Chas Roy-Chowdhury, Head of Taxation Association of Chartered Certified Accountants (ACCA), has said that Pakistani tax authorities should take steps to increase number of compliant taxpayers to avoid policy of higher rates of withholding taxes on non-filers, reduce sales tax rates to expand tax base and Federal Board of Revenue (FBR) powers to access banking information must be conditional to avoid misuse of the authority.
He shared new tax policy with the Business Recorder during his recent visit to Pakistan and interaction with the tax authorities of the FBR at FBR House. He explained in detail the UK's experience of tax enforcement and policy for increasing revenue collection and documentation of economy. Arif Masud Mirza, Head of Policy MENASA, ACCA was also present with the international tax expert of the ACCA.
In an exclusive chat, Head of Taxation ACCA stated that the powers of tax department to access accountholders information were much debated in UK. Tax officials and taxpayers should have face to face interaction before exercising powers to access taxpayers' bank accounts. A lot of steps have to be followed by the tax department before using powers to access accountholders information. There should be direct interaction with the taxpayer before exercising powers to access his bank accounts.
While opposing the idea of different rates of withholding taxes on filers and non-filers of returns, he suggested that the FBR should work to make taxpayers compliant. The reliance on withholding taxes from non-filers is not a very good policy to expand the tax base or increase revenue collection.
To check Value Added Tax (VAT) tax frauds, he said the provisions like 'Missing Traders Fraud' can be effectively used to penalise the entire supply chain involved in tax frauds or fake/flying invoices. He said sales tax can be effectively used to increase the tax base. For this purpose the rate sales tax should be brought down. The FBR can learn from the experience of Malaysia to expand the tax base and increase revenue collection with the help of lower rates of VAT.
He pointed out that the VAT was easy to administer as compared to other taxes and it can be used to expand the tax net. Head of Taxation ACCA stated that there is no harm in FBR's policy of computerised selection of audit cases through random balloting, but the intelligence based audit under risk assessment can be very effective.
Chas Roy-Chowdhury stated that the tax authorities must know the sensitivity about the anti-money laundering provisions. These powers must be exercised with caution against the taxpayers. There should be a clear demarcation for the tax officials for exercising anti-money laundering provisions against the taxpayers. When asked about setting ambitious revenue collection targets for the FBR, he stated that revenue projections should be realistic and accurate which would be instrumental for the tax machinery to avoid downward revision of targets.
He stated that the management of the tax department must have the capability to immediately response to different issues of the taxpayers. The response should be very quick which would result in better administration of the tax machinery as well as taxpayers. For better training of tax officials, he said the tax employees should work in the business environment of companies to have firsthand knowledge about the corporate structure and their working. Tax employees must spend sometime in the business environment of the corporate culture. They should have experience of business environment and working of the corporate entities.
Building capacity of the judiciary on the taxation issues is also required, he maintained. Instead of imposing higher penalties, negotiations with the taxpayers would ensure voluntary compliance through dispute resolution. This should be preferred by the tax department, he suggested. He also talks about working of H M Revenue and Customs and he has been a part of the consultation process for the Common Consolidated Corporation Tax Base (CCCTB) and the VAT Group by the EU Commission.-PR
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