The business community has stressed the need for reviewing the Income Tax Ordinance by a multidisciplinary committee or think-tank consisting of specialists like economists, tax law experts, operation researchers, statisticians, tax officials, business community, for gradual reduction in withholding tax. According to a report prepared by the Lahore Chamber of Commerce and Industry, the businessmen are of the view that instead of rationalising the withholding tax regime, it is being widened every year.
The withholding agents are obligated to deduct / collect tax from payments, deposit it in the government treasury, report such taxes to the Federal Board of Revenue, and then get audited. To accomplish these responsibilities, withholding agents need to incur substantial time and cost, without any incentive, they said.
They proposed that a tax credit should be given to withholding agents performing state duties. This tax credit should vary in slab based on withholding tax deducted and deposited by the Withholding Agents. There is a need to develop a comprehensive, fair and transparent system for audit, they said.
Presently, selection of cases of audit in Income Tax is made u/s 214 C by the FBR as well as by the Commissioner u/s 177 of the Ordinance. The powers of Commissioner have been explained by inserting explanation to Section 177 of the Ordinance vide Finance Act 2013, but the controversy, as to whether Commissioner is empowered to select the case for audit or not has not been settled as yet. The matter is presently under consideration of the superior courts, they pointed out.
According to them, selection of audit should be made on the basis of parameters by FBR through random balloting. The powers of Commissioner for selection of audit should be withdrawn by amending section 177. Moreover, capacity of the tax officials /auditors should be developed through training.
Income and sales tax refunds should be issued without application within 90 days of their becoming due. There should be an automatic payment of compensation if any refund is issued after 90 days. Compensation equal to KIBOR per annum shall be paid to the taxpayer; whether the taxpayer claims the compensation or not. A mechanism should be put in place whereby the officers responsible for delay are also identified, they asserted.
The relevant laws should be clarified as to the date when refund becomes due. Preferably it should be the date when relevant records, as prescribed by law, are provided to tax authorities by the refund claimant. The powers to process and issue cheques should be delegated to the RTOs by developing an efficient computerised system.
They said that Withholding tax is advance tax but the Federal Board of Revenue treats the same as its collection and is reluctant to refund the tax which is not due. It is therefore proposed that annual budget of field formations should be on gross collection basis and not on net collection. For the purposes of verification of tax payments, comprehensive systems and procedures should be developed. There is also a need to link FBR with tax withholding agents systems to reduce human interference.