which had existed since 1924, was replaced. This move aimed to establish a more effective framework for handling tax collection and customs duties in Pakistan. 

The FBR has been reformated over the years to adjust to the country’s changing economic landscape. Under the FBR Act, 2007 (p.1), the Central Board of Revenue has become the Federal Board of Revenue.

When established, FBR was entrusted with the collection of customs duties, in addition to income taxes and sales taxes. However, with economic growth and diversification came a larger role for the FBR. Nowadays, the institution deals with much more than merely collecting taxes (Rs. 1588 billion tax in 2024); however, it also ensures tax compliance and broadens the tax base, especially since a significant part of Pakistan’s economy functions in the informal sector (such as Chor bazar), making tax collection the most challenging factor.

FBR is a nexus (web) governing the country’s fiscal resources. Along with all these functions, it collects taxes from all the individuals, firms, and companies (even foreign-owned) working in Pakistan. It facilitates direct taxes such as income tax, sales tax, and federal excise duties and ensures business compliance with the law. The FBR also regulates the customs system of Pakistan so that goods coming into or out of the country pay the right duties and comply with the law.

Yet another essential role of the FBR is taxpayer service. Since 2022, the FBR has sought to ease taxpayers’ task of paying taxes in the Shahbaz era. This includes implementing electronic filing systems that allow businesses and individuals to submit their tax returns through the Internet, minimizing paperwork and streamlining the process. The tax collection process has undergone major digitization by the Federal Board of Revenue of Pakistan, making it more efficient, easier to do business with, and transparent.

The FBR also prominently features in a portion of the informal economic sector’s integration into the formal tax system. Because of the FBR initiative, more businesses and people are formally becoming part of the economy and are registered as taxpayers. 

From July 2022 to June 2023, the number of new taxpayers registered for income tax was 1.89 million. (p.11) Nonetheless, a significant portion of the GDP is still left untapped by the FBR. This is further accentuated by the notion that Pakistan has one of the lowest tax-to-GDP ratios in the world. As a result, the bulk of the population (35%, 84.57 million, of a total population of 241.49 million) is not incorporated into the tax-paying system due to weak enforcement.

Components of the Federal Board of Revenue of Pakistan

The Federal Board of Revenue of Pakistan has a diverse component structure, with subdivisions purposely set up to focus on different taxation and customs duties areas. It comprises an Inland Revenue Service (IRS) that collects taxes directly from an individual or business through income tax, sales tax, and federal excise duties. The IRS is further subdivided into several directorates responsible for corporate taxation and tax auditing.

The unit that issues and enforces trade licenses, collects import and export tariffs, and monitors trade activities to ensure the country does not suffer losses is known as the Pakistan Customs Division. It is part of FBR, and its main purpose is to monitor the inflow (imports) and outflow (exports) of goods into and out of the country, respectively. Moreover, this unit is also concerned with activities, such as clearing goods from ports and meetings with Pakistan’s international trade commitments.

In one of the post-clearance audits (PCA), the import process is reviewed to ensure that the correct customs duties and taxes are collected. The Directorate of Intelligence and Investigation (I&I) investigates cases of tax fraud and money laundering. This section is crucial in combating the very serious instances of tax non-compliance, whereby significant amounts of obligatory tax remain unpaid.

The Directorate General Training and Research (DGTR) ‘s sub-division of automation and technology is also an essential component of the FBR’s structure. Its main function is keeping the FBR’s staff updated on recent changes in tax laws. This directorate routinely trains FBR personnel to keep abreast of changes in tax laws and ensures their requisite level of knowledge is always bolstered.

In addition, there are also regional tax offices (RTOs) spread throughout the country. The RTOs have jurisdiction over the affairs of tax administration for certain designated regions. These regional offices cooperate with the Inland Revenue Service (IRS) to ensure compliance with the taxation by residents of the respective territories.

The Federal Board of Revenue has worked to modernize Pakistan’s tax system. It established the electronic filing system in 2005, which has dramatically improved the efficiency of tax filing. This system enables taxpayers to file their returns electronically, minimizing the manual documentation required and increasing the efficiency and transparency of the system processes. 

Incorporating this technology has allowed the FBR to improve its services to the public while increasing its operational efficiency.

In addition, tax law has been altered to ensure that more people and companies comply with paying taxes, thus attempting to tackle evasion (tax avoidance). The FBR has also made efforts to encourage tax registration and compliance from small and medium-sized businesses (SMBs) by offering a variety of benefits. This is crucial for regions where many businesses are “unregistered” and little to no taxes are paid.

Challenges within the FBR

Let’s discuss another side: corruption within the FBR itself. Issues caused by bureaucratic inaction, opacity, and petty corruption by some FBR members create hurdles in revenue collection. Since July 2024, 29 officials have been suspended from services. These factors negatively impact the FBR’s performance and capacity to help the people.

Political interference is also an issue that has been recurring. The FBR, like many other public organizations in Pakistan, is subject to political influence, which compromises its autonomy in carrying out its functions and the impartial administration of tax laws. This is much more severe in the case of big companies or influential people with known political affiliations.

Lastly, the capacity building of the FBR still poses a problem. The FBR has invested in advanced technological systems and their applications; however, there is an ongoing gap in training and dealing with the employees 25,000, 0.012% of the population. The FBR staff must be equipped with the tools and knowledge possibilities provided by current legislation and impending legislation due to the intricate nature of tax laws as well as low tax administrative standards.

Conclusion

The Federal Board of Revenue is responsible for overseeing the collection of taxes and customs duties in Pakistan as well as the enforcement of national laws, which makes it an instrumental part of Pakistan’s economy. Although the FBR’s steps toward modernizing the tax collection system and broadening the tax base are commendable, a lot of work remains to be done. The FBR remains unable to exert its full power due to political corruption and interference, which negatively impact its ability to collect taxes. 

This reduces the tax compliance level, which greatly dampens public confidence and makes the enforcement of tax legislation cumbersome (hurdle). To reach its full potential, the FBR requires changes concerning FBR policies and its overall structure. To facilitate and maintain long-term economic growth and development in Pakistan, the FBR needs greater independence and accountability and is held to stricter standards of transparency.

Frequently Asked Questions (FAQ)

1. What is the Federal Board of Revenue of Pakistan?

The FBR is Pakistan’s government agency responsible for collecting revenue, including income tax, sales tax, customs duties, and federal excise duties. It also enforces tax laws and prevents tax evasion.

2. What are the functions of the FBR?

The FBR is responsible for:

• Collecting federal taxes and duties
• Enforcing tax laws and regulations
• Investigating tax fraud and evasion
• Facilitating taxpayers with online services and documentation
• Managing customs and import/export duties

3. What is the role of FBR in Pakistan’s economy?

FBR is responsible for tax collection, enforcement of fiscal laws, and ensuring compliance with tax regulations to generate revenue for government expenditures and development projects.

4. How does FBR monitor tax compliance?

FBR monitors tax compliance through audit procedures, data analytics, third-party information, and withholding tax reports from banks, businesses, and property registries.

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