When a government needs to raise funds for a project, it can go down three possible paths. The first is to borrow money from their own central bank. This would be simple enough, except it has been done so much in Pakistan that it is no longer a viable option. The second possibility is to borrow from commercial banks, which holds the risk of crowding out the private sector. And the third and final way is tax collection.
Now tax for a project can be collected in two possible ways. The first is to increase the tax incidence on individuals that pay tax. The other method is to actually improve tax collection and get to those people that are getting away with not giving taxes. Naturally, the latter should be the preferred method. Instead of charging taxpayers more, people that aren’t paying their fair share should be made to step up. The problem is, improving tax collection is the more difficult choice, and primarily because it requires cutting edge technological innovations.
To this end, for a very long time, the Federal Board of Revenue would outsource or contract their technological problems elsewhere. But going to vendors for their problems was risky. For one, it made the FBR dependent on the vendor, which in a way held the entire country hostage. And naturally, as a result, they started to fleece the FBR. Then, in 1994, the board decided enough was enough, and that they needed to find inhouse solutions to their tech related woes.
It only made sense that the FBR formed its own in-house solution. However, instead of setting up a department within the FBR itself, they decided to go a step further and set up a private limited company wholly owned by the FBR which would have the sole purpose of working on the board’s tech problems. Thus, Pakistan Revenue Automation (Pvt) Ltd (PRAL) was born.
PRAL’s role
Since its incorporation in 1994, the PRAL has been in the business of developing a number of tax and revenue related solutions that include but are not limited to income tax, general sales tax, federal excise duty, customs, capital value tax, and provincial sales tax & services.
A part of their inland tax automation service, PRAL has managed to set up IRIS, an application that was introduced for the e-filing of the income tax returns and withholding statement. IRIS have also helped revamp the method of taxpayer registration. Similarly, PRAL came up with PaySys, a payment system that allows the FBR to collect tax payments through the internet. It allows the payer to create their electronic payment from anywhere and schedule the payment to be credited from their account.
All this sounds well and good in practice, but has been a challenge to implement, and is still to be working even reasonably well. If you file taxes, you will know how traumatizing the experience is, and acts as more deterrent than incentive for people that may want to file taxes. Tax filing is never a fun process, nowhere in the world, but that does not mean a user friendly interface cannot be created or that it has to be done on clunky software.
Why is PRAL so inefficient? To put it shortly, even though it is a private limited company, it is run by the FBR, which is the government and by its very nature clunky and user un-friendly. However, this is against the very principle and purpose of the company. When it was set up, PRAL was supposed to be run like a private sector entity that is answerable to the government. This meant market competitive salaries for individuals working there as opposed to the lower payscale they’d get if they worked for the government.
And to be fair, the PRAL had a good run until the early 2000s. You couldn’t say they were bringing in cutting edge technology, but nor could you say they were slow. It seemed like Pakistan was on track towards digitization and PRAL would play an important role.
So what happened?
To understand what went wrong at PRA, Profit spoke to several individuals that have previously or still do work for or with PRA. By and large, the same sentiment was shared for why PRAL crashed the way it did. And that was the fact that even though it is a private limited company, the FBR owns it wholly, and that is also how the board runs the show over at PRA.
This means that bureaucratic elements that hinder growth have seeped their way into the company over the years. As a result, appointments based on family and friend ties can be seen. Moreover, employees know they have job security and that they can go on trial against dismissal. As a result, the motivation to do well at work goes down. For PRA, this means deadweight in the form of employees. These employees don’t feel the need to move towards other jobs because they know they wouldn’t be able to compete in an actual private sector environment. As a result, PRAL has become sluggish and inefficient – a private company only in name.
Because the PRAL has taken on a bureaucratic colour, it is also drowned in the chains of command that come with it, and all the egos that come with these chains of commands. Remember, the PRAL is answerable to the FBR, but the FBR is answerable to the Ministry of Finance in the everyone-has-a-boss rule. There are already those advocating for the FBR to have autonomy like the State Bank of Pakistan (SBP) does. Meanwhile the PRAL has an extra layer of accountability.
Internal conflicts within the FBR for the attention of PRAL have also made their presence felt. The customs officers and inland revenue have been at war over who deserves more of PRAL’s expertise. To play arbitrator on this one, the customs office needs better access to advanced tech considering any choke in the system could result in a choke at the port costing the trade community and allied industries.
The inland revenue however, has a passive need for tech. Their pace is slower and more reactive rather than proactive. Their tech needs to date have been around the fact that citizens submit their documents on a portal which are then reviewed by FBR professionals. They take their sweet time and more often than ever the deadlines are extended.The tussle between the two is primarily because customs feel they are more progressive, which by nature of their job is true.
PRAL, however, was built with the intention of serving the entire FBR. This tug of war between two divisions is only resulting in inefficiency. The higher up officials at PRAL and the FBR are not entirely from the tech age. At first, when they were introduced to technology they would find it beneath them. Tech related work was for the stenographers and clerks, or as the FBR calls them Lappoos.
The tech averse
Considering how they were averse to technology, tech taking over challenged their beliefs. Therefore, an unnecessary resistance towards tech was harboured. However, even though the resistance has gone down, the problem remains that these individuals do not fully understand tech and its possibilities. They are sometimes unable to ask PRAL for solutions that match their needs or the problems.
The concept of a user friendly UX is also something the individuals have not fully grasped. It is as if they don’t understand how the FBR is underachieving as a result of this. Moreover, the job of the PRAL and FBR will always be inadequate in terms of Pakistan considering the size of the informal economy. The challenges associated with the digitization are strongly linked to the challenges of documenting the informal economy.
However, one of the strongest reasons behind the aversion towards digitization is the fact that some I individuals in the FBR are adamant over the need for human interaction. The human element of the collection process, whether at customs or inland are ways for corruption to seep through. This reason alone is the single most dominant reason behind the taxation collection not being entirely digital. This reason itself has led to the slow pace.
PRAL 2.0?
To put it bluntly, the PRAL was not a success, even though for a brief moment in time there, it really could have been. Which is why the FBR is looking to start over, and with something new – the next edition of PRAL so to speak.
The ECNEC approved the Pakistan Single Window Project which the FBR will be sponsoring. The total cost is estimated at Rs 11,075.16 million as per the MoF, and is to be completed by June 2023. Once completed, the project will aim to enhance Pakistan’s global ranking in cross border trade related indicators. This project will act as an integration point that will bridge cargo and logistics systems and other trade related processes. It aims to work as an automated single entry centralized hub for submission and processing of 90% of licenses, permits and certificates for external trade.
It is being made with the same zeal that the PRAL was set up with. However, there is a great concern over it eventually turning into another PRAL due to the collection of deadweight over time. The question is, will this turn into a PRAL 2.0? Or will it end the tussle between customs and inland revenue, ultimately achieving optimum efficiency for the PRAL and the Single Window.
Essentially the solution to Pakistan’s tax collection woes is a single platform with an easy to use interface. Filing taxes should be as easy as ordering food off of foodpanda. Moreover, the platform should be the same on a federal level and a provincial level. Following the 18th amendment, provinces have their own system. This brings down productivity and deters citizens from the process. However, a single platform does not mean the collections will not return back to provinces.
One thing for sure is that if PRAL performs it benefits the entire economy. All that’s needed now is dynamic leadership that can challenge the norms and is not your typical bureaucrat babu.
