SUNDAY OCTOBER 30: Declaration of expenditures: traders' resistance reflects massive tax evasion: FBR

ISLAMABAD: The resistance from some chambers and trade organisations to the declaration of expenditures in income tax returns shows their expenditures do not match with the declared income, reflecting high incidence of tax evasion and concealment of income in Pakistan.
Sources told Business Recorder here on Saturday that section 111 of Income Tax Ordinance, 2001 empowers tax authorities to add un-explained or un-disclosed expenditures in the income where the person has no explanation of source of investment. The representatives of trade bodies and chambers are opposing the Annex-D (Details of Personal Expenses for Individual) of the income tax return despite the fact that details of personal and household expenditures have already been reduced in the return by the tax department.
Through SRO 978(I)/2011, the Board would not ask for break-up of other personal and household expenses in the form of repair/maintenance of residence, driver/servants, food, clothing, medical, marriages and functions. The hesitation of business and trade reflects that expenditures of business units and traders etc do not match with the declared income. If the expenditure of any individual is in line with the declared income, there is no need to threaten the tax officials by giving strike calls and agitation against the Annex-D of the income tax returns. There is no justification to oppose Annex-D of the return form in case the expenditure of anyone matches with the declared income.
In the current circumstances, it is absolutely clear that there is a huge difference between actual expenditures and the declared income of the persons who are opposing the Annex-D. There are apprehensions that Annex-D would be instrumental in determining actual expenditures. This would ultimately give data to the tax department to work out on actual income of any person, officials maintained.
It is surprising to note that even big business units and entities are also strongly opposing declaration of expenditures in their income tax returns. In other cases, some owners of big business establishments refer to small and medium traders who have threatened to go on strike. If a person has expenditure as per his declared income, there is no need to hesitate in filing of income tax return.
However, strong opposition creates doubts in minds of tax authorities that people are grossly misdeclaring their income in the returns which would be exposed in the Annex-D. Legally, section 111 of the Income Tax Ordinance, 2001 has given the authority to the income tax department to add the unexplained expenditure in the income for determining the income tax liability of a person who fails to disclose the source of investment.
Under section 111 of the Ordinance 2001, "where a person has incurred any expenditure and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made or the explanation offered by the person is not, in Commissioner's opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person's income chargeable to tax under head - Income from 'other sources' to the extent it is not adequately explained. The amount shall be included in the person's income chargeable to tax in the tax year to which such amount relates", it added.