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The Federal Tax Ombudsman (FTO) has recommended the Federal Board of Revenue (FBR) to pay Rs. 1,000 as an incentive for the filing of an income tax return through cash payback payment in the bank account of the return filer under the policy measure to broaden the tax base.

According to the FTO annual report (2020) issued here on Tuesday, a category-wise breakup of the total fresh complaints against the FBR with percentage revealed that the number of complaints in the category of Income Tax constituted 65.16 percent, which is more than all the other taxes put together.

The sales tax complaints had constituted 23.53 percent, customs duty 10.83 percent, and the Federal Excise Duty complaints against the FBR constitute 0.48 percent during 2000.

During the year under the report, 3,332 complaints had been received against the FBR, and 383 had been carried forward from the previous year. A total of 18 cases had been added through the Own Motion action and 155 cases had been carried forward from the previous year in the category of the OM and Inspection cases.

Out of a total of 3,888 complaints/cases, 3,555 had been disposed of either at the initial stage of the investigation or after the completion of the investigation, according to the FTO report.

The FTO has submitted budget proposals for 2021-22 for the Broadening of Tax Base (BTB). There was a dire need to broaden the tax base, and it was proposed to do legislation to bring those in the tax net who pay more than a certain amount of the With Holding Tax (WHT) for the Broadening of Tax Base (BTB), and there should be an incentive of Rs 1,000 for filing a return, to be paid as cash payback in the bank account of the filer.

This will start the process of the documentation of households and their earning levels at the national level. Only a few designated branches of the National Bank of Pakistan (NBP) were allowed to receive the payment of Duties/Taxes.

It was proposed that the FBR allow the deposit of Duties/Taxes in all the branches of the NBP and the commercial banks that have connectivity for the transmission of data to the main or designated branches for the onwards transmission to the FBR system.

According to the FBR, it had provided a mechanism of e-payments through the accounts of Alternate Delivery Channels (ADC). All the corporate entities had been required to use the ADC channel with effect from 1 August 2020.

The FTO stated that the FBR was collecting advance/adjustable Withholding Tax on the sale and purchase of immovable property u/s 236C and 236K of Income Tax Ordinance, 2001 and Capital Value Tax (CVT) to the extent of Islamabad Capital Territory (ICT).

All these three sections of the law were, however, followed by an ‘Explanation’ that did not adequately cover the definition of ‘persons’ responsible to collect Advance/Adjustable Tax and CVT to the extent of ICT for all internal transfers of property that were either not placed before the Registrar of Properties or not reported to the concerned Tax Offices, and/or the transfer fee charged by the management was not declared to the Tax Authorities.

The recommendation along with the amendment duly drafted by the FTO office to cover the missing links was sent to the FBR for rectification in the law. The FTO office remarked that there was no penalty for non-compliance with the orders of the appellate authorities.

It was proposed that penal provisions be added so that action could be taken against the officers who had not given an appeal effect in such cases. The FTO office stated that the unnecessary filing of representations on the settled points of law and procedure, particularly when action against Tax Officials was recommended on account of neglect, inattention, delay, incompetence, inefficiency, ineptitude, and corrupt motives, was another issue of concern.

This went against the principle of accountability and delayed the redressal of grievances of complaints with hemorrhage to revenue and continuation of maladministration. This issue was repeatedly taken up with the FBR.

The FTO has informed the FBR that on the Income Tax side, delays in refunds, coercive recoveries through the attachment of bank accounts, completed returns, static tax base, and irritating audit activities were still found to be major areas of concern for the taxpayers/complainants.

The following recommendations were made/reiterated to the FBR:

Delays in Refunds

Inattention to and delays in the disposal of refund claims was the main problem of taxpayers. It harbored corruption and created a liquidity crunch for entrepreneurs along with the elevation of the cost of doing business.

Therefore, the FBR was advised that any shortcoming in the documents should be intimated within a specified period to the applicant of the refund, and that the facility of tracking status of refund should also be considered. The following budget proposals were also sent.

The amount of the disputed refunds should be paid after it is allowed at the stage of the second appeal. The refund payment ought to be dovetailed with the magnitude of the amount as most claims fall in the category of less than Rs. 0.1 million, the delay in the grant of which caused a trust deficit in the fairness of the FBR.

Section 170(5)(b) of the Income Tax Ordinance, 2001 has obstructed the creation of a streamlined refund procedure, and it was proposed that it be deleted from the Income Tax Ordinance, 2001.

The FBR has stated that it has started work on a module of the automated refunds of the Income Tax to resolve important issues, including delay in the pattern of the FASTER module of Sales Tax. Moreover, the performance of the enforcement/refund processing officers has already been linked with the accomplishment of assigned tasks.

Coercive Recoveries

Coercive recoveries through the attachment of bank accounts without notice and the subsequent delay in the restoration of accounts hit the taxpayers very hard.

It was recommended that notices be issued with a bar code and a time limit be prescribed to ensure the de-sealing of bank accounts of taxpayers/assesses after the resolution of issues.

The following measures were also suggested as budget proposals:

  1. Restrict the use of power to attach bank accounts unless the case under litigation has been established at least in the first appellate stage;
  2. Adherence to the service of Bar-Coded notices to eliminate the possibility of the abrupt attachment of bank accounts for recoveries and hasty ex-parte decisions and;
  3. The shortest time limit be prescribed in the statute to ensure the de-sealing of bank accounts of taxpayers/assesses.

According to the FBR, it is mandatory not to issue Income Tax-related notices without Bar Codes. The mechanism of the automatic stay of demand by paying 10 percent of the demand also exists under all the IR laws. However, the FTO constantly receives complaints on coercive recoveries and issues appropriate recommendations.

The ratio of acceptance/rejection of the representations decided by the President of Pakistan during 2019 and 2020 revealed that 590 of 617 representations had been filed by the department.

A total of 103 representations had been decided during 2020, of which 88 had been rejected and only two had been accepted. This indicates that the department often filed frivolous Representations and is also proof of the qualitative and merit-based disposal of complaints by the FTO.

The higher rejection ratio of the Review petitions filed by the complainants/FBR during 2020 is also a manifestation of the fact that the initial Recommendations had been prepared following the stipulated laws and regulations, and no lapse or irregularity had been noticed during Review proceedings, the FTO added.

Courtesy: Pro Pakistani

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