ISLAMABAD: The government has proposed several provisions in the Finance Bill 2015 for documentation of economy.

The bill empowers the government to obtain or render information related to transactions undertaken in and outside Pakistan regarding both resident and non-resident taxpayers.

Legal cover has been provided to allow government to enter into agreements for exchange of information in addition to the existing provision related to agreements for avoidance of double taxation and prevention of fiscal evasion.

As part of this agreement, a new section, 165(b), has been introduced through the Finance Bill to enable the banks and financial institutions to provide information in relation to non-resident persons to the Federal Board of Revenue (FBR) that may be required to be furnished to any other country under the agreement with other countries.

There have been concerns that some Pakistanis have parked their money in foreign countries, especially Switzerland, but the government lacked power to access information about such people.

It has also been proposed that the condition of obtaining prior approval from the commissioner for filing a revised return will now not be required if it is filed within 60 days of filing of the original return.

Under the three taxes — income tax, sales tax and customs duty — a formation of panel has been introduced for conducting special audit. A panel comprising of two or more people will be empowered to conduct an audit, including a forensic audit of income tax affairs of a taxpayer. The panel will consist of an officer of Inland Revenue or a firm of chartered accountant or cost and management accountant or any other person as directed by the FBR.

Currently, chartered accountants are enga­g­ed to carry out audit of taxpayers.

The appeals commissioner has been empowered to grant a stay for a further period of 30 days and will have to decide the case with such extended time.

The rate of default surcharge in case of failure to pay tax deducted or collected has been reduced from 18pc to 12pc. Similarly, the rate of statutory compensation on delayed refund is proposed to be reduced from 15pc Kibor plus 0.5pc.

Retailers’ audit

Retailers, who are registered under Sales Tax Special Procedure Rules, 2007, will be subject to compulsory and automatic selection for audit of their income tax affairs under section 177 of the ordinance unless name of the person appears in the sales tax active taxpayers list; complete return of income has been filed within the due date; tax payable as per return has been paid; 2pc tax on turnover under section 113 (minimum tax) has been paid by a person registered as retailer who files a return below taxable limit and who in the preceding tax year had either not filed the return or had declared income below taxable limit; and 25pc higher than last year’s tax liability has been paid.

An effective immunity from audit is available irrespective of the amounts declared for sales tax purposes if the income tax is paid in excess of 25pc of last year’s tax liability. This is the introduction of another form of presumptive income tax. This regime shall be applicable from the date to be notified by the FBR.

A 5pc tax will be deducted from those people who are remitting education fee abroad through banking channels.

It has also been proposed that the input tax adjustment will not be available to non-active payers of sales tax.

All registered persons are to be treated as active taxpayers except those who are blacklisted, blocked or suspended; fail to file return for two consecutive months; fail to file income tax return by due date; or fail to file two consecutive monthly or annual statements under section 165 of the Income Tax Ordinance, 2001.

The FBR is proposed to introduce prize schemes to encourage the general public to make purchases from registered persons issuing sales tax invoices. Such provisions exist in many other jurisdictions and the entitlement to prize is made on the basis of lottery where the receipt/invoice of sales tax is an eligible criterion for payment of prize.

Through the bill, a new penalty of Rs50,000 is being introduced for a person contravening the requirement of placement of invoice and packing list inside the import container or consignment. Furthermore, offence relating to untrue declaration and illegal removal or concealment of goods during transit has also been penalised.

Whistle-blowing rewarded

As per proposed amendment, the FBR has been empowered to sanction reward to persons who provide information regarding concealment or evasion of tax/duty, tax fraud, corruption or misconduct. The FBR already has powers to sanction rewards to its officials. The proposed amendments are aimed to reward persons other than departmental officials who provide information about malpractices.

Through the bill, the discretionary power of the FBR to issue SROs (statutory regulatory orders) has been curtailed to issues related to national security, natural disaster, national food security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, removal of anomalies in taxes, development of backward areas, and implementation of bilateral and multilateral agreements. However, it will be subject to approval of the Economic Coordination Committee.

Published in Dawn, June 7th, 2015

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