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Digitally Transforming Tax Administration For Effective Revenue Mobilisation in Pakistan

Contextualising Pakistan’s Digital Leap in Tax Administration
Pakistan, at the crossroads of economic transformation, is embracing digital innovation in tax administration. This strategic shift, essential in the post-COVID economic landscape, mirrors global trends identified in OECD’s “Tax Policy Reforms 2023” study, which emphasises the increasing reliance on IT solutions in tax authorities worldwide.

Under this global backdrop, Adam Smith International’s REMIT Programme collaborates with Pakistan’s Federal Board of Revenue (FBR) to spearhead a comprehensive digitalisation initiative. This effort reflects a paradigm shift towards leveraging technology to navigate the complexities of today’s global economic environment.

An increasing reliance on Information Technology (IT) and IT- driven solutions inside tax authorities emerges in OECD’s recent “Tax Policy Reforms 2023” study as a major enabling intervention. This change is a strategic reaction to the peculiar challenges presented by the post-COVID world and economic environment. Tax authorities are compelled to think and act swiftly to improve performance and ensure compliance.

In this global environment, Adam Smith International’s Revenue Mobilisation Investment and Trade (REMIT) Programme in Pakistan is working on a comprehensive digitalisation and IT agenda with the Federal Board of Revenue in the country. This effort is part of a broader move to integrate technology into governance,  signaling a significant shift towards digitalisation in public administration.

REMIT’s main areas of focus include taxation, improving the investment climate, and expediting trade facilitation. These interventions cover a wide range of IT and IT-enabled solutions, meticulously crafted to tackle specific challenges and improve the efficacy and efficiency of Pakistan’s tax administration. REMIT started its work by thoroughly examining the business procedures (BPR) of the Federal Board of Revenue (FBR). Following this, a strategic roadmap for digital projects was formulated, laying the groundwork for a shift in operational practices. The data architecture and analytical capabilities of FBR were thoroughly evaluated and analysed.

In order to promote data-centric decision-making, REMIT’s analysis identified areas that are critical for development and recommended the implementation of enterprise- level data warehousing practices, cutting-edge analytics methodology, solid data governance, and focused staff training. By putting these improvements into practice, FBR will be positioned as a leader in data-driven analytics. These also promise to improve data quality and integration while improving data administration and reporting procedures. The Compliance Risk Management (CRM) workstream examined the compliance risk management procedures used by FBR. It was discovered that FBR currently uses a manual, reactive approach to risk management
with little to no usage of data analytics for risk identification and evaluation. In collaboration with FBR, REMIT is facilitating a transition to a more proactive, data-informed approach in compliance risk management.

REMIT’s Focused Strategy
REMIT’s strategy encapsulates three core areas: taxationenhancement, investment climate improvement, and trade facilitation acceleration.

This involves:

▶︎ Business Process Reengineering: Starting with a thorough examination of FBR’s procedures to develop a strategic roadmap for digital transformation.

▶︎ Data Architecture and Analytics Enhancement:
Implementing enterprise-level data warehousing and advanced analytics to foster data-driven decision-making.

▶︎ Compliance Risk Management Modernisation: Shifting from manual to data-driven risk management, utilising advanced analytics for proactive compliance risk identification.

▶︎ User Experience and Service Design Enhancement:
Enhancing ICT-based services for better taxpayer and authority interactions, informed by comprehensive organisational analyses.

Digital Innovations at the Forefront – Key digital projects include:

▶︎ Conversational AI-Powered Chatbots: Assisting retailers with POS invoice verification.

▶︎ Video Analytics Technology: Enhancing monitoring in retail and manufacturing sectors.

▶︎ Taxpayer Data Integration: Offering a 360-degree view of taxpayer activities to enhance compliance.

▶︎ Behavioural Insights for Compliance: Utilising taxpayer data analysis for innovative compliance strategies.

▶︎ ERP System Implementation: Improving HR and expenditure management for increased efficiency and transparency.

It is predicted that this change will better equip FBR to manage compliance risks, improve tax compliance, and increase revenue collection. User Experience (UX) and Service Design are two other crucial areas of emphasis. An extensive analysis, conducted by REMIT, found that present ICT-based services and systems may be improved to offer better interactions for both taxpayers and tax authorities. Gaps in the organisation’s culture, mission, design infrastructure, procedures, and governance were brought to light by the study. To cultivate a customer-centric culture, it is imperative to form a dedicated design team, articulate comprehensive design procedures, seek insights from industry experts, and elevate digital branding, among other essential initiatives.

A carefully thought-out roadmap has been created to guide FBR in improving its service delivery and customer experience. It included the adoption of a design maturity model, the implementation of a user experience framework, and a strategic path toward becoming a more design-oriented organisation. Another digital project of REMIT in partnership with FBR is the Chatbot, which is powered by conversational AI. Tier 1 retailers will be assisted by this chatbot and point of sale (POS) invoices will be verified. Similar initiatives are being made to improve monitoring in retail stores and manufacturing sites through deploying Video Analytics Technology, a new form, and face of Track and Trace Systems (TTS).

The documentation for Taxpayer Data Integration, an initiative intended to give FBR a thorough 360-degree perspective of taxpayer economic activity and ultimately improve compliance, has made significant progress. With their expertise in tax and IT, REMIT’s Behavioural Insights Team came up with creative approaches to enhance compliance through  a taxpayer data analysis report. This report, which is now going through a quality control procedure, has the potential to bring about more modifications in this area. The Enterprise Resource Planning (ERP) system for human resource and expenditure management of FBR is a digital initiative to improve the HR practices of the revenue body which will in turn enhance efficiency and transparency on the expenditure side.

A strategic and comprehensive digitalisation plan has been put in place for FBR so that it can be modernised and made effective on the lines of the successful revenue agencies of the world. The interventions are designed such that these are institutionalized within the revenue agency so that they can sustain beyond the lifespan of the programme.

If you would like to know more about the programme, please visit our project description here or the programme’s website here .

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