BUDGET PROPOSALS FOR THE TAX YEAR 2009-2010

BUDGET PROPOSALS FOR THE TAX YEAR 2009-2010 <!--[if gte mso 10]> BUDGET PROPOSALS FOR THE TAX YEAR 2009-2010 By Muhammad Ashraf Raza, Tax Advisor, Bahawalpur First of all, we must decide that the main requirement is to broaden the Tax Net. If we increase tax rate, slabs of tax etc, it will not be a realistic approach. In this context, we would like to submit some proposals for the budget for Tax year 2009-2010. INCOME TAX 1. Basic threshold for Taxable Income under section 18: Division I & II of Part I of the First Schedule of Income Tax Ordinance, 2001, as the case may, Basic Threshold for taxable income is Rs.100,000 for a Tax year, which is neither justified nor manageable. We recommend that a reasonable amount for basic threshold should be increased up to Rs.300,000 due to increase in prices and high inflation rate. Basic threshold should be Rs.350,000 for salaried individuals and Rs.400,000 for women. 2. Deductions not allowed-under section 21:-- In section 21(1) any expenditure for a transaction, paid or payable under a single account head which in aggregate, exceeds fifty thousand rupees, made other than by a crossed cheque drawn on a Bank, or by crossed Bank draft, or crossed pay order or any other crossed banking instrument, showing transfer of amount from the business Bank account of the taxpayer -------------------------Due to the high inflation rate, this limit should be increased from Rs.50,000 to Rs.100,000 and payment should be increased from Rs.10,000 to Rs.25,000. 3. Tax Rate of Companies under section 94: Division II of Part I of the first Schedule of Income Tax Ordinance, 2001. The rate of Income Tax payable for Private Limited Companies was 35% for the tax year 2008-2009. It is an admitted fact that the percentage of companies which are non operative is higher than the percentage of companies newly incorporated. It is due to the higher rate of tax, requirements of heavy documents and formalities. It is highly recommended to reduce tax, requirements of excessive documents and formalities. It is very important to expand the corporate sector to flourish the documented economy. 4. Advance Tax Under section 147: [For Individuals and A.O.Ps. (Association of Persons)] As per mentioned section, it is required for individuals and AOPs to deposit Advance Tax on quarterly basis, if their income for a Tax year is Rs.200,000. This Limit should be increased up to Rs.500,000. We strongly recommend that measures must be taken to set up a proper system which must be strengthened and effectively mentioned. 5. Tax Assessment under section 148: The power of the Commissioner for the issue of Exemption Certificate under section 148 may kindly be awarded, because the deduction/withholding tax on imports is very high in value and there are so many other deductions which are mandatory. As a result, these deductions create heavy refunds. This unnecessary practice creates the wastage of time and blockage of working capital of the taxpayers and unrest in the industry sector. 6. Deduction/Withheld Tax under section 153: An A.O.P. whose turnover is more than Rs.50 million has to deduct withheld tax.---it is suggested that this portion of section, related to A.O.P. (Association of Persons) may very kindly be withdrawn. If this suggestion is unacceptable, then some proposals are suggested, which are as under:-- (a) In case of supplies @ 3.5 % of the payment of amount of single party is Rs.25,000 or above, the slab rate may very kindly be increased from Rs.25,000 to Rs.100,000. (b) In case of services tax deducted/withheld @ 6% if payment for a single party up to Rs.10,000 or above, the slab rate may very kindly be increased from Rs. 10,000 to Rs.100,000. (c) In case of Contracts, the threshold limit should be increased up to Rs.500,000. (d) In case of Brokerage and Commission @ 10% without any threshold limit, there should be a threshold limit for Rs.100,000. We strongly recommend that the system of withholding of tax by the persons other than FBR may be revolutionized. Taxpayers are facing various types of difficulties and problems due to this system. More than 80% tax is collected by other persons such as withholding agents and the responsibility of staff of FBR is to give figures of collection of tax, to charge penalties on non-submission of statements regarding the deduction/collection/withheld tax by the withholding agents. We put forward some points for the think thanks of FBR in this respect: (1) The difficulties/problems to taxpayers when they pay tax only to claim refund (2) The difficulties/problems to claim refund and to face the process after claim and before actually receiving the paid amounts. (3) The problems faced by the taxpayers when the deducted amount is not deposited by the withholding agent and the authorities of FBR persist the taxpayer to verify the amount. (4) A huge amount (amount withheld by