Notices to shell companies' owners: legal experts suggest increased penalty for no reply

Legal experts have suggested substantial enhancement in the penalty of Rs 25,000 for not responding to notices under section 176 (notice to obtain information or evidence) of the Income Tax Ordinance 2001 by the owners of offshore companies. Former Finance Minister Dr Salman Shah told Business Recorder here on Tuesday that the whole exercise of issuing notices to the owners of offshore companies has no relevance. Federal Board of Revenue (FBR) has limited capacity to verify any information to be declared by the owners of off shore companies.
Dr Shah stated that a question arises whether owners of offshore companies would even pay the penalty on the directions of the concerned taxation officer. If the penalty of Rs 25,000 has been deposited by someone not responding to the notice, it would be challenged in the courts resulting in prolonged litigation. The issue is not about the amount of penalty, but the purpose of the entire exercise, he maintained.
Dr Shah maintained that the exercise of verification of such information pertaining to offshore accounts may take years to be completed. The issuance of notices to the owners of offshore companies is a symbolic exercise which would not result in retrieval of information or assessment of taxes on them.
A leading Karachi-based chartered accountant and former Finance Minister Sindh Syed Muhammad Shabbar Zaidi said that the notices under section 176 to the owners of offshore companies ask for voluntary submission of information. If the information is not submitted voluntarily, the FBR has two options: to either ignore it or further proceed under section 111 of the Income Tax Ordinance 2001 to tax unexplained income or asset. The case of concealment of assets/income can only be made where the FBR has definite information of offshore assts.
The FBR can also proceed to get an ex-parte order against the person in the presence of solid evidence of offshore companies. However, if the FBR has no definite information or evidence about the offshore companies, it is almost impossible to proceed against such individuals.
If the record of the assets is not available with the FBR, the whole exercise would be in vain, Shabbar Zaidi added. A tax expert opined that any person who fails to furnish the information required or to comply with any other term of the notice served under section 176 of the Income Tax Ordinance 2001 shall pay a penalty of Rs 25,000 for the first default and Rs 50,000 for each subsequent default.
He added that the penalty of Rs 25,000 is not substantial which needs to be enhanced to ensure compliance of the notices served to the persons under section 176 of the Income Tax Ordinance 2001. Under section 176, the Commissioner may, by notice in writing, require any person, whether or not liable for tax to furnish to the Commissioner or an authorised officer, any information relevant to any tax leviable under Income Tax Ordinance or to fulfil any obligation under any agreement with foreign government or governments or tax jurisdiction, as specified in the notice.