Smart drafting of tax laws

Published November 22, 2021
The Custom Intelligence Department of FBR has pointed out revenue losses worth billions of rupees.
The Custom Intelligence Department of FBR has pointed out revenue losses worth billions of rupees.

The government promulgated the presidential ordinance — the Tax Laws (Third Amendment) Ordinance 2021 — on September 15 bringing certain enforcement measures on the premise of improving documentation of the national economy, enhancing tax compliance and broadening the tax base.

While it has become law and has been in force since then, it has a limited life of 120 days unless passed into permanent law by the parliament. The bill to adopt the ordinance into an act of Parliament has already been rejected by the Senate Standing Committee on Finance and Revenue last week.

The major reasons for the rejection, mostly pertained to income tax and sales tax provisions including the mandatory conditions for the corporate sector to completely switch over to digital payments (instead of manual like cheques etc) with effect from December 1, 2021, and the disconnection of utility connections including mobile phones to those who do not appear on the active taxpayers’ list.

The committee has also ordered a written explanation from the Chairman Federal Board of Revenue (FBR) as to where these proposals had originated and rejected the directive of the prosecution for unauthorised disclosure of information by a public servant.

However, the focus has so far not reached the amendments in the customs law through the same — Tax Laws (Third Amendment) — Ordinance bringing three amendments in the customs law which broadened the discretion of the custom officials and risk of massive revenue losses at the import stage.

The amendments pertaining to customs need to be examined if authors are beneficiaries of the changes to the custom law

One such amendment has transferred from the Customs Appellate Tribunal to the Member Customs Policy (FBR), the power to hear appeals against the decisions and judgments of Director General Customs Valuation, enabling a custom officer to make, in his capacity as Collector, under-assessments of duty and taxes on arbitrarily low values and then empowering the same officer to finally uphold such low and arbitrary values in his capacity of appellate authority as Member Custom Policy.

One such situation involving bulky amounts is already under investigation in FBR. The Custom Intelligence Department of FBR has pointed out revenue losses worth billions of rupees alleging that the collectors of Quetta Customs have been assessing duty and taxes on imported goods at very low and arbitrary values in violation of much higher assessment values lawfully determined by the director valuation.

Among those blamed for these revenue losses are now in the FBR headquarter and it appeared the changes to the custom law are designed to make those investigations infructuous. Member Policy Customs FBR may have to explain the shrewd move behind the amendment. This is important because if the director-general valuation, in the exercise of his powers under the custom law, rejects the assessable values used by collectors in Quetta, one of those accused collectors will now be able to strike down the DG’s decision and uphold the allegedly illegal values used by him and others during their tenure as collectors.

Another amendment adds the word ‘corporate guarantee’ after the word ‘bank guarantee’ in the provision of custom law dealing with provisional assessments of duty and taxes on imported goods against a security. Obviously, the bank guarantee is an encashable instrument unlike a corporate guarantee, which more often than not, remains a priceless paper.

The amendment has widened the custom officials’ discretion to demand bank guarantee from the importers in cases of provisional assessments and finally settle down for an easier and much softer security of corporate guarantee in return for personal monetary gain. This opens the gate for negotiations between the importer and the custom officials at the cost of revenue loss.

A third amendment in the custom law has enhanced the incentive for the assessing custom officials to collude with importers and clearing agents in minting money causing revenue losses in the process.

The custom law, before this amendment, provided that; “if during the checking of a Goods Declaration it is found that any statement in such declaration or document or any information so furnished is not correct in respect of any matter relating to the assessment, the goods shall, without prejudice to any other action, which may be taken under the Custom Act, be reassessed to duty, taxes and other charges levied thereon”. This provision imposed upon the assessing custom officials a requirement of stringent scrutiny of the Goods Declarations at the time of custom clearance of imported goods.

The amendment has added the phrase: “or, notwithstanding the provisions of Custom Act, within three years of its clearance,” thus relaxing the requirement of stringent scrutiny of Goods Declarations at the custom clearance stage and providing the assessing custom officials one more incentive to collude with the clearing agents in making money at the cost of revenue losses.

This amendment has also diluted the power of custom intelligence which, before the amendment, was used to incriminate the assessing custom officials in the cases made by them against offences committed and the revenues lost at the custom clearance stage.

The amendment has, in effect, set at liberty the custom officers dealing with the assessment and custom clearance of imported goods. Now if the custom intelligence comes across such cases of wrong valuations after a year or two and start proceedings to hold officials answerable for undervaluation, the assessing officials could go unchallenged on grounds they still had time to correct valuation but practically such materials are generally get consumed. It needs to be examined if authors are beneficiaries of the amendments to the custom law.

Published in Dawn, The Business and Finance Weekly, November 22nd, 2021

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