The Federal Board of Revenue (FBR) is finalising parameters for including registered persons in the list of ''White'' taxpayers for placing an effective mechanism to monitor the compliant and non-compliant businessmen. Sources told Business Recorder on Saturday that the ''List of White Taxpayers'' would be gradually implemented to give maximum facilities to compliant businessmen.
The first phase of the system would be implemented from July 1, 2009, for which necessary amendments would be made in the 2009-10 budget to disallow input tax credit to those who are ''Non-White'' taxpayers. At a later stage, the taxpayers not in the ''White List'' might be de-registered from the tax department. Sources said that the FBR is the process of finalising parameters on ''White'' taxpayers to facilitate the compliant businessmen.
About the parameters for ''White List'', sources said that any new taxpayers registered with the FBR would initially be placed on the ''White List''. A newly registered person does not have to prove that he should qualify for the ''white list'': the assumption is that everyone starts out as being a ''good'' taxpayer. This means that additions to the ''White List'' would need to be done dynamically on real time basis.
The FBR is also examining other situations for finalising parameters to include taxpayers in the ''White List''. Those taxpayers may be included in the ''White List'' who currently have an outstanding debt but have made arrangements with the FBR to secure it while it is under appeal. This should address the issue of a taxpayer objecting to a reassessment and making an arrangement with the FBR to allow them to remain on the ''White List''.
One tax official proposed that a taxpayer might remain on the ''White List'' if he is involved in a misdeclaration. These circumstances require a review process to validate the continued manual "white listing" of this taxpayer along with sufficient authorisation for the initial manually re-instatement of a taxpayer in the ''White List''. This authorisation should be approved by a central authority being established by the FBR. Depending on the update frequency of the automated system, this review needs to be done frequently (ie monthly) and be done by a central authority.
Sources said that when using black and white lists there is always a question about when the taxpayer appeared on the list as the timing of that appearance affects policies for accepting sales tax invoices claimed or issued by taxpayers. The system becomes unreliable and onerous on the seller/purchaser if the other taxpayer appears/disappears from the list very frequently. During the introduction of the ''White List'', providing stability in the list by managing when removals from the ''WL'' occur is required to allow both internal and external users to build confidence in the list and the new process. A suggestion of a 3 to 4 month cycle for ''White List'' removals appears to be appropriate for the ''White List'' until that confidence has been built. The viability of the 3 to 4 months cycle needs to be tested during the taxpayer consultations for development of ''White List'' process.
Sources said that there is a need for a high level of responsiveness from the compliance control system. Once a taxpayer is not allowed to make a transaction because he is not in the ''White List'', he probably will try to fix the problem immediately. This requires that the system should be able to change his status in real time. The need for a robust audit trail for tax officer updates that add or remove a taxpayer from the ''White List'' or manually override the ''White List'' (eg release goods from customs even though the taxpayer is not on the ''White List'') is a critical component of the ''White List'' system. An active review process is needed to be in place that ensures manual overrides were appropriate and that they should be maintained through the next automated update of the list. Policy to define what level of authority and validation is required to manually update the ''White List'' is required as is a policy to review the decision to maintain the manual override.
Overriding of the ''white list'' by tax officers within the FBR operational systems needs to be treated like manual updates to the ''White List'' and need to be sent to the ''White List'' system for inclusion in its manual update audit trail. The requirements for authorisation, audit trail and subsequent review by the ''WL'' view process are the same for an override and a ''White List'' change because they both have the same effect on the FBR''s dealings with a taxpayer.
The manual overriding provision to include/exclude a person in the ''White List'' should not be done frequently and it should be done in exceptional circumstances. It is important that all manual overrides (additions/removals from the ''WL'' and overrides at the operations level) should be subject to frequent and rigorous manual review. It is proposed that the review of manual override should be done by a central committee with sufficient legal powers to overturn manual overrides and can call individuals who recommended the override to defend their decision.