An SOS has been sent to the Federal Board of Revenue (FBR) to immediately suspend its circular of April 2, withdrawing policy concession for exports given through its circular of October 5, 2009 in the selection of Final Tax Regime (FTR) cases for audit for current year as well as for previous years, ie multiple audit.
Taxation Committee of Towel Manufacturers' Association of Pakistan (TMA) Chairman M Muzzammil Hussain, in a letter sent to the FBR Chairman on June 1, has requested his urgent intervention as the concession has been withdrawn without consultation with TMA.
As per Income Tax Ordinance 2001, exporters are covered under Presumptive Tax Regime (PTR) and tax is deducted at source by the bank on realisation of export proceeds and the same is final discharge of tax liability irrespective of the fact whether a taxpayer has earned profit or suffered loss. These cases were never selected for audit in the past due to the simple fact that the tax deducted at source is final discharge of tax liability as per law.
It has further been pointed out in the letter that in 2009 the field officers attempted to select cases of exporter tax payers etc covered under PTR for audit. In the meetings with FBR, TMA had made representations not to select cases of exporters etc who were covered by PTR for audit as this will only cause harassment and will widen the trust between taxpayers and FBR.
Member Direct Tax (Policy) after discussions had issued policy directives to the field officers that if the cases of exporters etc are covered under PTR, they should not be selected for audit. But in case any discrepancy or concealment is found, the same should be addressed through amendment of assessment as provided in law.
Muzzammil Hussain said that exports of the country are under serious difficulty and declining and this withdrawal of FBR policy of October 5, 2009 without consultation, will seriously impact exports and exporters. Field officers will harass taxpayers and there will be absolutely no revenue gain. This withdrawal is counter-productive and will lead to significant reaction from all trade bodies whose members fall under PTR exporters.
In its circular of October 5, 2009, FBR had said that it had been receiving representations from the taxpayers and various trade bodies against the selection of FTR cases for audit and against the selection of a case for audit for the current year as well as for the previous years, contending that such practices put them under undue pressure/harassment which are against the spirit of taxpayer's facilitation. It further said that the matter had been examined in the Board and it is evident that:
---- In cases of individuals falling under FTR, where the individual's wealth statement and the wealth is properly reconciled through wealth reconciliation statement satisfactorily, there appears no ground for selection of a case for audit.
---- Also, in FTR cases of AOPs and companies, there is no justification for selection of a case for audit, if no discrepancy is discernable in the particulars of declared income and tax.
---- Cases for audit are required to be selected under section 177, on the basis of given parameters. Income Tax law also provides for amendment of an assessment, if warranted by the facts of the case. Therefore, there is no justification to select a case for audit for multiple tax years (current year as well as the previous years), as this practice causes harassment to the taxpayers.
It was, therefore, decided that:
---- The cases of individuals falling under FTR shall not be selected for audit if wealth is accurately and properly reconciled by the tax payers through wealth statement and wealth reconciliation statement.
---- FTR cases other than individuals shall not be selected for audit and discrepancy, if any, found in such cases shall be addressed through amendment of assessment as provided under the Income Tax law.
---- A case shall be selected for audit for the current year only and discrepancy, if any, noticed in the previous year's declarations the same shall be addressed by amendment of the relevant assessment.
All the Directors General, LTUs and Directors General, RTOs were reminded that the taxpayers facilitation being the focal aim of the ongoing reform process, any practice denting the taxpayers' confidence must be avoided through prudent application of the provisions of income tax law. It was further desired that the instructions contained in paragraph 2 above may be brought to the knowledge of all concerned for compliance.
On April 2, however, Secretary (ITP), Revenue Division, FBR informed Chief (Taxpayers Audit-ll) that instructions on the issue of selection of cases for audit contained in the letter of October 5, 2009 "are withdrawn with immediate effect." Copies of the letter were also forwarded to all chief commissioners, regional tax offices/large taxpayer units.
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