The Federal Board of Revenue (FBR) will review all major proposals of the All Pakistan Tax Bar Association (APTBA) pertaining to imposition of 25 percent tax on association of persons (AOPs) retrospectively, enhanced penalties on withholding agents, and issuance of a standard operating procedure (SOP) to commissioners for a standardised audit system across the country.
Recently, the tax officials and APTBA, Karachi, had a day-long interaction on various issues relating to Finance Act 2010. During these sessions, the association raised three major issues relating to the Finance Act 2010 and proposed amendments in the Income Tax Ordinance 2001.
Talking to Business Recorder here on Sunday, FBR Chairman Sohail Ahmed said that the FBR would definitely issue an SOP to the commissioners of Inland Revenue to conduct audit in a uniform manner in all major cities of the country. Legally, the commissioners are authorised to select cases for audit, based on risk-based criteria, taking into account a certain percentage. However, the FBR has to issue guidelines for the commissioners for selection of cases for audit on the basis of the SOP, issued by the board. "We cannot give a free hand to the commissioners to select any one for audit or select any number of taxpayers from total registered population. Therefore, the FBR will issue an SOP for the commissioners to conduct audit on the basis of the parameters defined by the board. The audit would be risk-based, in view of business activities of the taxpayers, but necessary precautionary measures would be taken during this exercise", the FBR Chairman said.
He said that the FBR Audit Wing guidelines to the commissioners would specify a certain limit for selection of cases for audit. Within the specified limit, the commissioners would have to select cases for audit, on the basis of the SOP, to remove apprehensions of the APTBA. Beyond a certain limit, the commissioners would not be allowed to select cases for audit under the proposed SOP. This would ensure audit of selected percentage of taxpayers with propoer monitoring of the audit staff.
Sohail said that the FBR would take appropriate measures to issue uniform guidelines to the commissioners so that the audit could be conducted in a systematic and useful manner. In this regard, a standardised procedure would be communicated for audit purposes across the country.
About imposition of harsh penalty on withholding agents, through Finance Act 2010, the FBR Chairman said that FBR would examine the rationale behind imposition of enhanced penalty on defaulter withholding agents. However, it would be ascertained whether deliberately high level of penalty has been proposed for non-compliant withholding agents. The existing provosions of the Income Tax Ordinance 2001 would be examined in view of observations of the association, he added.
Responding to a third major quiry of the APTBA, Sohail said that the FBR was ready to examine the issue whether 25 percent rate of tax on AOPs would be applicable, retrospectively. If the FBR has committed an inadvertent mistake, it would be rectified. Otherwise, the rationale behind imposition of 25 percent tax on the AOPs with retrospective effect would be explained to the stakeholders, he added.
He said that it was important to mention that under the provisions of Income Tax law prior to budget (2010-11), listed companies, banking companies and private limited companies were taxed at a uniform rate of 35 percent, whereas income of small companies were taxed @ 20 percent and income of AOP is taxed under the progressive slab rates, ranging from 0.5 percent to 25 percent. This rate structure was an incentive for movement of business entities towards non-corporate AOP entities. This trend was against the documentation requirements. Also, availability of progressive slab rates for AOPs induces lower income declaration to attract lower rates of tax. To check such shift from corporate entities, tax rate for small companies was enhanced to 25 percent, and for the AOPs single tax rate of 25 percent was adopted.