December 6, 2002	Friday	Shawwal 1,1423

KARACHI, Dec 5: The Income Tax Bar Association, Karachi (ITBAK) has proposed certain amendments in the Income Tax Ordinance, 2001, “to make it more taxpayers friendly.”

The ITBAK is the biggest tax bar of the country and had been actively playing its due role in the formation of tax laws as well as revenue collection.

The bar is of the opinion that if these amendments are made or incorporated in the new ordinance it will greatly help the government in achieving the desired objectives of creating tax culture in the country and removing the irritants for the genuine taxpayers.

In total 31 amendments have been proposed by the ITBAK in the Income Tax Ordinance, 2001, covering all aspects, where it felt necessary to improve or bring about changes in the law. The Income Tax Ordinance will come into effect from 2003. The ITBAK has observed that these changes are necessary in order to enhance economic activity, built confidence of taxpayers in the government machinery and encourage foreign and local investment.

While pointing out some deficiency in the ordinance the ITABK has said that no saving clause has been provided in section 239 for such taxpayers who had applied for special income year prior to June 30, 2002.

The Bar has suggested that special income year may also be allowed to those taxpayers who applied for it prior to June 30, 2002, and appropriate amendments be made in the section 74.

Referring to transitional tax year the bar has stated that sub-section 9 of section 74 provides that where the tax year of a person changes as a result of an order in which the commissioner allows to use a twelve months’ period, other than normal tax year or vice versa, the period between the end of the last tax year prior to change and the date on which the changed tax year commences shall be treated as a separate tax year, to be known as the “transitional tax year.”

As a result of this the tax bar feels that in the one tax year there is a possibility of closing of two accounting periods. This will also raise issue of chargeability of tax rate on the income liable to tax.

Therefore, the ITBAK has proposed that under such circumstances the first transitional period may be taxed at the current rate of tax and the second period may be taxed at next year’s tax rate.

Dividend income in cases where it has the character of business income that tax bar wants that option may be provided to those taxpayers whose major business receipts are dividends and appropriate amendments may be made in section 5, 8 and 169(3).

Taking exception to the method of accounting and CBR’s power to allow cash basis of accounting in case of companies the tax bar said that in the

case of company, CBR is not empowered to prescribe method of accounting other than acccrual. This is also in contravention of sub-section 2 of section 32. Therefore it has been proposed that the company may be excluded from sub-section 3 of section 32.

The tax bar has proposed that a provision of marginal tax relief be introduced in line with the provisions of income tax ordinance 1979.

Similarly, the condition of admissibility of expenses i.e. “expenditure incurred for deriving income” be replaced with “expenditure wholly and exclusively incurred for the purpose of business.”

The ITBAK is of the view that the provisions relating to inadmissibility of expenditure due to non-deduction of tax, by the person responsible for payment does not conform to law or natural justice. The responsible person, bar says, can be penalized by way of additional tax only. But in no way expenditure should not be inadmissible when revenue has not suffered loss.

Therefore, the tax bar has suggested that expenditure should be treated admissible even if tax has not been deducted by the ‘payer’ but has been paid by the ‘recipient.’

The bar of was of the view that there is no justification to tax the employer in case where such perquisites have fully been taxed in the hands of employee. Therefore, it has proposed that any excess perquisites paid to salaried person whose taxable salary is Rs600,000 or more be allowed as admissible expenditure. It has been pointed out that under sub-section 12 of section 22 the depreciation shall be allowed to leasing company or an investment bank or a modaraba or a scheduled bank or development finance institution. All these taxpayers other than investment bank have been defined in the ordinance, therefore, the CBR should define the investment bank in section 2 of the Income Tax Ordinance 2001.

The tax bar has suggested that goodwill may be included in section 24 (11) as an intangible asset. It has called upon the CBR to issue a clarification for adjustment of any excess tax deduction in a quarter in the subsequent quarter.

A set of other amendments have also been proposed by the tax bar which include inter alia — set-off of losses - exempt period losses. It has proposed that losses during exemption period should be allowed for set-off after expiry of exemption period.

Similarly, it has proposed that losses suffered under any head other than business loss, speculation loss and capital loss should also be allowed to be carried forward and set off against business income or any other income other than those entitled for concessional rate.