Tax expert criticises FBR for removing taxpayers’ names from ATL

PESHAWAR: A leading tax expert of KP, Muhammad Umair Zeb told Business Recorder on Sunday that Federal Board of Revenue (FBR) has removed the names of taxpayers from Active Taxpayers List (ATL) even in those cases where the provision of section 7E are not applicable and no tax is chargeable in the cases on account of exclusions provided under the said section.

Muhammad Umair Zeb, who is member of Tax Bar, Peshawar & Nowshera further elaborated that non filing of any part of prescribed return which is not applicable in the case cannot be made basis for adverse action in term of section 120(3) of the Income Tax Ordinance, 2001.

Unless it is not proven from record that a specific part of the prescribed return was mandatory to be filed, the taxpayer cannot be declared as defaulter of non-fulfilment of his obligation.

The Federal Board of Revenue (FBR) has excluded the names of taxpayers from the Active Taxpayers list (ATL) despite interim relief and in those cases where Section 7E is not applicable.

If the notice under section 120(3) of the Income Tax Ordinance, 2001 is not responded by the taxpayer or after receipt of explanation specifically with regard to application of section 7E, the assessing officers in KP without issuing show cause notices close the proceeding, issued order by treating tax return as invalid with recommendation for exclusion from active taxpayer list which shows total harassment for taxpayers who filed tax return for the tax year 2022 within due time.

It is submitted that under the scheme of the Income Tax Ordinance, 2001 read with Income Tax Rules, 2002 each & every column of return prescribed by the Board is not required to be filed rather the only portion which is attracted in the case is to be filed.

Umair Zeb invited attention to the fact that the newly inserted section 7E in the Income Tax Ordinance, 2001 is not applicable in all the cases where the taxpayer has declared immoveable properties in his wealth statement for Tax Year 2022 rather the provisions of section 7E comes into operation only where the net fair market value of the immoveable properties owned by the taxpayer after exclusions of the properties given exemption vide sub-section (2) of section 7E of the Income Tax Ordinance, 2001 exceeds the prescribed limit of twenty five million.

In the light of the submissions made above, the field officers may kindly be directed not to initiate proceedings u/s 120(3) of the Income Tax Ordinance, 2001 for Tax Year 2022 on the basis of application of the provision of section 7E without having any plausible justification.

Umair Zeb, the tax analyst, said that the act on the part of the FBR tantamount to contempt of Court.

“In this context arrangements may be made for inclusion of the name of the petitioners/ taxpayers in the active tax payer list on the basis of returns submitted for Tax Year 2022.”

The Supreme Court of Pakistan on Wednesday granted interim relief against the 20% deemed income tax on real estate, which will partially dent revenue collection, as taxmen face a gigantic task of collecting Rs560 billion in one week to achieve the nine-month revenue target.

Headed by Chief Justice of Pakistan Justice Umar Ata Bandial, a special bench allowed taxpayers to pay only 50% of the assessed deemed income tax until the final decision was made by the apex court.

The court made some sharp remarks about the performance of the Federal Board of Revenue (FBR) that its focus on an already limited taxpayer base to achieve targets.

The apex court barred the FBR from taking any adverse action against the taxpayers, if they deposited half of the assessed tax, according to the interim decision.

Umair Zeb, explained that Section 7E (Deemed Income from immovable properties) was added to the Income Tax Act as part of Finance Act 2022 for the tax year 2022 and onwards. According to it, a resident person who owns capital assets on the last day of the tax year (i.e., June 30) with an aggregate fair market value above Rs25 million, is liable to pay tax on deemed income.

The fair market value is the value notified by the FBR and deemed income is calculated as 5% of the fair market value. This deemed income is subject to a tax rate of 20%.

The fundamental objection is that the tax added through section 7E is, in pith and substance, tax on immovable property, to which extent Parliament is not competent to make laws, after the 18th Constitutional Amendment 2010, where after the only provincial legislature is eligible and competent to tax immovable properties.

Copyright Business Recorder, 2023