RBF — making tax digital and beyond (II) – Opinion

The major global trend right now is Continuous Transaction Control – CTC aimed at closing VAT gaps, increasing revenue and gaining more control over data. However, CTC regimes are not uniform everywhere. So far, Italy is the only country that deviates from European VAT legislation to introduce mandatory electronic invoicing in national flows.

Hungary and Spain, instead, have adopted an e-Reporting approach as a derogation from the European Council as it does not mandate electronic invoicing. France, on the other hand, lingers with intermittent postponements of e-invoicing.

These movements cannot escape us. FBR and the provincial tax authorities must catch up with these movements. The CTC landscape offers and analyzes different scenarios involving new technologies and the digitization of business processes.

Is FBR ready for this game changer – “VAT in the digital age” which includes the CTC regime, the VAT treatment of the platform economy and the creation of a unique national identification number ? Could the unique return project be the ultimate answer? The Mandatory-SAF-T digital standard audit file is closely linked to the CTC paving the way for a fully integrated and automated faceless audit.

FBR needs to start working on this, after which a mass audit could be done digitally. Pre-filled or pre-filled returns are also vigorously pursued, paving the way for the elimination of the middleman. This will enhance the ease of doing business. Once FBR implements the CTC regime, the idea of ​​pre-filled or pre-filled returns will be just a few keystrokes away.

In a digitally mature business world, there is a transformed wide spectrum of digital compliance like sustainability, security, compliance, control, resiliency, and automation. Strengthening digital security will be a challenge for FBR.

RBF – making taxation digital and beyond – I

In the absence of comprehensive data protection laws, one would be inclined to think of smoky digitalization only for part of the tax jurisdiction.

The credibility of the outfit will be at stake, especially for those who handle personal and sensitive data. Remember that all unencrypted digital data is susceptible to hacking and FBR just tasted it recently. FBR must establish itself as a credible organization and it is only through this ceiling of reliability that it will be able to provide end-to-end encrypted electronic invoicing throughout the value chain.

It is therefore safer to move to CTC and e-invoicing when you establish yourself as a reliable service provider. In any case, FBR needs to find the essential response of market maturity which varies greatly from company to company and most countries are in some form of transition period.

But all the arrows point in the same direction: towards faster digitization and Pakistan may not be an exception. Currently, Pakistan is in the lag bracket in terms of market maturity.

Before going full throttle to electronic invoicing, FBR should seek the cooperation of businesses to prepare for Electronic Data Interchange-EDI. A step-by-step approach based on a threshold can be taken as India has done and the UK is doing in MTD – “Making Tax Digital”.

Disruptive next-generation technologies that are developing at a rapid pace have moved the world towards new digital solutions. Government legislation is the driving force. First give credence to this by building comprehensive data protection laws, then demand compliance. The profusion of tax laws is not an answer, especially when you are a data-driven organization.

As the engine of the market, the private sector must be satisfied and integrated. Tax obligations develop best where there is legal certainty. The uncertainty and fragmentation of tax laws are colossal problems.

The laws of the future must be certain if FBR is to reap a full dividend for its digitization campaign. An increased use of relatively determined legal tools in legislative processes and the involvement of various actors instead of creating unnecessary shields make tax laws more dynamic, flexible and adapted to the changing realities of daily life.

The new IR code must contain an overarching futuristic vision encompassing the digital realities of the new post-pandemic world order. The Chairman FBR should unveil his digital vision, at least for the coming decade.

The next few years will likely see a phenomenal change in the tax landscape. Digitalization is an irresistible force that is reshaping businesses, finances and taxes. Today’s taxman should not look to reporting, they should control the transaction and maintain control over tax data instead of making erroneous assessments bogged down by corrupt practices.

Tax administrations must adopt a variety of measures to gain unparalleled visibility into business activity by leveraging these streams of digitized business data. For example, in VAT, where tax liability is assessed at the point of the flow of supply and where value is added for a service or product. Tracking the entire chain of transactions would make it much easier to ensure accuracy and required compliance. It is a known fact that tax obligations are triggered by key events that must be securely recorded and documented for reporting. Blockchain could be the answer.

As blockchain becomes more widespread, it is important to consider how blockchain could have a specific impact on taxes, including documentation impacts. It is high time that FBR moved more towards electronic invoicing and blockchain documentation.

This decision will be the harbinger of an end to tax evasion and corruption in the system, as blockchain allows sensitive and valuable data to be transferred accurately and securely. But once again the doubt: is FBR ready to go? My vote is for them – yes they are.

(End)

(The author is the former chairman of the Punjab Revenue Authority and a VAT expert)

Copyright Business Recorder, 2022

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