New mechanism put in place to criminalise income concealment

Published July 3, 2021
Under Finance Act 2021, a new mechanism has been introduced in which the amount of concealed tax should be Rs100 million or above in case of filer and Rs25m or above in case of non-filers. — AFP/File
Under Finance Act 2021, a new mechanism has been introduced in which the amount of concealed tax should be Rs100 million or above in case of filer and Rs25m or above in case of non-filers. — AFP/File

ISLAMABAD: Through introduction of amen­dments to Income Tax Ordinance, the government has declared concealment of income a cognizable offence and withdrawn the time limitation in probing of past returns of a person having foreign income or assets as part of documentation.

These and other amendments were explained in two different circulars — income tax and sales tax — released on Thursday with focus on documentation with incentives for big retailers to document their sales and establishment of sustenance markets in border areas.

Under Finance Act 2021, a new mechanism has been introduced in which the amount of concealed tax should be Rs100 million or above in case of filer and Rs25m or above in case of non-filers. Moreover, this concealment should be established through an assessment or amended assessment.

The accused can be arrested, only after the wri­t­ten approval of committee consisting of Fina­nce Minister, Chairman and senior most Member of the Federal Board of Revenue (FBR). The concealment of income has clearly defined under the law.

In order for an act to constitute concealment, it must be willful. Mere disallowance of an expense or rejection of an exemption claim cannot be construed as concealment if the taxpayer has taken a reasonably arguable position.

The income tax law provides for time limitation of five years for calling of return. However, where taxpayer is a non-filer this limitation is 10 years. As per amendments, this limitation will not be applicable to a person who has foreign income or foreign assets.

Moreover, the FBR with the approval of the minister in charge has been empowered to notify persons or classes of persons who are required to file the return of income.

In order to bring millions of retailers under the tax net, FBR has introduced a tax credit of Rs150,000 or the cost of the machine whichever is lower will be extended to the Tier 1 retailers installing and integrating machines with Board’s Point of Sale online real time reporting system.

FBR notified reduction in duty and taxes in order to provide relief to the general body of consumers of vehicles. The rate of sales tax reduced from 17pc to 12.5pc on locally manufactured cars up to 1,000cc. The small cars up to engine capacities of 850cc have been exempted from value added tax at import stage. And the Federal Excise Duty was reduced by 2.5pc for each category in order to cause reduction in prices of locally manufactured vehicles.

In order to promote documentation and corporatisation of used vehicles, this sector has been granted exemption from withholding tax on the purchase of used vehicle from general public and reduced minimum turnover tax from 1.5pc to 0.25pc.

In the telecommunication sector, the FBR notified exemption of Rs250 as sales tax on Subscriber Identification Module (SIM) cards, excise duty reduced to 16pc from 17pc on telecommunication services. Federal excise duty on mobile phone calls exceeding five minutes has been imposed at Rs0.75 per call while reduced advance income tax on internet and mobile phone usage from 12.5pc to 10pc for tax year 2022 and 8pc onwards.

Similarly, the FBR included Border Sustenance Markets in the tax exempt areas and exemptions have been given on imports and exports of certain products. However, supplies made from such areas to the taxable areas will be chargeable to sales tax at 16pc. Exemption has been granted on local supply of wheat bran, which will result in facilitation of poultry industry by reduction in manufacturing cost of poultry feed.

The definition of a resident has been changed and now a person want to be a Pakistan resident will have to stay for 183 days.

Online market places facilitating the supply of goods owned by third party suppliers are required to withhold sales tax at the rate of 2pc of gross value of supplies made by persons other than active taxpayers.

Published in Dawn, July 3rd, 2021

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