Reducing 50 percent penalty: FBR plans to implement World Bank proposal

The Federal Board of Revenue (FBR) is planning to implement a World Bank (WB) proposal to reduce 50 percent of the penalty of those taxpayers who agree to pay the amount detected during audit proceedings and assessments without going into appeal. Sources told Business Recorder on Thursday that the FBR has to amend the Sales Tax Act, 1990 for inclusion of new provisions to implement the proposal.
The FBR intends to introduce legislation in tax laws to reduce litigation as well as improve voluntary tax payments by the registered units. Instead of going into appeals, the FBR would provide an opportunity to the taxpayers to deposit around 50 percent of the reduced fine after payment of principal amount. However, the amount has to be deposited immediately without going into appeal.
According to the draft of the FBR proposal: following provisions of sub-section (5) of section 25 may be inserted in the Sales Tax Act 1990 in view of WB proposal: (a) Voluntary payment of principal amount along with default surcharge before issuance of audit notice will attract no penalty; (b) after audit but before issuance of show cause notice the registered person can pay the principal amount plus default surcharge along with 25 percent of the penalty; and (c) after issuance of show cause notice, full amount of default surcharge and penalty has to be paid, proposed amendment in sub-section (5) of section 25 of Sales Tax Act added. Sources said that the concessions in payment of penalty/additional tax would be enough for the compliant taxpayers to discharge their tax liability.
Sources said that the WB had identified two proposals of the stakeholders including FBR, representatives of the business community and registered units. One proposal was to accept the reduced assessment or amount of tax as worked out by the taxpayers. Such a measure seemed tempting but it would open doors for corruption as far as actual tax liability is concerned.
An alternative way is to reduce 50-60 percent of the penalty if the taxpayers agree with the assessment made by the department or audit detection''s and immediately deposits the same amount in the national exchequer. There is a need to change the law to allow the taxpayers to pay reduced amount of penalty and additional tax when the taxpayer agrees with the amount assessed and is ready to pay the same without going into litigation, WB review mission added.