The foreign consultant of the Central Board of Revenue (CBR) has recommended extensive legal changes in the Value Added Tax (VAT) regime and Income Tax law for smooth implementation of the Tax Administration Reform Project (TARP).
Sources told Business Recorder on Sunday that the World Bank (WB) funded foreign consultant/programme manager Hugo Hanisch has submitted a work plan for implementation and monitoring of the ongoing reform projects. In this regard, a legal framework has been devised for the taxation system by the consultant.
Some of the senior tax officials have said that recommendations are difficult to implement in the Pakistani business environment and tax culture, sources added.
According to sources, the consultant has asked the CBR to amend tax laws for temporarily sealing shops and business centres where sale bills are not given to the consumers.
Secondly, the board should take measures for improving taxpayers' registration mechanism. The National Tax Number (NTN) should be linked with the unique specific economic activity code to be updated annually taking into account the income sources. Tax officials should be empowered to register persons on the basis of data matching, verification, customs data and data of suppliers of the registered persons, consultant said.
The board should have legal powers to incorporate security features for printing of sales tax invoices to check tax frauds and legal authority to change from time to time features of the intermediate invoices for discarding wrongly submitted invoices.
Consultant also recommended powers for the tax officials to permit electronic invoicing system under administrative control of the tax department.
Based on the risk profiling of taxpayer, legal authority is needed to limit the number of manual invoices and restrict maximum amounts allowed to be issued on a single invoice.
Powers would be required to regulate bill issuing through technical requirements either coming form cash registration machines or manually issued, sources said.
Legal powers are needed for electronic data interchange and e-filing with the help of banks, including credit cards management companies, and the National Bank of Pakistan (NBP). Legal authority is needed to validate online tax returns filing, halting unduly crediting and warning about declaration mistakes or inconsistencies.
The board should be empowered to grant incentives to taxpayers, which would pay taxes through Internet to promote e-filing. To clearly differentiate deductibles and allowances form tax credits that should be managed by the tax administration through accessible taxpayers' accounts.
The board should have enough powers to collect third-party data from organisations like ministries, agencies, public works contractors and international data providers, stating hard penalties for defaulters. Similarly, enough powers should be given to tax officials for cross-checking of data including information available with the public works contractors, land cadastres.
Sources said that the consultant has also demanded legal changes in the VAT system to streamline sales tax refund process. According to set of recommendations, legal powers are required to define the way that taxpayers credits might be managed by tax administration's accounting, and how to differentiate them from allowances and deductibles, which should be reviewed by audit. Similarly, legal authority is needed to allow voluntary payments to specific taxpayers' accounts independently form declarations.
Sources said that the consultant has also proposed amendments in the tax laws to improve audit processes.
Powers are needed to conduct presumptive assessments based on key tax behaviour indicator deviation either in the revenue side or in the expenditure side, burdening the proof upon taxpayers officially assessed after audits.
Powers are needed to state a basic but clear accounts plan with specific bookkeeping and financial statement rules including the obligation to save invoices, keep a sales and purchases book as an auxiliary book of the diary available for tax auditors and tax returns. Usually these requirements are called the basic VAT audit trilogy.
Legal reform to establish presumptive assessments based on third party data either in the revenue side or in the expenditure side, burdening the proof upon taxpayers officially assessed after audits.
There should be reforms to force payments through nominative checks to get the right to credit VAT for invoices upon certain amount. A law should be in place for reduction of penalties if taxpayers is prone to recognise evasion after an official assessment, unless crimes or frauds are detected.
The board should also empowered the tax officials to lay down objective criteria to determine singular regimes for small taxpayers regarding cross-checking data based on third-party taxpayers rather than based in own accountancies or turnover estimates.
For recovery of arrears, powers are recommended to select main debtors according to taxpayers' accounts to prioritise and emphasise delinquent debt recovery efficiency. Legal authority to contract external outsourcing to recover delinquent debtors and arrears with special seizure authorities.
Consultant has recommended that reform should allow sale of delinquent debt portfolio in public auctions transferring usual legal executive recovery tracks that use to have tax debts but writing off arrears balances. The board should be empowered to specify restricted conditions to write off arrears debts if no interest is found because, age of debt, lack of assets or the debt amount sizes, sources added.
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