ISLAMABAD: The Federal Board of Revenue (FBR) has issued notices to almost 393,441 individuals and Associations of Persons (AoPs) across Pakistan to reverse their adjusted past years’ refund of almost Rs24 billion with tax liabilities.

The move has created unrest among the corporate sector, where stakeholders have submitted joint applications with the Federal Tax Ombudsman (FTO) to probe the issue. According to taxpayers, the notices were sent reversing the adjusted amount to bridge a shortfall in income tax collection.

On the application of the taxpayer, the FTO has issued notices to the Secretary of Revenue Division and five chief commissioners of the Inland Revenue Service (IRS) to give their response to the notices issued to a large number of people by June 15.

Under the Income Tax Ordinance, a taxpayer files income tax returns every year and may adjust tax liability against refunds from the previous year. For this purpose, a separate tab has been provided in return of income at the IRIS portal.

FTO seeks explanation from tax authorities by June 15

According to current practice, 393,441 individuals and AoPs have adjusted refund claims totaling Rs 24bn against admitted tax liability for tax years 2016–21.

But contrary to this, the FBR has asked the chief commissioners to conduct a desk audit in these cases to ascertain the genuineness of the refund adjustment.

According to the FTO, no policy guidelines were provided to the field formations for further action to recover the bogus refund claims. Moreover, the officers of field formations are not using any uniform legal methods for the processing of these claims and their subsequent adjustments against admitted tax liability.

Instances have been brought to the notice of FTO that instead of conducting a detailed desk audit of returns and verifying the tax payments from ITMS/IRIS and finally confronting specifically only unverified tax deductions/payments.

The Ombudsman observed that the officers were using short-cut methods, causing harassment and ultimately prolonged litigation. There are several prerequisites before issuing notices to a taxpayer.

Karachi Tax Bar Association (KTBA) President Rehan Jafri has also taken up the issue with Member Policy IRS to apprise him through a letter of this violation. The notices, according to him, were issued to rectify the earlier assessments of taxpayers. He said the commissioner of income tax has no power to rectify taxpayers’ returns.

The KTBA believes that the current exercise is without the due sanction of the law and against the reported judgments of superior courts.

According to the letter, the legal position is that the provisions of Section 221 of the ordinance empower a commissioner to amend any order passed by him.

The issue of adjustment of previous years’ refund, however, does not come within the ambit or scope of rectification of mistake as provided for under Section 221 of the ordinance.

Published in Dawn, June 8th, 2022