June 26, 2006	Monday	Jumadi-ul-Awwal 29, 1427

THE Income Tax Ordinance-2001 was introduced with claims that after its implementation, there will hardly any need left for taxpayers to interact with tax officials. That all returns filed under Section 114 will be protected under the universal self-assessment scheme (USAS) construing an assessment order passed by the commissioner under the Section 120.

However, the illusion disappeared soon and the refund seeker came to realise that the noose around his neck has become more tightened.

The Section 170 read with Circular five of 2003 dated June 30,2003, lays down a detailed procedure for obtaining refund. It is not surprising that with innumerable withholding provisions applicable to taxpayers, the probability is exceptionally high that the final income tax assessment will result in refund. The new law does not cater for issuance of refund voucher consequent to order u/sec 120 as was the case under Sec 100 of the repealed Income Tax Ordinance 1979.

Justice required that the USAS should have had an in-built system of generating refund vouchers so that the taxpayer would immediately obtain what was rightfully his own. However, this was not to be.

Under the existing law, a taxpayer to claim a meagre refund of Rs100,000 (determined in his tax return filed under Sec 114 on September 30, 2005) has to take the following steps:

Make an application on the prescribed form to the commissioner latest by September 30, 2007, otherwise he will lose his refund entitlement.

Under Sec 170, the commissioner shall within 45 days (i.e. by December 15, 2005) of receipt of application pass an order in writing after satisfying himself that the claim is correct, that no adjustments need to be made against any previous demand and of course after giving an opportunity of being heard.

Now there are three possibilities: (a) a refund voucher will be issued (b) there will be an order for either reduced refund or rejection of refund or, (c) there may be total inaction on the part of the commissioner.

In case of (b), the taxpayer may file an appeal before the commissioner (appeals) within three months of the receipt of such order but what in the case of inaction? Sec 127 is absolutely silent about the due date of filing an appeal in the event of total inaction by the commissioner.

Delayed payment of refund means that a taxpayer’s money will remain stuck up for a long time. Besides, there is no way he can halt further deduction of tax in order to absorb his genuine refund against further payment of tax. The procedure for obtaining tax exemption certificates is again very cumbersome and totally dependent on the commissioner’s whims.

This implies that following the procedure strictly will not prove beneficial to the taxpayer and after a lapse of almost 90 days under certain conditions and may be, many months in the event of the case being taken up at the level of commissioner (appeals).

Moreover, additional payment on delayed refund under Sec 171 is not due before three months of passing a refund order.

This implies that: (i) the department will enjoy the benefit of the taxpayer’s money as long as the taxpayer does not apply for refund and where he does, no order is passed and (ii) where such an order is passed, say on December 15, 2005, the additional amount payable will be calculated from March 15, 2006 at six per cent of the amount due till the date of payment.

Where a taxpayer delays payment of tax even for a day, he is penalised under Sec 205 by an additional tax at 12 per cent on the unpaid amount with immediate effect but where the department sleeps over genuine claims of taxpayers for many years, perhaps the penalty is a meagre six per cent and that too which accrues after a lapse of three months of the date on which such refund is determined by an order passed by the commissioner.

Justice demands that there should be automatic generation of refund vouchers so that the USAS is implemented faithfully. Precious time of taxpayers should not be wasted in pursuit of their claims.

If that is not possible, the number of withholding provisions should be substantially reduced. Where the department has wilfully defaulted in delaying or ignoring a refund claim, exemplary penalty be imposed on the concerned officials.

The following suggestions may be considered:

(a) Advance tax payable under Sec 147 must be taken as deposit with the department as was the case up to 1997 and compensation on the same at the market rate should be given on the same parity that when any person withholds tax due, he has to pay additional tax on it;

(b) With of computerisation of data and automation, data processing centres etc, there is no reason why it should be difficult to establish the authenticity of a taxpayer’s refund claim once he has filed his return. It should be obvious to any analyst whether a claim is based on acceptable evidence or not. The claim of excess payment of tax can easily be verified; it is the responsibility of the department.

If at all, there is an intention of forcing taxpayers to comply with irritating procedures to obtain refunds, suitable amendment be made in Sec 129 to cater for an eventuality where the department pays no heed to a refund application as required under Sec 170.

The officials should be made to account for both their negligence and inordinate delay in processing applications and must be held liable for accrued compensations.

However, there is also a dire need to amend section 170(4) as suggested below:

The time limit for passing of refund order within 45 days of receipt of application exists merely in records, as no consequence is provided for inaction on the part of commissioner. The right to appeal only arises where the commissioner rejects or reduces the claim of refund. This provision should be made mandatory by providing that where no order is made within 45 days, the order for refund shall be deemed to have been made and compensation u/s 171 will start from the date of filing of refund application or assessment order giving rise to refund, whichever is earlier. In the absence of such a law, the right of the taxpayer will remain impaired.

In the end, one wonders what happened to CBR’s instructions under the repealed Income Tax Ordinance, 1979 wherein the tax authorities were directed to send refund voucher along with the assessment order.

While processing refund applications, the department is never satisfied with figures available in their daily collection registers or tax deduction certificates (which can easily be verified) produced by the taxpayers and insists on the production of challans showing payment made by or on behalf of the claimant. It results in the inefficacy of the so-called USAS.