Tax recovery drive

It is clear that the Federal Board of Revenue (FBR) is determined to explore all avenues to raise tax receipts of the country. According to an SRO issued by it on 17th February, 2020, recovery may be made from the taxpayers including tax defaulters from their bank accounts, fixed deposits, term deposit certificates (TDRs), call deposit receipts (CDRs), employees' salaries and rent of landlords owed by tenants and debtors owing money of the taxpayers. The amendments in the Income Tax Rules 2002 require that "where any tax is due under section 137 of the Income Tax Ordinance, the Commissioner may serve a notice upon any person in the prescribed form, provided that where the power to issue notice of recovery has been delegated by the Commissioner, prior approval of the Commissioner shall be obtained who shall satisfy himself/herself as to the service of order and that no refund due to the defaulter is available for adjustment against the tax demand. He shall also satisfy himself/herself that no application for rectification is pending hearing against the demand." Also, where the taxpayer has made an appeal in respect of the order under which the tax sought to be recovered has become payable and the appeal has not been decided by the Commissioner (Appeals), the notice shall be issued after obtaining approval in writing from the Chief Commissioner. The FBR also added that "the recovery of tax shall be made only to the extent of tax due from the taxpayer. Provided that in case the money is held jointly with any person other than the defaulter, the shares of the joint-holders in such account shall be presumed, until the contrary is proved." Besides, a person shall be liable to pay default surcharge at the rate provided from the date he failed to comply with the notice.

The latest instructions issued by the FBR on the recovery rules show that the measures stipulated to recover the tax amount and deal with the tax defaulters are quite exhaustive and well-timed, but appear to be rather draconian which may have been prompted by the exigency of the current situation. The purpose of the instructions seems to incentivise the potential taxpayers to pay due taxes in time. Unfortunately, however, the intention of the policy may be positive but once put in practice it is grossly abused in a high-handed manner. The power of tax officials to recover the defaulted amount from a number of sources like bank accounts, fixed deposits, TDRs, CDRs, employees' salaries and landlords' money held by the tenants would make it easier for the government to recover the demanded tax amount. However, it needs to be mentioned that notices issued to defaulters have to be first approved by the Commissioner/Chief Commissioner so that junior staff of the FBR is unable to issue notices independently in order to harass taxpayers and ask for bribes and other favours. Also, this extreme measure to recover the tax amount is timely. It is no secret that lower tax receipts is the real bane of the economy, tax revenues are falling short of the target by a wide margin during the ongoing fiscal year and the IMF is exerting a lot of pressure on the government to meet the revised target for the continuation of the present EFF programme. It is reported that in the recent meetings in Islamabad, the government team has been unable to successfully persuade the IMF mission to reduce the tax targets once again. However, while the present step of the FBR seems to be in order to raise tax revenues, it must be ensured that the measure is not used to humiliate the existing taxpayers and get undue favours from them but to bring the potential taxpayers into the tax net who have been avoiding the payment of taxes for a long time by hiding their incomes and assets. Also, the existing and potential taxpayers should not be punished by such measures to an extent that they may tend to avoid keeping funds in bank accounts with sufficient credit balances in their accounts and constrained to carry business transactions through cash. If such a tendency develops, the attempts of the government to further document the economy may be frustrated to a large extent.