Reconciliation Reform Revival (2008-12): tax experts' opinion not in conformity with government's claims

The opinion of tax experts is not in conformity with the government claims of major reforms in taxation system including development of Information Technology (IT), electronic system and effective risk-based taxpayers' audit as mentioned in its report, ie, Reconciliation Reform Revival (2008-12).
They told Business Recorder on Monday that the government economic performance has been highlighted in the report called "Reconciliation Reforms Revival-Four Years" of democratic government. It has been claimed that the unprecedented growth in revenue can be attributed to the initiatives such as simplification of tax laws, infrastructure improvement and development of IT, introduction of efficient procedural reforms such as e-filing, a robust awareness campaign and capacity building of human resource and introduction of effective risk-based taxpayer's audit.
Sources said none of the taxation reforms have been implemented during 2012 as no development has been seen in areas of IT, electronic systems, simplification of procedures and risk-based audit, etc, during last calendar year. As far as simplification of tax laws is concerned, there is no change in the language of Sales Tax Act, 1990, Income Tax Ordinance 2001, Federal Excise Act 2005 and Customs Act, 1969 during 2012. The changes made in the tax laws during 2012 were legal and procedural. Taxpayers have to consult lawyers and chartered accountants to deal with the tax matters. The FBR has now started a process to translate all tax laws in Urdu for facilitation of the taxpayers. The Urdu version of the income tax return form is also under consideration of the Board. The Income Tax Rules and Sales Tax Rules/Special Procedures have not been changed during 2012. The government's claim of simplification of tax laws is against facts and is evident from the existing version of the said fiscal laws.
Experts said that the major flaw in the taxation system is lack of development of IT system with integration of taxes. The FBR has failed to implement a major reform pertaining to development of IT system to electronically integrate sales tax and income tax. Even the Integrated Tax Management System (ITMS) has not been fully utilised by the tax officials. The main objective of IT reforms is to simultaneously monitor sales tax, federal excise, income tax and customs duty payment by a registered person, electronically. Thus, the government claim of development of IT systems lead to successful reform in taxation system seemed to be incorrect.
They further said that e-filing system of the FBR is very complicated and usually choke during last days of filing of returns. Taxpayers cannot individually file their returns with the help of electronic filing system. About effective risk based taxpayer's audit, they said that the parametric risk-based selection of cases for audit for Tax Year 2011 has been challenged in the Lahore High Court (LHC). The LHC has declared FBR's selection of cases for audit as illegal and against the provisions of tax laws. Thus, FBR's audit methodology has been declared as illegal by courts.
Reconciliation Reforms Revival said that various tax measures have been taken to broaden the tax-base such as monitoring and risk-based audit, strengthening electronic payment and close watch on Afghan Transit Trade and recovery of arrears. Responding to this, experts said that field formations of the FBR have failed to put in place an effective plan to recover arrears out of current demand etc. Recently, the FBR has expressed concerns over the poor performance of field formations on issue of withholding taxes, arrears and recovery 'out of current demand' during 2012-13.
The smuggling particularly through Afghan Transit Trade continued to remain a major problem during 2012, sources said. The report said that in pursuance of Prime Minister's relief package to rehabilitation the economy of Khyber Pakhtunkhawa, Fata and Pata following relief has been provided to industrial and commercial taxpayers hailing from affected areas. The profits and gains derived by a taxpayer located in the most affected and moderately affected area of KP, Fata and Pata are exempt from income tax for a period of three years, starting from the Tax Year 2010.
Prior to publication of this report, experts said that the fiscal relief package for KP and Fata/Pata has already been withdrawn by the FBR. The income tax exemptions granted to the business community of the said areas have been taken away from new fiscal (2012-13). After the fiscal relief package ended on June 30, the income tax exemption available to the business community of KPK and tribal areas under Clause 126(F) of the Second Schedule of the Income Tax Ordinance 2001 would not be available to the business units concerned. The income tax exemptions was previously available on profits and gains derived by a taxpayers located in these areas.
The government has also taken credit for providing relief of 50 percent tax rebate to senior citizens (60 years plus) on their income, if does not exceed Rs 1,000,000 as compared to previous maximum limit of Rs 750,000. The report said that the Capital Value Tax on transfer of immovable properties leviable through Finance Act, 1989 has been abolished and the Federal Government is not levying Capital Value Tax on transfer of immovable properties situated in the country. On this issue, experts said that the government has not abolished the CVT on immovable property, but same has been shifted from federal government to provincial governments.