Compliance and Risk Management in Finance: A New Era for Pakistan’s Revenue Collection
Pakistan’s Federal Board of Revenue (FBR) has made a significant step towards boosting revenue collection by establishing a Compliance Risk Management (CRM) Directorate. This move aims to identify, assess, and prioritize compliance risks to curb tax leakages and broaden the country’s tax base.
Background
As part of its efforts to enhance domestic revenue mobilization, FBR introduced an amendment to the Income Tax Ordinance, 2001 through Finance Act, 2021. The amendment enabled the establishment of a Directorate General of Compliance Risk Management, which was subsequently set up on November 7, 2022.
Objectives
The CRM Directorate will be responsible for developing risk profiles for various segments and sectors related to the four pillars of compliance:
Registration
Filing
Reporting
Payment
These include identifying compliance risks and suggesting remedial measures to address revenue leakages.
Key Responsibilities
- Developing risk profiles on key segments and sectors
- Creating and updating a risk register
- Collecting data from internal and external sources through an integrated system with FBR’s Information Technology Wing
- Conducting environmental scanning, research, and studies on approved compliance topics
- Gathering risk evaluation reports from field formations based on taxpayer segments at all four compliance levels
- Planning risk treatment strategies and developing compliance improvement plans
- Measuring risk management performance against key indicators and identifying tax gaps
Administration and Coordination
The CRM Directorate will also be responsible for managing general administration, finance, human resources, and budget. Additionally, it will coordinate with other FBR wings and directorates to ensure effective implementation of its functions.
Sectoral Experts
To further support the CRM Directorate, FBR has hired sectoral and business experts to assist in:
- Sectoral studies
- Analysis of business trends
- Identification of sectoral risks
The CRM policy, frameworks, and methodologies will be developed and implemented by the Directorate to provide a structured approach to compliance risk management at FBR.
Impact
The establishment of the CRM Directorate marks a significant milestone in Pakistan’s efforts to improve its tax collection system and increase revenue mobilization. With its focus on identifying and addressing compliance risks, the CRM Directorate is expected to play a crucial role in enhancing domestic revenue collection and broadening the country’s tax base.
By implementing effective compliance risk management strategies, FBR aims to:
- Reduce tax leakages
- Increase taxpayer compliance
- Enhance domestic revenue mobilization
- Broaden the country’s tax base