The Federal Tax Ombudsman (FTO) Office has taken notice of tax computation flaws in the income tax return for Tax Year 2014 and directed the Federal Board of Revenue (FBR) to submit its detailed comments by November 14, 2014. Sources told Business Recorder on Saturday that the FTO has taken notice on a complaint filed by a tax lawyer on wrong calculations in filing of income tax returns for Tax Year 2014.
The FTO Office has fixed November 14 as date for hearing of the case and directed the FBR to submit para-wise comments on the complaint. A tax lawyer had filed a representation with the FTO Office that the Income Tax Return form for Tax Year 2014 placed on the FBR web-portal with built-in tax computation formulas apparently having 'grossly understated taxpayer's due tax liability,' which may lead to significant loss of revenue.
According to the lawyer, Income Tax Return form does suffer from a computational problem where the embedded code for computation of income tax liability for taxpayers placed in the Services Sector category have income/receipt liable to minimum tax under section 153(1)(b) of the Income Tax Ordinance, 2001 is defective and consequently their tax calculation is understated. Resultantly, this may lead to significant loss of tax revenue because of universal self-assessment scheme the return will be accepted when filed. There is the added risk that such returns may be picked up for audit in case short payment of tax is the criteria for selection of returns for audit.
The existing flaws in tax return form appears to be in the formulas applied by the FBR functionaries in the return form. Apparently, it seems that FBR did not properly test the formulas by first releasing a wrong version on FBR web-portal. In case taxpayers are providing services, such as lawyers, architects, journalists, accountants, doctors, etc, the income tax Return IT-2 ie Return of Total Income/Statement of Final Taxation (IT-2) for Individual/AOP deriving Income under the head business & any other head provides misleading information.
The FBR's failure to design a return that reports tax payable correctly in the case of taxpayers deriving income from services rendered is indicative of its inefficiency and tantamount to maladministration as defined under Section 2(3) of the Federal Tax Ombudsman Ordinance, 2000. It has been suggested that the FBR must take immediate steps to ensure that apparent defects in the income tax return placed on the FBR web-portal are removed so that tax payable is correctly worked out, the tax lawyer added.