ISLAMABAD: Federal Board of Revenue (FBR) Chairman Ali Arshad Hakim said on Friday that the 'super rich' 200,000 individuals won't be allowed to avail the Tax Registration Enforcement Initiative 2012 (TREI 2012) and Investment Tax Scheme 2012, as they would be served legal notices by January 2-3, 2013.
On the conclusion of Senate Standing Committee on Finance, at Parliament House on Friday, Hakim informed reporters about the plan to document the economy and strategy to implement the plan on national level. He was upbeat about registering 200,000 'super rich' persons with the help of available data and applicability of existing tax laws. With full commitment, he shared with the media that a legal team of the FBR was actively working on strategy to document these 'super rich' 200,000 individuals. Astonishingly, these super rich 200,000 individuals have no National Tax Numbers (NTNs). The FBR cannot permit these super rich persons to pay only Rs 40,000 and come within the tax net. These persons have to pay their due amount of taxes as they are making highest expenditures in Pakistan, but not ready to even obtain the NTN. The FBR has separated these super rich persons from the total identified individuals.
Ali Arshad Hakim said that notices would be served on them under the existing tax laws. FBR Legal Wing has informed tax authorities that the entire legal process would be completed in 90 days. However, we cannot bypass the legal provisions of the Income Tax Ordinance 2001. FBR Legal Wing is reviewing different legal notices in this regard. These 'super rich' 200,000 individuals would have to pay due amount of taxes. This would give a clear and loud message across the country that if the FBR can register 200,000 'super rich' persons, the remaining rich and middle class persons cannot escape from the FBR's documentation drive. It would be better for them to avail the amnesty scheme and voluntarily come within the tax net. After bringing these persons into the tax net, the FBR would ensure filing of returns in future.
Responding to a query, FBR Chairman said that top 200,000 tax evaders would not be able to avail the scheme because of their higher revenue potential. Due to capacity constraints, the remaining 2.7 million un-registered persons would be offered amnesty scheme.
The FBR Chairman admitted that the FBR also wanted to generate additional revenue without delay. In this regard, the amnesty scheme would not only increase collection, but also expand the tax base. To a question, he explained that secrecy of data is very important during this whole exercise. There are changes of harassment or blackmailing in case the data has been gone to wrong persons. The misuse of data would be prevented by offering schemes to the unregistered persons.
About the applicability of customs electronic system at ports, FBR Chairman said that new customs clearance system would be launched across the country from January 25, 2013. Responding to a question on International Monetary Fund (IMF) reservations over the amnesty scheme, Ali Arshad Hakim said that the IMF has its own viewpoint. The IMF has also asked the FBR to remove distortions in the sales tax regime, abolish zero-rating, review SROs and improve taxation system in Pakistan. We have to take decisions in view of our tax culture, business environment and circumstances of the country, he added.
About withdrawal of section 153A of the Income Tax Ordinance 2001, FBR Chairman said that it was the right decision to temporarily suspend the applicability of section 153A of the Income Tax Ordinance 2001. The enforcement of this provision of law was not possible in view of prevailing tax culture in the country. The business community and trade have out rightly rejected this section 153A which was practically not possible to enforce. If one thing cannot be enforced, there is no justification to continue with the scheme which made it mandatory for manufacturers to collect withholding tax from distributor, dealers and wholesalers at the time of sale.
It is impossible to demand CNICs from small retailers and shopkeepers in a business environment where elite class enjoys extraordinary tax exemptions and concessions. How, can you collect CNICs of unregistered persons where powerful and influential groups are enjoying tax exemptions to the tune of billions, he questioned.
Earlier, Ali Arshad Hakim said that the FBR will propose new measures to Minister of Finance Abdul Hafeez Shaikh to impose 5 percent sales tax on supplies made to unregistered persons along with simplified customs duty regime, withdrawal of some concessionary SROs having same exemption in Customs Tariff and abolition of sales tax zero-rating facility on certain items.
He informed the Senate Standing Committee that the FBR will propose restoration of "further sales tax", on the sales made to the unregistered persons. In the past the rate of further tax was 3 percent which would be increased to 5 percent under Sales Tax Act 1990. The enhanced rate has been proposed to discourage persons to make sales to the unregistered buyers within the supply chain.
On the customs side, the FBR has done comprehensive working on the exiting exemptions SROs and Pakistan Customs Tariff (PCT). There are many customs SROs which are granting concessionary rate of duty or exemptions. The same exemptions are also available under the tariff slabs of the PCT. The cost of exemptions through concessionary SROs of customs duty has also been determined. Some exemption SROs needs to be rescinded in view of rate of duties applicable on raw materials and finished products as per existing PCT headings of customs tariff.
The effective rate of customs duty is 5.9 percent in view of concessionary SROs and tariff slabs of PCT. The tariffs are going high but we have effective rate of 5.9 percent customs duty. This rate of 5.9 percent would be extended to at least 7-8 percent with the help of a simplified customs duty regime. In this regard, the rate of duty as per SROs and tariff slabs could be reviewed to increase effective rate of customs duty.
He disclosed that 84 percent of the tariff lines of Pakistan Customs Tariff have been given exemptions through SROs. This percentage reflects that a number of exemptions given through tariff are also available to the same sector through SROs.
Hakim said that FBR will also propose changes in the zero-rating regime to remove distortions in the sales tax supply chain. These amendments in the Sales Tax Act 1990, Customs Act and Income Tax Ordinance 2001 would be presented before the ministry of finance in the first week of January 2013. The FBR would be able to generate additional revenue and remove distortions in the taxation system with the help of these new measures, the FBR Chairman said.
Terming section 111(4) of the Income Tax Ordinance 2001 as a deadly section of the law, the FBR Chairman said that why anyone would be ready to pay higher tax of 35 percent when amnesty under section 111(4) of the Ordinance 2001 is available on foreign remittances. If we are able rescind section 111(4) of the Ordinance 2001, impose gross asset tax and abolish exemptions, nobody can stop us from raising Tax-to-GDP ratio to 18 percent.
He further said that through the proposed bill we want to bring about certain minor procedural changes in Customs, Sales Tax and Income Tax law which would grant 45 days time limit and other procedural changes in the Alternative Dispute resolution Committee (ADRC). The FBR will either accept or reject the ARDC recommendations, but bound to give its order within 45 days period.
He said that all the tax laws contain provisions for dispute resolution through Alternate Dispute Resolution mechanism. The full potential of ADRC is not being realized due to restrictions on the scope of ADRC. The FBR has the discretion to reject the recommendations of the committee without providing any justification for rejection. The proposed amendments are aimed at broadening the scope for constitution of ADRC. The FBR is bound to either accept the recommendation or provide justification for rejection of the same.
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