In a significant move aimed at bolstering its tax policy framework and fulfilling commitments made to the International Monetary Fund (IMF), the Ministry of Finance in Pakistan is taking a decisive step towards modernizing its fiscal governance. The ministry has announced the induction of six seasoned professionals from the market to operationalize the newly established Tax Policy Office (TPO). This development, directly reporting to the Finance Minister, marks a pivotal moment in the country’s efforts to separate tax policy formulation from revenue administration, a long-standing recommendation from international lenders.
The announcement signals a clear intent to inject specialized expertise into the heart of Pakistan’s tax policymaking. The ministry has initiated the recruitment process for a Director General (DG) of the TPO and five Directors, each possessing distinct expertise in crucial areas of taxation. These areas include economic analysis, business taxation, personal taxation, international taxation, and direct/indirect taxation, indicating a comprehensive approach to strengthening the analytical and strategic capabilities of the tax policy function.
The government is offering attractive compensation packages to attract top talent, with positions falling under the Special Professional Pay Scales (SPPS). The Director General will be appointed under SPPS-I, which offers an all-inclusive package of Rs2 million per month, while the Directors will be hired on SPPS-II, with a monthly package of up to Rs1.5 million. This competitive remuneration reflects the importance the government is placing on this initiative and its commitment to securing highly qualified individuals to steer the TPO.
The creation of the TPO, officially notified last month, represents a crucial step towards separating the often-intertwined functions of tax policy and revenue administration. For decades, successive governments have grappled with this separation, often facing resistance from the Federal Board of Revenue (FBR), the primary tax collection authority. The rationale behind this separation is rooted in the need to prevent policy capture by the revenue machinery and to allow the FBR to concentrate its efforts on efficient revenue collection. International lenders, including the IMF, have consistently advised this separation to ensure a more robust and independent tax policy framework.
The establishment of the TPO is a direct outcome of Pakistan’s commitments under the $7 billion Extended Fund Facility (EFF) with the IMF. According to IMF documents, Pakistani authorities pledged to “establish a Tax Policy Office under the Minister to improve tax policy analysis and allow the FBR to focus on revenue collection.” This commitment underscores the significance of the TPO in the broader context of Pakistan’s economic reforms and its engagement with international financial institutions.
The TPO’s mandate is clearly defined: to provide robust support to the analysis of tax policies and proposals. This will involve leveraging data modelling, conducting thorough revenue and economic forecasting, and meticulously analyzing the country’s international tax treaties and obligations. By centralizing these functions within a dedicated office reporting directly to the Finance Minister, the government aims to ensure that tax policy decisions are informed by sound economic principles and comprehensive data analysis, rather than being solely driven by revenue collection targets.
The direct reporting line to the Finance Minister is a key feature of the TPO’s structure, granting it the necessary authority and influence to effectively implement its mandate. This direct oversight is intended to give the TPO the “sufficient teeth for policy implementation” that has been lacking in the past, particularly in the face of potential discomfort or resistance from within the revenue administration.
While the formal notification of the TPO came in the third quarter of the fiscal year 2025, it was initially committed to the IMF for the first quarter. This slight delay highlights the complexities involved in such institutional reforms. However, the timing of the notification, just ahead of an IMF review mission, underscores the government’s commitment to fulfilling its obligations and demonstrating progress in this critical area.
The staffing of the TPO, as approved by the federal cabinet, will be undertaken with the concurrence of the Establishment Division and the Finance Division, ensuring adherence to government regulations and procedures. This collaborative approach further emphasizes the importance of this initiative across different arms of the government.
In conclusion, the operationalization of the Tax Policy Office through the hiring of external professionals marks a significant step forward for Pakistan’s tax governance. This move addresses a long-standing structural weakness by separating tax policy from revenue administration, aligning with international best practices and fulfilling a crucial commitment to the IMF. By bringing in specialized expertise and empowering the TPO with direct access to the Finance Minister, the government aims to create a more robust, data-driven, and strategically focused tax policy framework that will ultimately contribute to sustainable economic growth and fiscal stability. The success of this initiative will depend on the effective functioning of the TPO and its ability to navigate potential challenges, but the current পদক্ষেপ undoubtedly represents a new and promising chapter for tax policy in Pakistan.
