Tax officers accused of violating law by determining profit margins arbitrarily

LAHORE: Tax authorities are involved in violating law by determining arbitrary profit margins in relation to a certain income stream, said sources.

They said the taxation officers do not provide any reasoning as to why they determine a certain rate of profit to assess the income of a taxpayer for taxing purposes. The sources have pointed out that application of such a discretionary power by the taxation officers is causing harassment among taxpayers, leading to legal battles between them and the department.

According to the sources, the sad part of the whole exercise is that the taxation officers do not furnish reasons for applying a certain profit margin to the revenues generated by a taxpayer. They are least bothered about rendering any explanation as to why a discretionary profit margin is being applied, the sources added.

It may be noted that what is vested on the taxation officer under the Income Tax Ordinance 2001 is not discretion but a right to exercise judgment while reassessing income pursuant to provisions of the Ordinance. It is also worth noting that where such judgment is exercised in a manner that rejects the treatment afforded to income by the taxpayer, the taxation officer is under an obligation to provide reasons for the manner in which he has chosen to exercise judgment. Without such reasons, said sources, rejection of tax treatment afforded by the taxpayer in the profit margin applied by the tax department cannot be countenanced.

The sources further lamented that the department as a whole and the appellate tribunals in general uphold the discriminatory treatment of tax officers while determining a notional profit margin out of the incomes of taxpayers.

Instead, they added, the department encourages the tax officers to carry out such an unlawful exercise in order to squeeze maximum tax out of the taxpayer. This approach on the part of tax department disappoints the taxpayers at large and they prefer to avoid tax under one or the other pretext.

Also, said the sources, most of the taxation officers’ use their discretionary powers in determining profit margin of their own choice to force the taxpayers for an underhand deal, which again earns bad name for the department at the end of the day.

It may be noted that the taxpayers have been facing an abnormal situation in the recent past when the tax department was involved in creating fake tax demands at the sectoral basis to propagate a negative impression that a certain sector was avoiding tax liability with billions of rupees. The case of sugar land industry is one such glaring example in the recent past, which had approached the court of law to get declare any such demand as fake tantamount to harassment at large.

Similarly, a good number of businessmen had also approached the Federal Tax Ombudsman agitating a similar protest against the tax department for harassing them by creating fake tax demands.

However, there is a break to this tendency since the government of former Prime Minister has been overturned through a vote of no-confidence.

Copyright Business Recorder, 2023