KARACHI, July 8: The local tax authorities have reopened some wealth tax cases of people who declared special US dollar bonds. The bonds were given an exemption from income and wealth tax under the economic reforms 1992. After a lapse of 13 years, the tax authorities are now seeking verification and proof of source of assets so acquired.

The tax department has started issuing notices to taxpayers under section 61 and 62 of the repealed Income Tax Ordinance, 1979, seeking details and documents in support of their declared wealth tax statements. In other cases, the authorities have also issued demand notices under section 85.

A number of tax consultants told Dawn that apparently there was no justification for such a move by the department. They pointed out that the immunity available to the foreign currency accounts under the Economic Reforms Act 1992 (XII of 1992) was also applicable to these bonds.

The section 7(I) of the Special US Dollar Bonds Rules, 1998 says: “The bonds purchased under these rules shall be exempt from the levy of wealth tax for the period for which such bonds are held or until maturity of such bonds.” Part two of the section says: “Assets created out of the sale proceeds of the bonds by the original registered holder shall be exempt from levy of wealth tax for a period of six years reckoned from the year in which such bonds were converted from foreign currency accounts or deposits and the following five years.”

Tax practitioners were found to be perplexed over the timing of such a move. “I have failed to understand the modus operandi and the reason for such an action at a time when the government was under taking reforms for confidence building between taxpayers and tax collectors,” asserted a senior tax consultant.

Central Board of Revenue Chairman M. Abdullah Yusuf had been advising the department to change their mindset and treat the business community as partners and desist from wielding their power by using coercive clauses of tax laws.

However, most of the notices issued carry harsh sections such as section 184 that allows penal action by imposing a 100 per cent penalty. In other cases, section 111 of the Income Tax Ordinance, 1979, framing of criminal case and section 13(I)(AA), alleging of concealment are being used by the officers, tax consultants said.

Citing an example, a representative of a leading tax consultant firm told Dawn that his client, a housewife, having business share in her husband’s companies was served with a demand notice under section 85 of the Income Tax Ordinance, 1979.

There were some cases where the department even after receiving documents and making final assessment comes up with demand and seek details and proof for them.

Another tax consultant said that recently one of his clients was served with a demand notice by the circle 3, Special Zone, Karachi, seeking details of US dollar bonds. He said the client after enchasing these bonds way back in 2001 did not only declare the encashment in tax returns filed for the assessment year 2001-02, but also attached bank’s certificate in this respect.

But still the tax authorities served a demand notice as they added the same amount in the tax year 2002-03, without verifying the records. The additional commissioner of circle 3, Special Zone, also sought details and documents for other assets declared way back by the client and for them the department had already issued an assessment order as all the necessary documents, proof as well as source were already submitted along with the return.

The department while accepting the wealth statement also issued an assessment order for the year 1998-99, but again the Special Zones has sought details and documents for these assets in its recent demand notice.

“I would like to know as to why the income tax department was working contrary to the policies of the CBR which was making all-out efforts to improve the working relation between the taxpayers and tax collectors and induce such environments that could reduce mistrust,” the tax consultant maintained.

The Additional Commissioner, Circle 3, Special Zone, Karachi, Shahid Jatoi, confirmed to Dawn that they are probing into US $ bond case. Referring to the above mentioned case, he said the taxpayer submitted a photocopy of the certificate of encashment issued by the defunct Islamic Investment Bank Ltd (IIBL) which was rejected by the department.

He said that this evidence was submitted on the last day, i.e. June 30, 2005 and was rejected by the department for being secondary evidence and above all it was of a bank (IIBL) which had been closed down because of misappropriation. Many a time, Mr Jatoi said, bogus certificates were submitted by the taxpayers and the department on getting the encashment certificate on the last day could not verify the same.

The additional commissioner maintained that the department needed to verify the evidence provided as a procedure. In this case one has to be cautious as the taxpayer submitted the evidence or source of asset on the last day when the case had been going on for the last two years.