Risky tax profiling

This is with reference to our previous correspondence on the subject and your e-mail received by us on 7th of November regarding parameters for profiling the taxpayers as risky. Subsequently a meeting was held on the same day with Ramzan Bhatti, Members Operations South, FBR at KCCI, in which we were given a detailed presentation regarding the current and future parameters.
During that meeting, the respected member suspended the said profiling till 31st December for consultation with the stakeholders on the parameters for such profiling. Pakistan Chemicals and Dyes Merchant's Associations is one of the largest trade bodies in Pakistan with more than 1000 members, all of whom are registered tax payers. Our association has examined current and future parameters on profiling the taxpayers. Our detailed comments as follows:-
COMMERCIAL IMPORTERS: The case of taxpayers registered only as commercial importers should be treated separately as their input mainly comprises of the sales tax paid at the custom's stage. Thus the input is completely verifiable. Also they pay the notified tax @2% on value addition in advance at custom stage. Also many of our importers are dealing in zero rated products in which there is no tax involvement. We, therefore, strongly urge FBR to exclude commercial importers from this profiling.
COMMENTS ON PARAMETERS:
1. Active taxpayer: we have no objection to this parameter.
2. Filled all ST&FE returns during past 6 periods: This conditions should be retained as 4 out of 6 returns as sometimes there may be an error or delay due to reasons beyond control.
3. Shown sales/purchase ratio GT 1: This condition is illogical and impossible to comply at all times, as business environment and sales are beyond one's control. Also its highly illogical to assume that businesses can be carried out by carrying zero stocks and that all times goods can be sold immediately upon receipt. Thus this parameter should be withdrawn.
4. IT & ST Returns not filled in time or incomplete: This parameter is contrary to the spirit of existing Income Tax & Sales Tax Laws as in those laws late returns are accepted and does not form basis for stopping tax payer from doing business. Also for any bona fide mistakes or incomplete returns taxpayer is given opportunity to furnish the required information. Thus this parameter should be withdrawn.
5. Short Payment is mode: Currently due to e-filing, payment challan is generated by the FBR system and thus it is impossible to tile returns without making the required payment. Hence, this parameter should also be withdrawn.
6. Purchases/Sales have been made from / to any other RISKY person including blacklisted, non-filer, nil/null filer or showing NO purchases from sales to you: This parameter has 2 parts. The first pertaining to Sales made should he withdrawn completely as there is no tax risk involved as the seller is discharging complete tax liability and in fact the government may be getting additional revenue through that sale. Secondly, it is impossible to cheek the status of each and every person to whom sales are made. The taxpayer's job should be to generate maximum business activity which would lead to growth of economy, increased revenue, job generation and increased prosperity of nation. This FBR proposal shall stop the business activity causing irreparable loss to economy, hence should he withdrawn.
The second part pertaining to such purchases should also be withdrawn as it's practically impossible to check the status of each and every supplier prior to every purchase. Thus it should not form the basis for declaring a person as risky; Rather, the input claimed from such purchases, made after the seller being declared risky, may not be allowed until the discrepancy is removed.
7. The output-input ratio is higher by 10% from average of the industry/category of persons/sector: This condition is absurd as it penalizes a person showing higher value addition and for paying more in taxes. Thus it should be withdrawn.
8. The Input is consecutively higher than output without any export: This factor is already controlled by the condition in ST returns allowing adjustment of inputs only upto the extent of 90% of output tax. Thus, even if a person is consecutively declaring the input higher than the output he has to pay tax on value addition with the returns and the unadjusted amount carried forward is refunded after year end, only utter their audit is conducted.
9. Commercial importers have not paid 2% on value addition at the import stage or have made sales of items not imported or value of imports and exports and tax paid thereon has not been claimed in return: We have no objection to the first and second point in this parameter, however, regarding the condition value of imports and exports and tax paid thereon has not been claimed in return, in our opinion this condition should not be included in this parameter as due to some bona fide errors such figures may sometimes he missed. Thus a proper way shall be to issue notice for such error rather than declining them as risky.
10. The tax profile is not satisfactory, ie voluminous sales/purchases/exports soon after registration without corresponding amount of Sales Tax as per required value addition: We have no object ion to this condition.
11. Cases of fraud are pending or detected: No Objection to this condition.
12. Arrears are outstanding: Basically we have no objection. However, no action should be taken in eases in which the affected person have tiled appeal against the said arrears.
13. Premises have been changed without amendment in registration, notices returned by courier/postal authorities, telephones/fax/address is wrong: Prior in including this parameter, Sales Tax and income tax records should be updated. It has been noticed in numerous cases that despite address and other particulars being changed by the Central Registration Office, many sales tax departments are still using the old address.
Also the procedure for change of particulars is difficult and lengthy. Thus until the FBR database is 100% correct at all stations, this parameter should not be used. In view of above, we strongly demand that commercial importers should be removed from any such profiling. Besides, we would further like to add prior to declaring a person risky, FBR should ensure that:
1. A 21-day notice is sent to the taxpayer by courier/postal authorities and e-mail, giving them opportunity to give reply to the objections and update their record.
2. Trade bodies, including our association are sent names, contact details and STRN numbers of such person enabling the trade bodies to take up the issue with their members in such list to remove those objections.
3. The case should be beard by the officer not below the rank of Additional Collector to remove chances of harassment in such cases.
(Chairman Pakistan Chemicals & Dyes Merchants Association