Pakistan Tax Bar Association has approached Finance Minister Ishaq Dar to immediately address the concerns of business community regarding Voluntary Tax Compliance Scheme (VTCS) and remove ambiguities in Income Tax (Amendment) Act, 2016, extend its scope to the sales tax, bring all businesses irrespective of their nature within the ambit of scheme and extend scope of the VTSC to banking transactions of all undeclared bank accounts of filers as well as non-filers.
In a representation to the Finance Minister and Chairman Federal Board of Revenue (FBR) here on Friday, Jamil Akhter Baig (FCA) Chairman VTCS Review Committee and Senior Vice President, Pakistan Tax Bar Association highlighted necessary amendments required in the VTCS in order to make it effective and immaculate in the light of recommendations of senior constitutional and tax lawyers and business community.
According to the association, it is apprehended with great concern by the business community that the VTCS is silent about the Sales Tax and is feared that Federal Board of Revenue (FBR) is spreading a net in order to bring the Traders in the ambit of sales tax through VTCS and afterwards they might face sales tax audit and investigations.
Therefore, it would be appropriate to bring the VTCS both for income tax and sales tax. The amount of tax leviable may be ranged from 0.1percent to 0.6 percent, as suggested, and a person whose undeclared accounts have either been detected by FBR or on voluntary declaration by any person may be exempted from investigation, adjudications and assessments of both of the taxes ie, income tax as well as sales tax on payment of 01 to 0.6 percent tax on their banking transactions with effect from July 2009.
It stated that the association has received multiple queries and concerns from the business community regarding infirmities in the Voluntary Tax Compliance Scheme (VTCS) to be introduced through an Act of Parliament on which ground work is being done by the FBR and traders' community. It appears that Institute of Chartered Accountant of Pakistan (ICAP) and various Tax Bars of the country have not been consulted in this regard. In our opinion, he said consultation process is indeed necessary for the success of the scheme. In order to make this scheme successful in the interest of broadening tax base in the country and to bring maximum number of persons/entities into tax net, we have made an effort to draw your kind attention towards the short comings in the VTCS. In this regard, recommendations have been submitted to the Finance Ministry for immediate action.
Firstly there is a need to remove discrimination from VTCS. It is a considered view of constitutional as well as tax lawyers that the VTCS is discriminatory in nature as the scheme is being launched only for traders who are either not in the tax net or have properly declared their volume of business.
Other segments of business community like manufacturers have been excluded in the scheme which may attract unnecessary litigation that may result into ultimate relief from superior courts of law in favour of the taxpayers as it is clear discrimination within the business community which is against the provisions of the Constitution.
Therefore, it is the considered view of senior lawyers that the government should include all segments of business community irrespective of the nature of business so that maximum number of businessmen may avail the VTCS. It is not fair that a trader who has been a non-filer or not fully declared his actual volume of business and avails VTCS is exempted from audit and a regular taxpayer, who has been complying all the requirements of tax laws, is subject to audit. Therefore the amnesty may be for everyone and without any discriminatory treatment.
About the banking transactions in undeclared bank accounts, it said that the federal government has itself introduced concept of filer and non-filer in the scheme of Income Tax laws and penalised Non-Filers by imposing 0.6 percent Advance Tax on the banking transactions of Non-Filers against 0.3 percent Advance Tax on the banking transactions of filers with effect from July 2015.
Apparently, a non-filer, who does not file his return and forgoes his 0.6 percent Advance Tax, is discharged from payment of any further tax and is relieved from any further tax compliance. It is felt and considered final tax liability of a Non-Filer at the rate of 0.6 percent Advance Tax is being discharged if such non-filer remains non-filer till the time he is not being caught by tax authorities. It is also discrimination among a non-filer who is traceable and a non-filer who is not traceable.
It is not an easy task for the FBR to probe into each and every bank account of non-filers and determine correct tax liability in each case due to huge number of non-filers and non-availability of information about nature of transactions. It is also a fact that every tax payer shall have recourse to Appellate as well as Superior Constitutional Forums which mean a non-ending litigation with those Non-Filers who are traceable to FBR. The Non-Filers who are not traceable shall have no tax implications against collection of 0.6 percent Advance Tax at the time of banking transactions which is again discrimination.
Now the government is going to introduce the VTCS for traders which shall mean that the traders will enjoy immunity from any probe of their banking transactions within a period of last 10 years prior to the year 2015 which is also discriminatory and shall attract litigation by other segments of business community. In order to avoid all these complications it is appropriate that the scope of the VTCS may be extended up to banking transactions of all undeclared bank accounts of the Filers as well as Non-Filers. It is more practical that FBR indiscriminately offers all account holders to declare their undeclared accounts against payment of 0.1 percent to 0.6 percent tax on the banking transactions for the last 5years ie, from July 2009 to June 2014.
It should be threatened that if any person does not declare his transactions voluntarily, the FBR shall take information from the banks and collect such tax forcefully. Through this legislation, undue litigation may be avoided and a reasonable amount of revenue may also be collected without any undue hassle. It is also proposed that protection should be granted that Section 122(5) and 122(5A) of the Income Tax Ordinance, 2001 will not be invoked against declarations under this scheme.
It is also a considered view of professionals and tax experts that there may be strict punitive measures for all taxpayers after expiry period of the VTCS and such punitive measures should clearly be included as part of the legislation of the VTCS Act otherwise people may take opportunity as non-serious as happened previously. It may be disseminated through media that "No Concession" whatsoever will be granted to anyone after this scheme.
Other Infirmities revealed that there is a condition in the VTCS that the persons declaring income up to Rs 1,000,000 shall not be required to file wealth statement. It is suggested that wealth statement should be required from every person who avails the VTCS irrespective of the amount of wealth.
Secondly, the condition of NTN may be waived off and a person holding Computerised National Identity Card (CNIC) may be allowed to avail VTCS as the procedure for obtaining NTN is very cumbersome and too lengthy which may create undue hurdles for the persons inclined to avail the VTCS.
Thirdly, the scope of the VTCS may be widened to cover the pending cases at assessment and I&I level. Fourthly, the protection may be ensured against 122(5) and 122(5A) to the taxpayers and FBR should build its capacity to improve its tax administration for future tax compliances instead of keeping itself engaged in unnecessary disputes.
Fifthly, the person who have paid advance tax under various section of the Ordinance should be allowed as deduction or minimum tax against the due tax liability which is legitimate right of the tax payer. Sixthly, the condition of increase up to 25 percent every year is too high and unachievable. It should not be more than 10 percent of the previous declared income.
In the interest of revenue, it is highly recommended that the above submissions may kindly be taken into account in the Assembly Session while passing the Bill of VTCS. It will not only boost confidence of the business community on the present government but also pave way for the Government to ensure smooth functioning of Tax Authorities, association added.
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