Action against defaulters: World Bank suggests automatic imposition of penalty electronically

World Bank (WB) review mission has recommended to the Federal Board of Revenue (FBR) to introduce a provision in the Income Tax Ordinance 2001 in the coming budget for 2010-11 to impose fines/penalties and default surcharge on taxpayers automatically through electronic system, and minimising discretionary powers of the tax officials.
Sources told Business Recorder here on Saturday that the WB review mission had made this recommendation in a recent report on Tax Administration Reform Project (TARP) submitted to the Federal Board of Revenue. According to the WB report, the overall collection of income tax arrears had improved during current fiscal year through enforcement of the Arrears Recovery Plan in the field formations.
For example, total arrears declined by 14 percent and the number of taxpayers in arrears also declined by 13 percent during July-February 2009-10. This is an important achievement, although it is expected that with the reactivation of the audits, the amount of arrears will increase considerably.
The WB recommended to FBR to analyse reasons for high ratio of non-filers in Regional Tax Offices (RTOs) and Large Taxpayer Units (LTUs) and directed the field formations for strict action against the non-filers. Secondly, the FBR should take away discretion of the tax officials in the application of fines, penalties and default surcharge on the registered taxpayers. The FBR should introduce relevant legislation in the tax laws to allow application of fines and default tax automatically by the information technology (IT) system without human intervention.
"In addition to prioritising enforcement effects on non-filers, amending legislation to allow automatic application of fines (penalties) and default surcharge (additional tax) on non-filers would be recommended. It is further recommended that the FBR propose in the budget 2010-11 that default surcharge and fines be applied automatically by the computer system". WB review mission observed.
In order to facilitate tax compliance, the FBR should allow computer systems to issue intimations to have the same legal effect as those notices which are duly signed by the tax officials. Under this amendment in the tax law, the notices served electronically would have same legal backing as available to the notices manually signed by the tax officials.
In the presence of the electronic system issuing intimations to the taxpayers, the staff would be free to focus on high priority areas ie to pursue non-filers for recovery of the defaulted amount. Thirdly, the FBR should place a system to categorise taxpayers to take action against major non-filers involving huge defaulted amount.
The WB said that the FBR has rich store of data about its taxpayers, which could be used to produce management information to support enforcement decisions. In this regard, the report on the categorisation of non-filers is an example to be followed. Similar reports could be issued monthly by Pakistan Revenue Automation Limited (PRAL), and IT arm of the FBR, to help LTUs and RTOs to focus on most important cases having huge potential.
The management reports on the time to issue refund cheques as well as the balance of unpaid refunds by LTUs/RTOs should be monthly to help improve refund processing. The WB has recommended to the FBR to provide management with a monthly report on non-filing based on categorisation of taxpayers. LTUs/RTOs should provide a monthly report on the balance of unpaid sales tax refunds by the LTUs/RTOs. Moreover, LTUs/RTOs should also separately submit monthly report to issue refund cheques to the registered units.