the withholding agent) neither in the hands of taxpayer nor FBR for the period between deduction and collection. (5) The only benefit of this system is for FBR that without any struggle a huge amount is received which is collected by others. (6) FBR spends heavy expenses only to monitor this system, which is not completely controlled after such a long period of time. We propose to take measures to strengthen the system of Advance Tax under various sections. The system of withholding tax must be abolished, except some sections, for example 148. Consequently, we think that the following results will be achieved: (1) Amount will be deposited by the taxpayer himself against his tax demand. (2) Taxpayer will not feel any difficulty/problem because he will submit easily verified paid challans to the tax authorities (on demand) to claim credit. (3) The load of unnecessary refunds will be minimized. (4) A huge amount will be saved which are utilized on account of monitoring of withholding tax. (5) Unnecessary burden will be minimized from withholding agents. (6) Withholding agents will not be able to misuse the withheld amount. (7) Tax Deducted/Withheld by Cotton Ginners/Textile Mills: Liability of both Ginners and Textile Mills: Liability on both stock holders as created confusion and mismanagement. In this context, it is suggested that liability should be fixed solely on Cotton Ginners. Under the present circumstances, at various occasions, cotton ginner deposited the tax to discharge his duty and the textile owner insisted on deducted/withheld tax from taxpayer's amount. This resulted in a number of problems. It is requested that Textile Owners may very kindly be exempted from deducted/withheld tax, and the liability may be fixed on Cotton Ginners, due to the claim of that tax by Cotton Ginners. 8. Claim of Refund under section 170 of Income Tax Ordinance, 2001: Due to irrational practices in the system, unnecessary amounts were received under various systems. This results in huge refunds, which in turn creates a lot of hassle and mental stress. It has been observed that the laws regarding the Issue of Refund are very unfriendly and detrimental. We suggest:- (1) To make/amend laws to stop collection of unnecessary payments from taxpayers. (2) To make/amend laws to facilitate the taxpayer to adjust his refund against his payable tax/demand of tax. (3) To facilitate the taxpayer to receive his approved refund without any hurdle/hassle. If he asks to transfer the amount in his account, it must be transferred without any delay. There should be no time compulsion on the claim of refund. If the State's liability cannot be expired or time barred, then the claim of refund of the citizen is expired/time -barred. Why? It should be paid on claim by the tax payer at any time (without any limit) in working hours if the refund is undisputed. 9. Function of a Representative under section 172 of Income Tax Ordinance, 2001: The concept of an attorney/representative is clear in all civilized countries of the world. Legal cover is also available in section 172 of Income Tax Ordinance, 2001. It is also available in civil procedure legal system. It is not a new or novel idea in Income Tax Ordinance, 2001. However, the concept of an attorney in FBR has been highly misused despite the knowledge of authorities of FBR and this practice still continues. The responsibility of Attorney/Representative is performed by the officers and officials of FBR. When an employee of FBR will be the advisor of the Taxpayer, anyone can imagine the consequences of this job. In most areas, the majority is under the advisory services of the staff of FBR. These personnel are utilizing their skill, valuable knowledge and training, which has been given by the FBR, for the benefit of taxpayer, not for FBR. They are busy educating the taxpayer on how to minimize the tax payable. The taxpayer has more faith in these officials because they have authority/seats in the Revenue Collection System (FBR). It is highly recommended that measures should be taken to stop this malpractice. These people have the knowledge, training and expertise from C.B.R. yet they utilize them for their personal benefits. It is also on the record, that these people have misused the official record which is in their custody. It is further recommended that measures should be taken to the development of positive relations of BAR and Bench for the smooth running of FBR's function. 10. Keeping of Record Under section 174 of Income Tax Ordinance, 2001: Section 174 of Income Tax Ordinance, 2001 demands from a Taxpayer to keep all records specified, but the FBR facilitates the taxpayers who do not maintain/keep record whereas the corporate sector which maintains record has always been neglected by the FBR. As per SECP record, the existing companies are gradually becoming non-operative whereas the trend of incorporation of new companies is very discouraging due to the reasons mentioned above. It is suggested that maximum facilitation may be provided to corporate sector. Tax rate and other unnecessary requirements must be reduced as compared to non-corporate sector to encourage corporate sector. 