The Task Force of the Federal Board of Revenue (FBR) deputed to document retailers has linked expansion of the tax net with the strict enforcement of tax laws, bringing lowest level of supply chain ie retailers into the formal regime. It is learnt on Monday that the FBR's Task Force has strongly proposed action against un-registered retailers by invoking harshest provisions of the tax laws for documentation of the economy.
According to the detailed proposals of the Task Force, the compliance of tax laws should be seen in the backdrop of overall compliance and enforcement of laws in a country and the environment in which tax machinery operates. With worsening security situation and waning writ in large swathes of country, the enforcement of tax laws has become increasingly difficult. Well, it does not mean that FBR is absolved of its responsibility to collect tax in such a situation; however it makes the task of tax collection much more difficult than otherwise. It is to be emphasised here that there is no dearth of tax laws, what is lacking is the strict enforcement of those laws and the will to bring untaxed sectors and people into tax net. With limited resources at hand, it may not be possible to keep an eye on every taxpayer. However, the FBR can prioritise its resources and energy, with special emphasis on those out of the tax net. Application of tax laws to tax evaders will boost the confidence of formal sector and perhaps the only way to fix tax system in the longer run. Retailers are at the lowest level of the supply chain and if this sector is brought into tax net, it will be helpful into embedding the tax culture in the society.
It proposed that a gradual system of documenting the economy needs to be perused. Action in this direction is needed to be followed in incremental fashion. All commercial electricity and gas consumption bills need to be tagged with NTN No For this a countrywide campaign is required in association with DISCOs. As per section 114(1)(b)(viii) of Income Tax Ordinance 2001, all commercial consumers having annual electricity bill exceeding Rs 500,000 are required to file the tax return, in first phase, if we can devise a procedure to allot/affix NTN Nos. on such bills we will be having a base line record of potential taxpayers (including retailers) to start with. With the help of field formations physical verification of businesses can also be carried out in incremental fashion. After verification, sectoral differentiation would become easier in to retail, whole seller, professional, etc. With the help of IT wing of FBR existing taxpayers of above category can be included. This exercise will be an ongoing exercise and will not affect existing policies in action.
It proposed that the tax rates under section 235 of the Income Tax Ordinance 2001 may be amended with the view to levy advance income tax at progressive rates on unregistered commercial and non-commercial consumers, carrying on business. Persons filing returns shall be entitled to claim adjustment of tax so collected. In the Sales Tax law, manufacturers paying utility bills in excess of Rs700,000 per annum are liable to be registered and charged Sales Tax on their supplies. It is proposed that in the case of retailers, a threshold of utility bills amounting to Rs 200,000 per annum may be prescribed under the law for the purpose of registration and charge of Sales Tax.
Presently, tax collection on gas bills is limited only to CNG stations. Gas utility companies collect advance tax u/s 234A of the Income Tax Ordinance, 2001 @ 4% of the amount of gas bills of CNG stations. This provision needs to be extended and tax should be collected from every un-registered commercial consumers. This shall bring a part of retailers into tax net, particularly the restaurants, bakers & confectioners and caterers, Task Force proposed.
A targeted approach towards one pre-identified market, as a pilot project by every RTO, needs to be started with the assistance of relevant market association. Special counters can be installed at these markets not only to instantly allot NTN but also help in filing of tax returns. This exercise will have to be completed on market to market basis and once all the commercial establishments in the market are enrolled. This exercise needs to be a permanent feature of enforcement regime. The surveys should be a low-profile exercise so as to avoid much hue and cry. Further, field formations do not have sufficient human resources to carry out large-scale surveys. Moreover, these surveys need to be on slow-track basis so that incoming information is fully taken care of and followed up without creating a piled up backlog.
It further proposed that the IT wing FBR needs to have a permanent cell containing tax officers as well as technical team to generate reports of un-enrolled potential taxpayers including retailers. The cell will be responsible for sending details of such un-enrolled taxpayers after verification and will also be responsible to get follow-up results from respective Chief Commissioners. Hereafter, to enforce returns from these non-filers our Audit system needs to be strengthened for creating deterrence. The cases of non-filers can be selected for Audit in respect of their tax affairs after verification with the help of IT Wing that they are still active and action needs to be initiated under section 177 of Income Tax Ordinance 2001 instead of traditional proceedings under section 114 and 122C of the Ordinance.
Proper enforcement is not possible without proper record keeping and information sharing, which requires an automated system, not only to keep a log of the activities undertaken but also to assist in finalisation of processes initiated. Such an automated system should also focus on proper follow-up of each initiative taken. Without a proper automated system, no enforcement scheme can succeed, Task Force proposals added.
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