A former Member of the Federal Board of Revenue (FBR) has proposed to the Federal Board of Revenue (FBR) to create a separate centralised jurisdiction for audit of tax affairs and publicising the results of parliamentarians, judiciary, persons holding public offices, Grade-20 and above officers of federal and provincial governments and celebratory.
It is learnt that Habib Fakhruddin chartered accountant has submitted some unique budget proposals to the FBR for expanding the tax base and documentation of economy. He said that in our country tax culture does not exist. Persons paying taxes are considered as fools, while those not on the tax rolls claim to be smart citizens. The government through FBR has taken a number of initiatives to introduce the concept of tax culture. Two of such initiatives are the "Active Taxpayer List" and "Taxpayers Directory" placed on website of the FBR, so that public at large should know 'who is who' in terms of compliant taxpayer and contributor to the national exchequer.
Electronic and print media is one the source to tell the public at large 'who is who' in terms of contributor to the National Exchequer, but unfortunately the media has not discharged its obligation and only in rare circumstances such information is passed on to the public at large, he suggested.
It is a trite principal that like writ of law the concept of tax culture also requires a top to bottom approach. Now a days talk shows; interviews of the politician and celebratory; discussion on economic affairs; and other similar programs are televised in our electronic media in which every participant including the anchor persons talk and discuss the issues as if they are the only well wishers of our country. However, many such participants and anchor persons fall in the category of non-compliant taxpayers and either are non-contributor to the National Exchequer or contribute much below their means, income and standard of living.
In order to develop tax culture and telling the public at large, not only the views of such participants and anchor persons, the status of such persons as to whether he/she is compliant tax payer or not and how much does he/she contributes to the National Exchequer should also be told to the public at large.
He proposed that suitable law be made to place an obligation on the electronic media to indicate below the name of each participant and anchor persons the status of his/her discharge of its national duty in terms of whether he/she is a "Compliant Taxpayer or Not" and the amount of Income Tax paid by him. Both these information are available on the website of FBR and can be extracted is few seconds.
Habib Fakhruddin further proposed that the purchase of immovable property is a heaven for accumulation of the entire untaxed income in view of huge gap between the actual sale/purchase consideration and the prevailing rates fixed for stamp duty purposes, coupled with Rule 228 of the Income Tax Rules, 2002, which provides for valuation of immovable property as per rates fixed for stamp duty purposes. These rates are fixed/controlled by the Provincial Governments and till such time these rates are not brought to the current market value, it will be appropriate that Rule 228(1) should be amended to bring the valuation of immovable properties to their fair market value. This will enable the department to adopt FMV.
He said that negotiated and settled between the officer of Inland Revenue and the taxpayer at the cost of the legitimate State Revenue and the beneficiaries are Officer of the Inland Revenue and the Taxpayer. This type of corruption can only be checked and controlled by an effective Internal Audit. The second type of corruption is Harassment compelling taxpayer to negotiate and settle. Thus a taxpayer is compelled to negotiate. This type of corruption brings a bad name to the department. The solution is the effective & fool proof system of accountability; complaint handling system; posting of talented and experienced officers as Commissioner (Appeals) and Accountant Members of Appellate Tribunal; increase the number of appellate authorities for quick disposal of appeals and concept of automatic stay of 100% of the tax demand till the decision of appeal. These measures will if not eliminate at least reduce this type of corruption; bring the concept of judicious decisions; remove the fear of recovery of disputed tax demands; reduce the burden of work on appellate authorities (Stay of demand applications).
The fear of short fall in revenue targets as a result of this measure is a misconception, as is evident from the quantum of demand raised and recovered as a result of amended assessment. He added that the rent of immovable property paid to a resident or a non-resident person was subject to deduction of tax at source by specified prescribed persons under section 155. Through Finance Act, 2013, section 152(3)(a) has been amended and now payment of such rent to a non-resident is subject to deduction of tax at source by every person under section 152(2). Many immovable properties in Pakistan owned by overseas non-resident Pakistani's are let out. Section 152(2) requires deduction of tax from payment of rent to non-resident by every person as against the provisions of section 155 where specified prescribed persons were required to deduct tax at source. Resultantly, even a house obtained on rent for personal use (residence) from a non-resident also attracts deduction of tax by every person and in consequence all the obligations placed on a withholding agent. Further, residential status of a person may be subject to change every year and it is a very difficult proposition for the tenant to keep track of residential status of its land lord. The amendment made in section 152(3)(a) through Finance Act, 2013 be withdrawn.
He suggested that the prescribed due dates should not be extended. Generally, the due dates are extended by FBR only for the reason that the Return Forms are not made available in time or the electronic filing system is not in place. It is not understood why FBR waits for a whole year to prescribe the return forms and notify the forms etc after the Finance Act of the following year, which has nothing to do with the return of previous year. In fact, the forms etc should be notified immediately after the Finance Act for the following year ie for tax year 2017 after the Finance Act, 2016. This will ensure that taxpayers are pre-informed as to the requirements at the commencement of the corresponding tax year. Currently, the forms etc for the tax year 2016 have not yet been notified, these should be immediately notified.
The prime objective of the Policy Board, which was formed under Section 6 of the Federal Board of Revenue Act, 2007 should have been to formulate national tax policy in consultation with the stakeholders. Unfortunately, this Section has limited the role of the Board as facilitator ie providing guidance in framing fiscal policy and so on. This Section needs to be properly amended by broadening the scope of the function of the Board to include the formulation of fiscal policy making as a support to legislative function. Moreover, it can also act as an oversight for the performance of the FBR.
Habib Fakhruddin added that the Board is currently headed by the Minister of Finance with more than five Federal Ministers as members of the Board along-with the chairman of the respective committees of the Parliament. We are of the view that the existing composition of the board is too heavy and would make it non-functional to carry out its objectives. Accordingly, we feel that it should have the Minister for Planning as a member along-with the chairman of the respective committee of both houses of Parliament, other than the Chairman FBR, Secretary Finance and six members from cross section of civil society comprising of the eminent economists, intellectuals, technocrats and representatives of major stakeholders viz. FPCCI, Tax Bar Associations, trade bodies, Institute of Chartered Accountants of Pakistan and other accounting and professional bodies.