Amending and re-amending self-assessments

Tax reforms were introduced as part of World Bank project in 2003. The main purpose of these reforms was to make the tax collection system transparent and taxpayers friendly so that it should result in additional tax collection through developing mutual trust and confidence between the taxpayers and tax collection agencies. Therefore, a Self-Assessment Scheme was introduced as one of the measures to achieve this objective.
The main features of the Self-Assessment Scheme were that there should be minimum personal contact between the two stakeholders. Thus there will be fewer possibilities to raise unnecessary questions by the tax collecting agencies that may result in scaring away the taxpayers.
In addition to these, the most important element of this scheme of 2003 was that after filing tax return, the tax return was deemed to be an "assessment order" if not challenged by the tax authorities within a reasonable period of time unless some credible evidence of tax evasion appears before the tax collecting agencies against the taxpayer.
This scheme was a step forward to restore confidence among the tax payers. As a result, tax collection showed consistent rise, but failed to encourage tax return filing by new would be taxpayers. It seems that because of these shortcomings of this Self-Assessment Scheme that the FBR realised that it was time to review the Self Assessment Scheme in order to incorporate certain stringent measure to collect more taxes by introducing various amendments to bestow vide discretionary powers to commissioners. Let us examine how these amendments are viewed by an ordinary taxpayer.
The Finance Act 2010 amended Section 122 by inserting sub-sections (5A) and (5AA) that states that commissioners have been empowered to amend and re-amend any assessment order retrospectively from July 1, 2003. If this clause is strictly interpreted, it means that assesses cases could be reopened from July 1, 2003 as per the commissioner's discretion till indefinitely. According to Sub-Sections 5 (A) and 5(AA) apparently there seems to be no requirement that has been incorporated that should be complied with before invoking these two sub-sections.
This means that there is no need to seek any prior permission from the senior staff of the FBR to invoke these sub-sections. There seems to be no requirement incorporated in this amendment that desires that some credible evidence has to be placed before the concerned commissioner before he can amend or re-amend the assessment.
The amending or re-amending of assessments is seen as wide discretionary powers that have been given to the Commissioners in this respect. These powers should have been exercised by the permission of some senior authority of the FBR to meet the requirement of justice and make the system transparent.
Moreover, the recent amendment is retrospective in its nature. This is due the insertion of the words "from July 01, 2003" in the sub-section 5(A) of Section 122. It remains open ended because it has not fixed a time limit beyond which no assessments will be amended or re-amended. Thus, the amendment is being viewed as an open license to the tax collecting agencies to use discretion and arbitrary power to amend or re-amend the assessments any time since July 1, 2003 without assigning any reasons to the taxpayer.
It is being feared that the amending and re-amending of assessments may be a never ending process as this process may go on indefinitely. Therefore, the recent amendment is likely to erode the confidence of the taxpayers and is being deemed as harsh and unfriendly to the taxpayers.
The changing mindset of the FBR is likely to widen the trust gap between the taxpayers and the tax collectors and takes us back to pre-2003 stage, thus shaking taxpayer's confidence in tax collection system. Needless to say that the perception of the general public that has existed throughout the past may become true that the tax system cannot be trusted as transparent, uniform and based upon fairness.
The FBR should have discouraged discretionary powers and certain prerequisites and conditions should have been imposed in order to amend or re-amend the cases to protect the taxpayers interests while keeping options available to review cases of those who have wrongly declared their income. It is also being argued that these new amendments would not be helpful in encouraging new tax return filers instead it would scare away new would be taxpayers.
The impact of this amendment would further hurt the existing tax payers as they feel that the return filing process would never be finalised due to these amendments. If the system has to work efficiently, there is a need to restore public confidence, by implementing tax reforms in their true spirit and by discouraging arbitaray use of discretionary powers.
Section 174 of the Income Tax Act has also been amended. This provides that the periodic limitation to retain accounting records have been increased from five years to six years with certain exceptions where proceedings of any case are pending before the authorities. Under these circumstances, would it not be unfair for the tax payer, if the commissioner amends and re-amends assessment for periods for which record is not available with assesses due to the expiry of the limitation period for retaining accounting record.
Amending laws that take away rights from the affected with retrospectively effect has always been regarded as a law that is disliked by the international community, especially, where the said piece of legislation takes away benefits from those upon whom it is applicable. It may be argued that when the Self-Assessment Scheme was introduced in 2003, there were certain rules and regulations framed for filing Self-Assessment Tax returns. These rules became a mutual understanding between the taxpayers and tax collecting agencies. It is general principles of law (Estoppels) that if one party acts upon the understanding provided by the other party, the party providing the assurance or understanding would not be allowed to go back from its promise as the condition of consideration has been met that is an important element of a contract between the two parties. It is arguable if the retrospective element in these amendments should invoke this principle in these cases as mutual understandings in respect of Self-Assessment Scheme may be in violation.