The Federal Board of Revenue (FBR) may make it mandatory for business class taxpayers to file balance sheets or statement of affairs along with income tax returns forms for the Tax Year 2013 onward. Sources told Business Recorder here on Tuesday that necessary changes in the income tax return form would require amendments to Income Tax Rules, 2002, through issuance of the statutory regulatory order (SRO).
"The FBR is in the process of drafting a new income tax return form and different viable suggestions are being considered to make it more comprehensive. The Board is legally empowered to make it mandatory for different categories of business class taxpayers to file balance sheet with income tax returns and statements electronically. In case of small business entities, account statements (statement of affairs) would be enough to file along with income tax returns. The category of non-corporate sector which could be required to submit statement of affairs included manufacturers, wholesalers, distributions, retailers and professionals etc," they added.
The sources further said that budget 2013 lacks a major policy initiative of mandatory submission of balance sheets with every business return of income. The income tax return with balance sheet for business class taxpayers should be mandatory under the Income Tax Ordinance 2001 to ascertain actual income and expenditure of all businesses. In case of finalisation of the proposal, the same would be made mandatory for all categories of taxpayers filing business return of income through amendment to the income tax return form.
When contacted a tax expert informed that filing of audited accounts and balance sheet is already a mandatory condition for corporate sector taxpayer, while besides filing of accounts and balance sheet there is inbuilt segment in the income tax return form, devised for corporate sector taxpayers, where complete detail of assets and liabilities have been filed. These includes details pertaining to capital employed in the business, bank loans, creditors, cash in hand, accounts payables, accounts receivables, plant machinery equipment, building, land, vehicles, computers, furniture fixtures etc.
The new income tax return forms can require business class taxpayers to provide their balance sheets covering each and every detail pertaining to assets and liabilities. The change may also be called as introduction of documentation of the economy. This pivotal information summed up in balance sheet if submitted with income tax return will ultimately keep a check on the business class taxpayers with huge assets. It will also keep a check on income earned and assets acquired by a taxpayer which was previously not justified due to lack of information.
At present provisions of section 114 of the Income Tax Ordinance, 2001 are quite clear to enforce annual income tax return along with certain annexures including balance sheet, audited accounts, personal expenditures, wealth statements, details of assets and liability as may be prescribed by the board.
Furthermore, the provisions of sub-section 6 of section 114 of the Income Tax Ordinance, 2001 make it mandatory for all types of taxpayers including corporate and non-corporate business class etc to file audited accounts including balance sheet, profit/loss accounts and statement of affairs wherever applicable, while submitting revised income tax return or statement. However, such mandatory filing of balance sheets is applicable in filing of revised income tax returns. This is not applicable while filing of normal income tax return forms.
As per language of the section 114(6) of the Ordinance, 2001, any person who, having furnished a return, discovers any omission or wrong statement therein, may file revised return subject to the following conditions, it is accompanied by the revised accounts or revised audited accounts, as the case may be.
In the light of provision of section 114(1) of the Ordinance following persons are required to furnish a return of income for a tax year, namely:- every company; every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year; or any non-profit organisation as defined in clause (36) of section 2; any welfare institution approved under clause (58) of Part I of the Second Schedule, National Tax Number holders and other categories of taxpayers specified in section 114 of the Income Tax Ordinance 2001.
Keeping in view provisions of section 114(2) of the Ordinance a return of income for a tax year shall be filed in the following manner:- It shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed. It shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer. The income tax return shall be signed by the person, being an individual, or the person's representative where section 172 applies. It shall be accompanied with evidence of payment of due tax as per return of income and shall be accompanied with a wealth statement as required under section 116.
The filing of balance sheets along with the income tax returns would facilitate the FBR to know exact business transactions and profits/earnings of the business units with the help of balance sheets. The analysis of returns and balance sheets would also help the tax department to check the financial statement covering assets, liabilities and ownership equity or capital. This data can easily be compared with the annual income tax returns filed by the business units, experts added.
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