The Chief Commissioner, Inland Revenue, Audit Wing, RTO, Rawalpindi, has submitted budget proposals (direct taxes) for 2010-11 to the Federal Board of Revenue (FBR) for comprehensive amendments in the Income Tax Ordinance 2001. He said that there is misconception amongst the taxpayers that a case is selected for audit u/s 177 on the basis of some definite information/reason/grounds, whereas a case is selected for audit having regard to broad parameters given in that selection.
The intimation letter regarding selection of case should mention only the area which will be audited by Income Tax Authorities not the grounds/reason on which a case is selected for audit. The Chief Commissioner further proposed that the minimum tax should be rationalised.
For this, certain amendments are required to be made in income tax law. As it is levied on the companies which are not paying tax under normal law, hence make it possible to bring a large number of taxpayer company in the tax net. There is a provision in law to carry forward the amount of tax (minimum tax) to the next years to make it adjusted against other years' tax liability.
Then there is no provision in the law to get refunded the balance amount that is not adjusted against tax liability. It is proposed to omit this provision from the law because it is of no use rather create ambiguity in the law. As far as revenue impact of the omission of this section is concerned, it will have positive impact on revenue.
With the deletion of the provision of adjustment of minimum tax against tax liability of coming years, taxpayer will have to pay tax (minimum tax) on the basis of turnover for the year without making any adjustment of tax liability for the year against the payment of minimum tax that was paid in the previous year.
It is rationalised as the minimum tax is based on turnover and not on the profit. Although the companies are not earning profit but they have made sales and against which they have to pay tax. It is proposed that no exemption certificate is to be issued to any persons unless the person has paid excess amount of tax.
It is a norm that taxpayer at the behest of new fiscal year asked for the issuance of exemption certificates and the Commissioner concerned has to issue as the law permits to do so. As at the beginning of the year one can only predict and make projection for the coming year and nothing is done on the basis of real business activities. Some taxpayers ask to get the refund of previous years to be adjusted against tax liability of coming year.
Since the department is vigorously following the policy of audit u/s 177, some documents like balance sheet, wealth statement, personal expenditure statement and detailed trading/P&L account should be made of the return so that desk audit can be effectively carried out.
At present there is no provision in the law to work back the income of those taxpayers who file statements of final taxation u/s 115(4). So in the absence of such provisions, the exact amount of concealment cannot be determined in such cases. There should be such provisions as to work back the income of the taxpayer who file statements u/s 115(4). Explicit and clear changes should be made in the sections relevant to audit proceedings in the law instead of issuing notifications, instructions and circulars from time to time.
Since issuance of such instructions through circulars either creates further mis-understanding and confusion among the taxpayers or causes discouragement for the tax department. Hence after due consideration/discussion by the Parliament, law making bodies and FBR, ambit of audit proceedings should be clearly specified for the convenience of both taxpayers and the tax department.
As per Section 111(3) in case of any concealment found in any taxpayer, the difference in the business income chargeable to tax is to be taxed under the head "income from other sources" in the tax year immediately proceeding the financial year in the difference is discovered.
As per law in situation where concealment is established in the months of July to October, the taxation officer is required to wait for the filing of return by the taxpayer for the immediately preceding financial year that is almost 4 to 5 months period which is practically not possible. It should be therefore amended to be taxed in the same tax year to which said concealment relates.
As per Section 114(6) the person can revise return on discovery of any omission or wrong statement. Earlier taxpayers were taking undue advantage of this provision by revising the return even after the concealment issue was confronted to the taxpayer. Although this loophole has been corrected through issuance of Circular No 03 dated 17.07.2009 but same directions should be made part of the Ordinance for return as well as wealth statement in clear words.
To increase tax-to-GDP ratio, it is essential to bring all sectors into the tax net. Presently agriculture and real estates are exempt from tax. It should not be like rather these two sectors vis-à-vis tax on capital gains should be taxed. Presently a great burden of tax is on the manufacturing sector that discourages manufacturing activities in the country. It should be dimensioned to other sectors.
Moreover tax on service sector required to be enhanced. It should be activity-based ie if a doctor receives Rs 1000 to check a patient, he should pay 10 percent tax out of this amount. In this way he has to document each and every transaction and tax officers are to ensure these documentation. And this should expand to all the services including lawyer, consultants, designers, architects etc.
At present there is no provision in the law to work back the income of those taxpayers who file statements of final taxation u/s 115(4). So in the absence of such provisions, the exact amount of concealment cannot be determined in such cases. There should be such provisions as to work back the income of the taxpayer who file statements u/s 115(4), Chief Commissioner Inland Revenue, Audit Wing, RTO, Rawalpindi added.
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