The World Bank (WB) review mission has expressed concern over non-issuance of huge amount of sales tax refund, and directed the Federal Board of Revenue (FBR) to pay immediate attention to higher number (40 percent) of non-filers of income tax returns for the tax year 2009.
Official sources told Business Recorder here on Wednesday that Carlos Silvani, head of WB mission on Tax Administration Reform Project (TARP), gave a detailed presentation to the FBR during fourth chief commissioners' conference, recently convened by the Federal Board of Revenue (FBR).
Sources said that Silvani termed non-filers in income tax (40 percent) a crucial issue which calls for urgent attention. He said that the number of active non-filers in Large Taxpayer Units (LTUs), although small, should be brought to zero. There should be no non-filers in LTUs within the documented sectors under the enforcement strategy of the FBR.
The head of WB mission on TARP also expressed concern over the non-issuance of a substantial number of sales tax refunds despite approval by the concerned tax authorities.
In his address to the chief commissioners of LTUs and Regional Tax Offices (RTOs) at the conference, Silvani expressed satisfaction over the progress of the FBR on implementation of reforms. He said that new centralised IT systems are being rolled out to RTOs and LTUs. A national audit plan is being put in place along with new audit procedures; a new enforcement plan is also in place, 'Expedited Refund System' is progressing well and new functionally integrated organisation is in place.
Resultantly, the registered taxpayers have increased by 17 percent from July, 2008 to December, 2009. The number of sales tax returns grew by 10 percent during July, 2009 to July, 2010 as compared to corresponding period of previous year. On the sales tax side, the overall number of non-filers has decreased, which is reflected in the relevant data. The amount of arrears has decreased by 14 percent while the number of cases pertaining to arrears fell by 13 percent. He further recommended that performance indicators need to be refined and taxpayers categorised to set priorities. Targets should be set for gross and net revenue. The time of processing sales tax refunds should be used as a yardstick to judge performance of tax officials. He advised that FBR action plan should be used as a comprehensive management tool.
He termed non-filers in income tax (40 percent) a crucial issue which calls for urgent attention. He was of the view that number of active non-filers in LTUs, although small, should be brought to zero and expressed concern over the non-issuance of a substantial number of sales tax refunds despite having been approved. Interestingly, Rehmatullah Wazir, Commissioner Audit, LTU, Karachi challenged the veracity of information pertaining to sales tax refunds of LTU, Karachi. He clarified that the refunds in all these cases have been issued to the registered companies and multinational entities.
Regarding status of execution of audit plan, Silvani strongly recommended to move from 'Random Selection' mechanism to 'Risk Assessment Selection' to pick cases for audit. He pointed out that business processes review has not progressed enough in this regard. Although, new income tax systems are available, but field formations have not fully utilised these systems.
He said that additional tax has not been collected from defaulters through electronic system automatically. He urged the department to keep expanding the "Active Taxpayers List" to bring the maximum number within the category of compliant taxpayers.
He stated that desk audit should be based on the Exception Management System (XMS) with special emphasis on Risk Based Audit. Regarding Human Resource (HR) policies, he laid emphasis on evaluation of staff based on performance followed by merit based compensation. He stressed the need to enhance technical capacity of mid-level staff.
According to him, the challenges faced in 2010 include increase in revenue, full implementation of the expeditious refund system, VAT implementation, design and implementation of new HR policy and effective monitoring of withholding taxes.
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