ISLAMABAD: Pakistan Polypropylene Woven Sacks Manufacturers Association has proposed to Finance Minister Muhammad Aurangzeb to alter tax laws to address the concerns of taxpayers and investors and revive their confidence and trust to increase tax collection.
The association, in its letter to Finance Minister, pointed out problems and their digital solutions which are as follows:
Automation of issuance of Withholding Income Tax Exemptions: At present, Section 159 empowers the Commissioner IR to issue withholding income tax exemptions u/s 153 and u/s 235. These unbridled discretionary powers are blatant violation of auto issuance of tax exemption in IRS, where commissioner fails to issue order within 15 days, under mandatory second proviso of Section 159.
This anomaly can be solved by allowing the IRS system to automatically calculate the eligibility of taxpayer and issuing tax exemption certificates without any involvement of the Commissioner as data pertaining to advance tax and sales is readily available in existing ITMS system employed by the FBR.
Implementation of electronic processing and auto issuance of tax refunds u/s 170A: The federal government in 2021 introduced provision u/s 170A in Income Tax ordinance 2001 for digital automation of tax refunds. The law, empowers the FBR to issue tax refunds to the taxpayers, without requiring refund application to the extent the tax credit is verifiable by the FBR computerized system. However, despite lapse of three years, no refund has been processed under section 170A. As a result, the income tax refunds are delayed by raising frivolous tax demands. While, under Section 170(4), the Commissioner is required to process the refund applications within 60 days.
It is proposed that FBR should implement the auto tax refund mechanism envisaged u/s 170A in letter and spirit and discretionary powers of the Commissioner/IRS Officers for pick and choose the tax refund cases and processing of tax refunds may be done away with. By automating the systematic issuance of refunds, the transparency in tax system could be achieved. The backlash on corruption allegations whenever a refund is allowed has discouraged the taxmen to issue Refunds.
End of misuse of assessment power under section 122(5A): It has been stated that the powers conferred by Section 122(5A) have always been misinterpreted and become a tool for harassment of taxpayers and deteriorated the concept of self-assessment envisaged in the Income Tax Ordinance. Under Section 122(5A) is Para-Materia to the Section 66A of Income Tax Ordinance 1979 envisages a revision by a superior assessing authority of an assessment already framed after audit or assessment. There is no provision of exercising revisionary powers unless primary review by way of an audit or assessment has been made. Therefore, the powers envisaged under section 122(1) & (4) and Section 177 for amendment in original/deemed assessment order, ipso facto cannot be exercised through Section 122(5) A is illegal. As per scheme of law, the amended assessment u/s 122 (of an original assessment order u/s 120) by way of an audit or definite information, can be further amended if there is an error which is prejudicial to the interest of revenue, as described u/s 122(5A) of the Ordinance.
In order to remove misinterpretation of this provision, it is recommended that either an explanation clause may be inserted after Section 122(5A), stating that the provision of Section 122(5A) is only applicable to the assessment orders already amended u/s 122(1) & (4), subject to meeting of prescribed conditions. Or, the controversial Section 122(5A) may be omitted from the Act, as it would eliminate the anomalies.
Reforms in adjudication framework: The recent amendments brought through Tax Laws Amendment Act 2024 in Income Tax Ordinance 2001 and Sales Tax Act 1990, have curtailed the adjudication hierarchy from two quasi-judicial bodies, ie, Commissioner/Collector Appeals and Appellate Tribunal, to only one. According to the new mechanism prescribed under section 126A, the taxpayer or tax officer, aggrieved by the Order of first Appellate form, ie, CIR-A or ATIR, has to file reference before the high court. The condition of heavy appeal/reference fee and payment of 30 percent of disputed demand to avail stay at High Court level amounts to curtailment of fundamental right of citizens. The pecuniary limits of hearing appeals at the levels of Commissioners of Appeals and Tax Tribunal would be extensively abused to collect tax through capricious orders creating exorbitant demands.
There are approximately 98,000 tax cases pending adjudication in various courts involving amount of Rs 3.6 trillion, 80% of which are pending at ATIR stage.
In this new appeal framework not only the burden of pending cases at high courts would be manifold but it would also affect the capacity of Appellate Tribunals, since there are only four IR Appellate Tribunals across the country.
It is therefore, proposed that first appellate forum of Commissioner appeals may be revived, allowing appointment of independent Commissioners from Professional Bodies registered in Pakistan, ie, Chartered Accountants or Cost and Management Accountants with vast experience in the taxation field or selecting Retired Commissioners IR having relevant experience by Ministry of Law with no involvement of the FBR. With shortened adjudication structure and increase in number of Tribunal panels having proposed composition will ensure speedy dispensation of justice and quality judgments. Tax payers and FBR will benefit by this. An Oversight body comprising of High Court judges will help to safeguard transparency and accountability in adjudication process. Therefore, Tribunals be placed under the respective jurisdiction of high courts instead of the Ministry of Law. The Chairman of the Tribunal be appointed by a committee comprising of Chief Justices of the High Courts.
The formation of independent Tribunals for tax adjudication and separation of executive and judiciary is the only way to provide effective and expeditious justice.
Monitoring of quality of assessment Orders: At par with international practice, there is need to devise mechanism for monitoring of the quality of Assessment Orders passed by Tax Officer. At present, due to lack of any check and balance, numerous frivolous tax litigation cases are initiated to stop tax refunds in violation of law as there is no accountability for harassment to the tax payers which has ruined the business sentiments and discourages people to come into the tax net.
It is proposed that a scheme for the quality of the assessment be devised and the assessing officer must clearly identify the issues, give sufficient opportunity to the taxpayer to give his response, and evaluate and analyze the response in detail and accordingly give his finding and conclusion in accordance with provisions of the law. The most important aspect to be considered in judging the performance of an assessing officer is the frequency of success of assessments cases in appellate forums, passed during a particular period so that it may not discourage people from coming into tax net.
Punitive action may be taken against the officials involved in framing of frivolous and substandard assessment cases.
The Tajir Dost Scheme (TDS) was launched this year to bring the traders and shopkeepers into tax net, it has so far failed because there is a common perception that once they get enrolled they may face regular harassment by tax officials.
Chairman of the association, Iskandar Khan, has stated that objectives of TDS cannot be achieved unless their reservations are addressed and a simplified self-assessment taxation scheme is introduced under Final Tax Regime with single flat rate of turnover tax (income tax and sales tax) on self-assessed turnover of traders/retailers, with consultation of trade & retail unions. Further, ten years audit exemption may also be offered for those who voluntarily register and pay tax under the scheme.
The association has requested the finance minister to implement their proposals to build an equitable tax system to gain the confidence of taxpayers.
Copyright Business Recorder, 2024
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