BUDGET PROPOSAL FOR THE YEAR 2006-2007

BUDGET PROPOSAL FOR THE YEAR 2006-2007 <!--[if gte mso 10]> BUDGET PROPOSAL FOR THE YEAR 2006-2007 By Hafiz Muhammad Idris, President, Rawalpindi - Islamabad Tax Bar Association INCOME TAX SECTIONS 113A AND 113B At present there is no method for calculation of income is available to assessee to take credit in his wealth statement/books of account and to explain investment or expenditure. We suggest that provision should be inserted in the said section to compute income on work back method for the purposes of taking credit in the wealth statement/books of accounts for explaining investment or expenditure. SECTION 114(2) To improve, voluntary compliance, revenue and quality of Income Tax Returns, we proposed that law should be amended by inserting clause (d) in section 114(2) as under: "(d) shall be verified and attested by Advocates, Chartered Accountants, Cost and Management Accountants, Certified Chartered Accountants and Income Tax Practitioners as defined in section 223(2)(t) of the Income Tax Ordinance, 2001." We further suggest that C.B.R. should develop a check list for compliance of Income Tax Ordinance and also make rules and regulation for the Tax Practitioners for accountability in this regard. SECTION 116 At present filing of wealth statement along with Income Tax Returns is mandatory in cases of income of Rupees five hundred thousands and above for resident only. To check the huge investment particularly in real estate and stock and to ensure the documentation we suggest that wealth statement should be made mandatory in all cases irrespective of income level and also for non-residents. SECTION 120 It has been observed during the last three years of Universal Self-Assessment Scheme the taxpayers are making under declaration of their income and claiming huge refunds., Presently, there is no provision in the Ordinance to check this kind of prima facie under declaration of income. We suggest that section 120 should be amended appropriately to give assessment power to the Commissioner in the cases whereunder declaration of income is quite apparent through desk audit. SECTION 121 Failure to comply with the notice under section 114(4) of Income Tax Ordinance, 2001 Commissioner is empowered to make best judgment assessment under section 121(1) of the Income Tax Ordinance, 2001 which is causing hardship. In the late Income Tax Ordinance, failure to comply with the notice under section 56 does not automatically lead to best judgment or ex pane assessment but another opportunity was given by issuing notice under sections 61 and 62. We suggest that law should be appropriately amended to provide similar opportunity to the taxpayers in case of non-compliance of notice under section 114(4). SECTION 122A As per the provision of this section Commissioner has vested with the powers to revise suo motu any order passed by the Taxation Officer under Income Tax Ordinance, 2001 or under repealed Income Tax Ordinance, 1979. We suggest that this section should be amended suitably to include revision 'of order on application by the taxpayer as well. We also suggest that the time limitation of 90 days for filing of application should also be provided in the said section. SECTION 124(2) At present the provision of Income Tax Ordinance, 2001 does not provide any limitation for those cases which are set aside by Income Tax Appellate Tribunal' and are remanded back to Commissioner (Appeals). We would like to point out that thousands of cases which are set aside by the ITAT and remanded back to Commissioners Appeals are still lying unattended for the reason that neither anyone is taking responsibility nor pains to address this situation. Similarly, Income Tax Ordinance, 2001 also does not provide any limitation for those cases which are set aside by the Commissioner under section 122A and are remanded back to Taxation Officer which are causing hardships to the taxpayers. We suggest that limitation of two years should also be provided in the Ordinance as the same is provided in other set aside cases. SECTION 127 Powers of the Commissioner Appeals to set aside were withdrawn through Finance Act, 2005. During the year, practical difficulties were faced both by the Commissioners Appeals and Taxpayers, particularly in the case of best judgment/bald assessment, amended assessments and in cases where facts have not been properly thrashed out (i.e. where all evidence, documents and explanations have not obtained/furnished due to unavoidable circumstances). We suggest that in such cases powers to set aside the case with specific direction may please be restored. SECTION 147 Advance tax under section 147 is payable on the income charged for the latest tax year or assessment year. On the other hand law does not provide any cut off date for the determination of base year which in result creating undue litigation and interpretation between taxpayer and income