The Income Tax Ordinance, 2001 (hereinafter "the Ordinance") was introduced with great fanfare and tall claims that its implementation will usher in an era in which there will hardly be any need for taxpayers to interact with the officials of the tax department.
That all returns filed under section 114 will be protected by the stupendous Universal Self-Assessment Scheme (USAS) and will construe assessment order passed by the Commissioner under section 120.
With immense pride, announcements were made about achieving wonders with promulgation of the new enactment. Unfortunately, the temporary euphoric hypnosis of the public was diffused into a startling reality and specifically the refund seeker, was awoken to a nightmarish realisation - that the noose around his neck had been tightened to the point of suffocation at the hands of the deceitful bureaucracy.
Section 170 read with Circular 5 of 2003 dated 30.06.2003; lay down detailed procedure for obtaining refund. It is not surprising that with innumerable withholding provisions applicable to taxpayers, the probability is exceptionally high that final income tax assessment will result in refund due to the taxpayer. The new law does not cater for issuance of refund voucher consequent to order u/s 120 as was the case under section 100 of the repealed Income Tax Ordinance, 1979.
Justice, equity and logic required that the USAS should have had an in-built system of automatic generation of refund vouchers so that the taxpayer could smoothly and immediately obtain what was rightfully his own. However, this was not to be. Under the existing law, a taxpayer to claim a meagre refund of Rs 100,000 (determined in his tax return filed under section 114 on September 30, 2005) has to undergo the rigmarole of host of steps as under:
1. Make an application in the prescribed form to the Commissioner latest by September 30, 2007 otherwise his entitlement to the refund will be extinguished. Say that an application was filed on November 1, 2005.
2. Under the procedure laid down in section 170, the Commissioner shall within 45 days (ie by December 15, 2005) of receipt of application pass an order in writing after satisfying himself that the claim is correct, that no adjustments need to be made against any previous demand and of course after giving an opportunity of being heard.
3. Now there are three resulting possibilities; (a) a refund voucher will be issued; (b) there will be an order for either reduced refund or rejection of refund; or (c) there may be total inaction on the part of the Commissioner.
4. In case of (b), the taxpayer may file an appeal before the Commissioner (Appeals) within three months of the receipt of such order but what in the case of inaction? Section 127 is absolutely silent about the due date of filing an appeal in the event of total inaction by the Commissioner.
5. Delayed payment of refund means that a taxpayer's money will remain stuck up unproductively for a long time. Besides, there is no way he can halt further deduction of tax in order to absorb his genuine refund against further payment of tax. The procedure for obtaining tax exemption certificates is again very cumbersome and totally dependent on the Commissioner's whims.
This implies that following the procedure strictly will not prove beneficial to the taxpayer and after a lapse of almost 90 days under ideal conditions and may be many months in the event of the case being taken up at the level of Commissioner (Appeals), he will remain deprived of his right to receive what is rightfully his own. Moreover, additional payment on delayed refund under section 171 is not due before three months of passing a refund order rendering his Rs 100,000 totally unyielding.
THIS IMPLIES THAT:
(i) the department will enjoy the benefit of the taxpayer's money as long as the taxpayer does not apply for refund and where he does, no order is passed; and
(ii) where such an order is passed, say on 15 December 2005, the additional amount payable will be calculated from 15 March 2006 @ of 6% of amount due till the date of payment.
What an abominable notion of justice and fair play on the part of the tax collectors! Where a taxpayer delays payment of tax even for a day, he is penalised under section 205 by an additional tax @ 12% on the unpaid amount with immediate effect but where the department sleeps over genuine claims of taxpayers for many years perhaps, the penalty is a meager 6% and that too which accrues after a lapse of three months of the date on which such refund is determined by an order passed by the Commissioner.
Justice demands that there should be automatic generation of refund vouchers so that the true spirit of USAS is evident. Precious time of the taxpayers should not be wasted in pursuit of their claims. If that is not possible then the number of withholding provisions should be substantially reduced to consequently cut down the quantum of refunds. Where the department has wilfully defaulted in delaying or ignoring a refund claim, exemplary penalty should be imposed on the responsible officials.
THE FOLLOWING SUGGESTIONS MAY BE CONSIDERED:
(a) Advance tax payable under section 147 must be taken as deposit with the Department as was the case up to 1997 and compensation on the same at the market rate should be given on the same parity that when any person withholds tax due, he has to pay additional tax on it;
(b) With great furor over computerisation of data, the existence of Data Processing Centres and what not about automation etc there is no reason why it should be difficult to establish the authenticity of a taxpayer's refund claim once he has filed his return.
It should be obvious to any intelligent analyst whether his claim is based on acceptable evidence or not. The claim of excess payment of tax can easily be verified; even otherwise it is the responsibility of the Department. The taxpayer should not be penalised for lack of any facility on the part of refund issuing authority.
(c) If at all there is an intention of forcing taxpayers to comply with irritating procedures to obtain refunds, suitable amendment should be made in section 129 to cater for an eventuality where the department pays no heed to a refund application as required under section 170.
The officials should be made to account for both their negligence and inordinate delay in processing applications and must be personally held liable for accrued compensations. However, there is also a dire need to amend section 170(4) as suggested below:
The time limit for passing of refund order within 45 days of receipt of application is at present merely declaratory as no consequence is provided for inaction on the part of Commissioner. The right to appeal only arises where the Commissioner rejects or reduces the claim of refund. This provision should be made mandatory by providing that where no order is made with 45 days, the order for refund shall be deemed to have been made and compensation u/s 171 will start from the date of filing of refund application or assessment order giving rise to refund, whichever is earlier. In the absence of such a command of law, the right of the taxpayer will remain impaired.
In the end, one wonders what has happened to all those CBR's instructions under the repealed Income Tax Ordinance, 1979 wherein the tax authorities were directed to send refund voucher along with the assessment order.
Besides, while processing refund applications the department is never satisfied with figures available in their Daily Collection Registers or tax deduction certificates (which can easily be verified) produced by the taxpayers and insist on the production of challans evidencing payment made by or on behalf of the claimant. It then all boils down to the inefficacy of the so-called Universal Self-Assessment System that has given the nation nothing but mental torture and frustration instead of reducing the malaise of cruel bureaucratic practices.
(The writer, a tax consultant and author of many books on tax laws, is a member of the visiting faculty of Lahore University of Management Sciences.)
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