Attachment of bank accounts of taxpayers: FTO for restricting powers of tax officials

ISLAMABAD: The Federal Tax Ombudsman (FTO) has strongly recommended the Federal Board of Revenue (FBR) to restrict the powers of the tax officials for attachment of bank accounts of taxpayers and pay Rs 1,000 as an incentive for filing of income tax return through cash payback in the bank account of the return filer.

The FTO’s annual report (2020) issued here on Tuesday, revealed that the FTO has submitted comprehensive budget proposals for 2021-22 to the FBR for Broadening of Tax Base (BTB). There was a dire need to broaden the tax base.

It was proposed to do legislation to bring those in the tax net who pay more than certain amount of WHT, for BTB and there should be an incentive of Rs 1,000 for filing a return, to be paid as cash payback in the bank account of the filer.

This will start the process of documentation of households and their earning levels at national level.

The FTO strongly recommended that the coercive recoveries through attachment of bank accounts without notice and subsequent delay in restoring the account, hits the taxpayers very hard.

It was recommended that notices should be issued with bar code and time limit may be prescribed for ensuring the de-sealing of bank accounts of taxpayers/assesses after resolution of issue.

Following measures were also suggested as budget proposals: (i) Restrict the use of power to attach bank accounts unless the case under litigation has been established at least in the first appellate stage; (ii) Adherence to service of Bar-Coded notices to eliminate possibility of abrupt attachment of bank accounts for recoveries and hasty ex-parte decisions and (iii) shortest time limit may be prescribed in the statute to ensure de-sealing of bank accounts of taxpayers/assesses.

The FTO observed that only a few designated branches of National Bank of Pakistan (NBP) were allowed to receive payment of duties/taxes.

It was proposed that the FBR may allow deposit of duties/taxes in all those branches of NBP and commercial banks, which have connectivity for transmission of data to main or designated branches for onwards transmission to the FBR system.

According to the FBR, it had provided a mechanism of E-payments through accounts of Alternate Delivery Channels (ADC).

All corporate entities had been required to use the ADC channel w.e.f. August 1, 2020.

In order to stop misuse of registration for issuing fake invoices, immediate disabling of the registration was proposed in electronic system as soon as the application for de-registration was received.

Sales Tax Registration of commercial importers was proposed to be allowed only to Income Tax filers along with other necessary cautions (i.e. declaration of Pakistan Customs Tariff (PCT) headings of the products they trade in) to check bogus registration.

Following budget proposals were also sent to FBR to provide for immediate disabling of the registration in electronic system, pending final de-registration, as soon as the application for de-registration was received; prescribe a list of documents/records to accompany the de-registration applications for the purpose of sub-rule (2) of rule 11; and suitable amendment to be made in rule 12(a)(vii) so that the Commissioner shall issue the orders of revocation of suspension within two weeks from the last date prescribed for issuance of show cause notice.

Regarding audit, it was proposed to rationalise its parameters, so that more focus should be laid on large entities rather than small taxpayers.

Moreover, audits should also include investigative work to detect the evasion through a study of input/output standards of utility bills and production capacity of machinery etc.

Several cases for audit should in line with capacity of the FBR to complete the audit in a year.

The FTO stated that the FBR was collecting advance/adjustable Withholding Tax on the sale and purchase of immovable property u/s 236C and 236K of Income Tax Ordinance, 2001 and Capital Value Tax (CVT) to the extent of Islamabad Capital Territory (ICT).

All the three above referred sections of law were, however, followed by an “Explanation” which did not adequately cover the definition of “persons” responsible to collect Advance/Adjustable Tax and CVT to the extent of ICT, for all internal transfers of property, which was either not placed before the Registrar of properties or not reported to the concerned tax offices, and/or transfer fee charged by the management was not declared to tax authorities. Recommendation along with amendment duly drafted by the FTO office to cover missing links was sent to the FBR for rectification in law.

The FTO office recommended that there was no penalty regarding non-compliance to the orders of appellate authorities.

It was proposed that penal provisions may be added, so that action could be taken against the officers who did not give appeal effect in such cases.

It was recommended that the FBR should devise some system so that sunset date of filing return is not extended but late filing may be allowed with certain incremental penalty for delay in filing per month or any part of it.

It was proposed that FBR may approach the concerned Authorities/Establishment Division, to issue instructions to bind the heads of government departments, autonomous bodies and large scale public sector organisations to get the certificate of filing of returns by their employees falling in the tax net at the end of the last date and to link their promotion/annual increments with mandatory return filing.

Regarding audit, it was proposed to rationalise its parameters, so that more focus should be laid on large entities rather than small taxpayers.

Moreover, audits should also include investigative work to detect the evasion through a study of input/output standards of utility bills and production capacity of machinery etc. Several cases for audit should in line with capacity of FBR to complete the audit in a year.

The FTO office stated that unnecessary filing of representations on the settled points of law and procedure, particularly when action against Tax Officials was recommended on account of neglect, inattention, delay, incompetence, inefficiency, ineptitude and corrupt motives, was another issue of concern. This not only went counter to principal of accountability, but it delayed the redressal of grievances of complaints with haemorrhage to revenue and continuation of maladministration. This issue was repeatedly taken up with the FBR.

The FTO has recommended the FBR that on the Income Tax side, delays in refunds, coercive recoveries through attachment of bank accounts, completed returns, static tax base, and irritating audit activities were still found to be major areas of concern for the taxpayers/ complainants. Following recommendations were made/reiterated to FBR: Delays in Refunds: Inattention and delays in disposal of refund claims was the main problem of taxpayers. It harboured corruption and created a liquidity crunch for entrepreneurs along with raising the cost of doing business.

Therefore, it was recommended to FBR that any shortcoming in the documents should be intimated within a specified period to the applicant of refund and facility of tracking status of refund be also considered.

Following budget proposals were also sent: The amount of disputed refunds should be paid after it is allowed at the stage of second appeal.

The refund payment ought to be dovetailed with magnitude of amount as most claims fall in the category of less than Rs0.100 million, delay in grant of which caused a trust deficit in the fairness of FBR.

The section 170(5)(b) of the Income Tax Ordinance, 2001, was a hurdle to create a streamlined refund procedure and was proposed to be deleted from the Income Tax Ordinance 2001.

The FBR has informed that they have started work on a module of automated refunds of Income Tax to resolve important issues including delay in the pattern of FASTER module of Sales Tax. Moreover, performance of the enforcement/refund processing officers has already been linked with the accomplishment of assigned tasks.

Copyright Business Recorder, 2021