tax authorities. We suggest that a cut off date should be provided in the law to avoid unnecessary dispute and for clear determination of base year. SECTION 153 To rationalize withholding of tax, remove disparity among corporate and non-corporate sector in respect of withholding of taxes at source. We suggest that a person (non-corporate) having turnover more than 2.5 million should also be declared withholding agent. SECTION 169(4) Section 169(4) was omitted through Finance Act, 2004 which provides to take credit of presumptive income in wealth statement and books of account for explaining investment or expenditure. We strongly suggest that section 169(4) should be restored as it was. SECTION 172(e) As per the provision of this section, in case of an Association of Persons (AOP), a Principal Officer is a representative of such AOP and accordingly can sign the income tax return and tax recoveries can also be made from such Principal Officer in accordance with the provisions of section 173. We suggest that in case of AOP, members of AOP should also be prescribed as representative, as partners are prescribed as representative of the Firm in the same section. SECTION 221(1) In this section only Commissioner, Commissioner (Appeals) and ITAT are the authorities which can rectify the order passed by them. We suggest that above said section should be amended to include High Court and Supreme Court. SECTION 221(1A) According to the provisions of this section only Commissioner is empowered to rectify any order passed under repealed Ordinance, 1979. Thy Income . Tax Ordinance, 2001 does empower Commissioner (Appeals) and Appellate Tribunal to rectify their own orders passed under the repealed Ordinance. We suggest that section 221(1A) may please be substituted as under: "The Commissioner may, by an order in writing, amend any order passed under the repealed Ordinance by the Deputy Commissioner, or an Income Tax Panel, as defined in section 2 of the repealed Ordinance or Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed under the repealed Ordinance by him to rectify any mistake apparent from record on his own motion or any mistake brought to his notice by a taxpayer and the provisions of subsection (2), subsection (3) and subsection (4) shall apply in like manner as these apply to an order passed under subsection (1)." SECTION 221(3) The words "Appellate Tribunal" were omitted through Finance Act, 2003. In result of this amendment there is no limitation for the disposal of rectification applications which is previously controlled through deeming provision. We suggest that either the deeming provision should be restored or a limitation should be provided in the section for disposal of rectification applications by the Appellate Tribunal. CLAUSE (2) OF DIVISION I OF FIRST SCHEDULE Limit of taxable income was enhanced from Rs.80,000 to Rs.100,000 but corresponding amendment was not made in above said clause. We suggest that same should be made to remove lacuna in the clause as mentioned above. SUGGESTIONS FOR BROADENING THE TAX BASE It is quite embracing to know that only less than one per cent of the total population is on tax net which clearly speaks about the inefficiency of the tax authorities. We are suggesting few steps for the broadening of income tax base as under: (1) Condition of NTN Certificate should be imposed on every sale, purchase, transfer, gifts, mutation, inteqal, sale agreement and power of attorney. Withholding tax at rate of 6(six) per cent and Capital Value Tax at the rate of 7.5 per cent should also be imposed on all the above mode of transactions. Transactions of plots of Societies such as DHA, Bharia Town, Askari etc., are being carried out by exchanging files and recording transfer of plots without mentioning any value of such transactions. To cover these transactions, value of such plots should also be brought at par with DC rates. (2) Presentation of NTN Certificate should also be made mandatory for transfer of Vehicles at any stage and withholding tax at rate of 6 per cent should also be imposed. (3) We suggest that the benefit extended to Small Companies in section 2(59A) should also be extended to existing companies qualifies to be a Small Company as per Law. SALES TAX SECTION 3 The rate of Sales Tax is too high. It is proposed that it may be reduced to 12% as against present rate of 15%. Present subsection (2)(a) of section 3 may be omitted and new subsection may be inserted to charge turnover sales tax at the rate of 1% on every retailer of any line of business and without any limit or threshold. Every retailer who is filing income tax return should be liable to this tax. For this purpose new rules and procedure may be framed. Presently retailers whose annual turnover is above 5 million are liable to sales tax and amongst them value addition is at different rates for different lines of business. This creates problems for taxpayers because mostly