Objections/Suggestions in Tax Returns 2011

OBJECTIONS/SUGGESTIONS IN TAX RETURNS, 2011 OBJECTIONS/SUGGESTIONS IN TAX RETURNS, 2011 [S.R.O. 850(I)/2011] By Waheed Shahzad Butt, Advocate, Lahore Certain amendments in the Income Tax Rules, 2002 have been announced under Notification S.R.O. 850(1)/2011 dated September 17, 2011 wherein proposed income tax return forms for Companies (IT-1) and for Individual/AOP (IT-2) for Tax Year 2011 have been published for the information of all persons likely to be affected. There are certain issues in the proposed tax returns which needs clarification/modification/ alteration, therefore, following objections/suggestions are forwarded for necessary action at your end:-- COMMON ISSUE IT-1 & IT-2 [Levy of 15% Surcharge] 1. In the portion of Tax Computation, proposal to compute the 15% Surcharge on proportionate basis against proportionate net income tax chargeable for 3-1/2 months proportionate income is apparently a mistake of law. 2. The levy of surcharge in the proposed tax returns is contrary to the clear wording of the law. Income Tax (Amendment) Ordinance, 2011 inserted a new section 4A in the Income Tax Ordinance, 2001 on March 15, 2011. The law categorically says that it is to be paid @15% of the income tax payable for the period commencing from the promulgation of this Ordinance, till the 30th June 2011, relevant text of newly inserted section 4A is reproduced:- "4A. Surcharge.---(1) Subject to this Ordinance, a surcharge shall be payable by every taxpayer at the rate of fifteen percent of the income tax payable under this Ordinance including the tax payable under Part V of Chapter X or Chapter XII, as the case may be, for the period commencing from the promulgation of this Ordinance, till the 30th June, 2011". 3. There are certain categories of taxpayers whose income year is clearly out of the domain of section 4A of the Income Tax year is clearly Out of the domain of section 4A of the Income Tax Ordinance, 2001 while they are legally obliged to submit the income tax return drafted for the Tax Year 2011. These taxpayers includes banking companies, insurance companies, multinationals and PE of Non-Residents which close their accounts on December 31, 2010 or Sugar industries which close there accounts on September 30, 2010, while law categorically says that it is to be paid @15% of the income tax payable for the period commencing from the promulgation of this Ordinance i.e., 15 March 2011, till the 30th day of June 2011. The straight working on proportionate basis of 3-1/2 months income tax chargeable is contrary to the provision of the law. 4. Earlier Federal Board of Revenue (FBR) has also said that imposition of 15% surcharge on the amount of payable income tax for the period 15th March, 2011 to 30th June, 2011 is applicable on all income of taxpayers whether individual, Association of Persons (AOPs), or Companies. In an official statement released on FBR website it says: "In order to remove any misconception which may have been caused by a press report appearing in a section of the media, the government wishes to clarify that the imposition of 15% surcharge on the amount of payable income tax for the period 15th March, 2011 to 30th June, 2011 is applicable on all income tax payers whether individual, Association of Persons (AOPs), or Companies. It is an across-the-board surcharge, levied without exception or discrimination, on all categories of income taxpayers. As such, the promulgated law does not envisage any exemption or special treatment to any category of taxpayers." 5. It will not be out of place to mention that while issuing "Procedure for Payment of 15% Surcharge on Payable Income Tax", FBR specifically clarified the mode of payment of surcharge in the following manner:- Para 3: APPLICATION OF 15% Surcharge on payable income tax a) Salaried Persons - Deduction under section 149 The employers will deduct the 15% surcharge on the income tax payable on portion of the salary pertaining to the period starting from 15th March 2011 to 30th June 2011. b) Other Withholding Tax All withholding agents will deduct 15% surcharge on the income tax payable on payments from 15th March 2011 to 30th June 2011. c) Advance Tax Payment under section 147 The tax under section 147 due from 15th March 2011 to 30th June, 2011. 6. Under the circumstances mentioned supra, it is requested to kindly clarify the following queries before inserting column for levy and collection of Surcharge in the proposed income tax returns for Tax Year 2011:- (i) When the law was promulgated on 15/3/2011 how it can be applied for the period prior to its promulgation? (ii) How surcharge can be levied on the income which belongs to the period, prior to the promulgation of the Income Tax (Amendment) Ordinance 2011? (iii) When language of law clearly says that it is to be paid @15% of the income tax payable for the period commencing from the promulgation of this Ordinance i.e., "15/3/2011" till the 30/6/2011, how, it could be charged and collected on pro-rata basis against proportionate income of 3-1/2 months? (iv) In case if any taxpayer does not earn any income during the period from 15/3/2011 to 30/6/2011 and there is no business transactions/activity during such period, duly proved from the books of accounts, why he would pay 15% surcharge under section 4A on proportionate basis? (v) When earlier clarifications issued by the FBR on the issue of levy and collection of Surcharge are very much clear (except circular 11 of 2011) then how scope of Income Tax (Amendment) Ordinance 2011 can be extended through a circular or through SRO proposing tax returns? With due respect, it is most respectfully humbly requested to kindly consider the aforementioned suggestions/objections while finalizing the tax returns for Tax Year 2011 specifically queries raised vide paras. 6(i) to 6(v).