11. Audit under section 177 of Income Tax Ordinance, 2001 Under section 177 of Income Tax Ordinance, 2001, the Commission of Income Tax/Wealth Tax has been empowered to select any case which he deems fit. The section is as under:-- ----------------------------------------------------------------------------------- It is highly recommended that this section may very kindly be amended because the lower staff intimates the names without positive any consideration, just personal liking/unlinking and worthy Commissioner of Income Tax selects the case for Audit under section 177. Cases must be selected on definite information, concrete grounds or any correct information. 12. Submission of Statements for monthly collection/deduction of Tax: Income Tax Income Tax Description Annual Monthly Ordinance, 2001 Rules, 2002 Section Rule 149 To 236 44 Miscellaneous Responsibility is fixed on withholding Agent to submit a monthly statement, showing tax which- has been collected/deducted, to the tax Authorities concerned. If there is no activity/No tax collected/ deducted, there is no liability to submit monthly statement, whereas the tax authorities insist on submission of Nil Statement. This confusion should be clarified. Withholding agent should be exempted from submission of statement if there is NO ACTIVITY in this regard. 13. Tax Deducted/Withheld on Cash Withdrawals from Bank/ Financial Institutions under section 231A: Under section 231A read with Division VI of Part IV of Income Tax Ordinance, 2001, in the tax year 2008, the limit fixed for deducted/withheld tax was Rs.25,000 in a day and the rate of tax fixed @ 0.3%. This mechanism created many difficulties for businessmen who wanted to do business through proper channel. A huge amount is blocked in this mechanism and an honest Taxpayer feels the shortage of working capital. Keeping in view the above facts, we suggest:--- (a) To reduce rate of deduction/withheld tax from 3% to 1% (b) Limit of amount for one working day should be increased from Rs.25,000 to Rs.500,000 (c) Cash withdrawals from Banking Loan account and other Cash Finance Limit account should be exempted from withheld tax. 14. Tax Deducted/withheld on Utility Bills under sections 234, 235 & 236:- Tax deduction/withheld on utility bills under sections 234, read with Division III of Part IV of First Schedule, Section 235 read with Division IV of Part IV of First Schedule, Section 236 read with Division V of Part IV of First Schedule of Income Tax Ordinance, 2001 is very high and causes problems for an honest businessman/enterprises. We wish to make some suggestions regarding utility bills, which are as under:-- (a) The rate of deduction/withheld of tax should be rational. It should be one rate on all utility .bills to facilitate the consumer in keeping his account of tax paid smooth. (b) Exemption should be granted from tax deducted/collected/ withheld to the Tax Payers who come in the ambit of PTR (Presumptive Tax Regime). (c) No Tax should be deducted/collected/withheld from the taxpayer whose income is subject to Final Tax except under section in which his income falls. 15. Universal Self Assessment Scheme under section:-- Income Tax Ordinance, 2001 was promulgated on 13th September 2001. It shall cone into force on July 1, 2002 and will be applicable from the said date. The new income tax law is in simple language and is easy to understand. You can now prepare your income tax return and compute your tax liability without any difficulty. The new income tax law will bring a complete change in the philosophy of Income Tax proceedings and it will made life easier. Thus universal self-assessment in its true sense will be available to all taxpayers irrespective of quantum, status, location or size. This is the first such experience in this part of the world. The results have been very discouraging since the introduction of the Universal Self-Assessment scheme. The officers/ Officials have been performing the duty of Tax Legal Advisor, filling the returns, and creating the refund against Taxpayer's Advance Tax under sections 147, 148, 24, 335 and 236 etc. In our view the quality of work suffered due to the introduction of USAS. Actual this type of scheme required the all taxpayers educated and tax culture positively developed. Unfortunately in Pakistan FBR failed to achieve goal which is required to achieve after the introduction of USAS. It was a very good idea (USAS) which was not effectively marketed, and was misused by the Black sheep, so it is highly recommended that it may be abolished and if any Big Gun of the FBR/Finance Ministry wishes to keep it, then the necessary amendments must be made.