retailers are not doing business in one item, they are doing business in different items, and some of them are Schedule III items some with different profit or value addition margin. Therefore, to provide even playground to all retailers, 'it is proposed that turnover sales tax at the rate of 1% may be levied on all retailers. The C.B.R. may also ensure constancy in this policy for at least for 5 years and thereafter they may be switched over to normal sales tax regime. SECTION 3AA The heading of this section may be amended from "Retail Tax" to "Turnover Sales Tax on Retailers". Besides suitable amendment in this section the Retail Tax rules may be amended to streamline procedure in this regard. Every retailer shall include 1% sales tax in his retail price i.e. his declared turnover shall include his profit margin plus 1% sales tax. Every month he in his return shall declare his purchases and sale value, gross profit margin and sales tax (to be paid). The Retailers for this purpose need not to be separately registered, their NTN with addition of sales tax code number be their sales tax registration No. Also make a corresponding provision in the Income Tax Return to counter-check that sales tax is being paid and in case of failure it shall be recovered with penalties and default surcharge. SECTION 10 The provision of carry forward of input tax not adjusted in the tax period has been omitted through Finance Act 2005. Resultantly the taxpayers are facing many hardships in this regard. This is pertinent to note that the exporters which are a few in numbers as compared to other registered persons, the department failed to settle their refund claims and to get rid of their refunds all major export-oriented industries have been brought to zero rate. But on the other hand all other hundreds of thousand taxpayers have been brought into refund circle. The law should be to facilitate the people and not to create problems. Therefore, it is strongly proposed that the provision of carry forward may again be restored; however, the period of carry forward may be reduced to six months instead of twelve months. SECTION 21 The section does not provide any opportunity of explaining the view-point of the taxpayer. The Collector has been given discretionary powers in this regard. It is therefore, proposed that a provision may be made under this section to provide hearing opportunity to the taxpayer before taking any action under section 21. SECTION 22 A provision for maintaining compulsory cost accounting record for every industrial and production unit may be made in section 22, so that there input and output tax could be analyzed on professional lines. SECTION 33 The offences and penalties provided in section 33 need to be reviewed. This is very unfortunate that all these penalties, except one for "Failure to make an application for registration---", which are too harsh in nature, are for the registered persons. Therefore, it is proposed that the entire penalties may be reviewed to show a friendly gesture, to much feared and frustrated taxpayers of sales tax. SECTION 36 A notice to show cause under section 36(1) for recovery of tax not levied or short-levied or erroneously refunded can be issued within five years of the relevant date. This period of 5 years is against the provisions of section 24, where the period of retention of record and documents has been reduced to three years. The period of 5 years may be reduced to 3 years. SECTION 47A It is proposed that in case the taxpayer submits application for ADR, provision for stay of proceedings under any other provision of Sales Tax Act, may be made till the case is decided by the C.B.R. SALES TAX RETURN FORMS Sales Tax Return forms are not only being complicated day by day but also are very rapidly subject to changes. Now the situation is that even department is not sure about the return form. It is therefore, proposed that after due deliberation with stakeholders and tax bars the return form may be standardized. The filing of Nil Returns with the Collectorate, as provided in Chapter-I of Sales Tax Special Procedures Rules, 2005 may be made optional and bank may also be authorized to receive the Nil Returns. The banks taking the benefit of receipt previsions by Collectorate refuse to receive the Nil Returns. This creates hardships to taxpayers specially those who are away from the Collectorate. REGISTRATION AND DE-REGISTRATION RULES Although positive changes in rules in this regard have been introduced, yet there still exists room for improvements. The registration process may be framed in line with NTN obtaining procedure. SALES TAX ON UTILITY BILLS It is strongly proposed that sales tax on industrial and commercial utility bills be charged at zero rate. This will create a positive impact on the economy and shall cause in reduction in the cost of production/sold, resultantly the people who are end consumers shall get some relief. ***