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Most tax experts are perturbed at the increased powers of tax authorities and fear harassment and more corruption


Oct 09 - 15, 2000

The Central Board of Revenue (CBR) has taken a series of actions during the past two weeks in violation of the broad agreement reached between the government and the traders community after prolonged negotiations and that may lead to a still bitter confrontation between the two parties. The CBR has again created an awkward situation for the government. This time lapses and omissions might bring almost the entire tax payer community and tax practitioners into a confrontation with the government.

The economic activities in the country remained under turmoil for over 2 months over the issue of tax survey during which the trading community observed strikes and shutdowns for weeks throughout Pakistan which had no parallel in the history of this country. Cases marked with incident of violence and clashes between police and striking traders and shopkeepers were reported from various parts of the country. Credit goes to the Finance Minister and his team of economic managers who exercised remarkable restraint and self control even in the face of gravest provocation. Throughout this turmoiled period of several months he continued negotiations with representatives of trading community. It was in the last week of August that an accord was reached between government and the trading community which agreed to cooperate with the tax survey teams and help the government in completion of documentation of economy. The Finance Minster assured them that:

•Data collected through tax surveys will not be used for probing the past returns and it will be used only for tax return for income year 1999-2000 onward;

•The scope of self assessment scheme will be expanded and anybody can avail this facility without any prior condition. Every year 20 per cent returns will be subjected to detailed audit in a manner that every return will come under audit once in every 5 years. Any discrepancy found will be counted for the remaining assessment years and dealth with accordingly as per penalising rules;

•Any tax payer, not satisfied with CBR audit can opt for any other auditor from the private sector on the approved list of the CBR. Fifty per cent of the fee charged by such firm will be paid by the CBR.

•Contact between taxpayer and taxation authority will be minimised.

•Discretionary powers of the tax collectors will be drastically curtailed and chances of harassment of tax payers would be eliminated.

•Tax system/forms will be simplified and made as brief as possible.

•Tax rates will be reduced once tax base was broadened and revenue collection increased.

All the decisions taken and announcement made by the CBR for assessment year 2000/2001 (income year 1999-2000) are in total disregard of the commitment made by the Finance Minister and announced at a press conference in presence of trader representatives after their agreement. Forms introduced for this year are so lengthy, complicated and confusing that even an educated taxpayer cannot fill it easily. So many new columns, questions and statements have been added that the taxpayer never faced in the past. The pink form introduced for salaried class contains more than 1400 Boxes/Squares and the tax payers have to answer each and every question including a few aspects of their life style. The green form for business class, which is also applicable to salaried class having income other than the salary, asked to fill in all these minute details in addition to the disclosure of opening and closing stocks. The numerous boxes/squares and questions have been framed to bring the undocumented economy under a proper documentation and need full and correct replies from an assessee.

Even a highly educated businessman is confused over the mind-boggling questions and is running from pillar to post to collect the papers needed to fill in the forms. Most of the assessees, who want to fill all the questions faithfully, express the fear that there is every possibility of a wrong entry, as checks, rechecks and crosschecks may not lead to correct reconciliation of assets. Instead of curtailing the discretionary powers of tax collectors have been enormously increased. So many new conditions have been attached with the self assessment scheme (SAS) that hardly 2 per cent of tax payers can avail it.

The Income Tax Self-Assessment Scheme 2000-2001 may go down as a much publicised misnomer for a procedure claimed to be an instrument to promote tax culture and curb malpractices in the collection system. The scheme, announced just 17 days before the deadline for filing tax returns, appears to aim at ensuring the success of the New Tax Amnesty 2000 scheme as it excludes majority of assessees from eligibility and arouse fear so that they come clean on tax payments before they are subjected to detailed scrutiny and possible imposition of harsh penalties.

While rejecting the newly announced Self Assessment Scheme (SAS) for the year 2000-1, tax experts and consultants have pointed out that under its disqualification provisions not more than two per cent cases will be eligible to qualify for self assessment.

The primary objective of any self assessment scheme which is promulgated by the CBR under the powers through section 59 of lncome Tax Ordinance, 1969, is to invite tax cases without passing through the cumbersome procedures which are part of the normal assessment proceedings.

Under the disqualification clause, all those cases which had been filed for the immediate preceding two assessment years will not be eligible for the Self Assessment Scheme 2000-01.

This would mean, tax experts say, that 95 per cent of the cases which earlier had qualified and availed the SAS in the past two years will now stand ineligible for SAS 2000-01.

To qualify for new SAS it has been made mandatory for taxpayers, if they are liable to pay sales tax, to get themselves registered with sales tax collectorate. With such harsh conditions of disqualification, the real essence of self assessment system of filing tax returns has been totally destroyed and it would not be a shocking surprise if the new scheme does not produce any results, tax experts maintained.

A fundamental change this year is the disallowance of "addition" in income and offering expenditure. This denies eligibility to most taxpayers who used to exercise the self-assessment option in the past. Furthermore another feature that allows the income tax commissioner, with prior approval of the Regional Commissioner, to scrutinise a tax return that has not been selected for such detailed scrutiny under the random selection procedure, has exacerbated fears of witch-hunting and victimisation. Previously such scrutiny could only be done if the tax department was in possession of definite proof with regard to evasion. Therefore, most tax experts are perturbed at the increased powers of tax authorities and fear harassment and more corruption to ensue from that, as the majority of returns would now be subjected to detailed scrutiny by the tax collectors. The authorities appear to be playing a psychological game with the taxpayers with an unequivocal signal that it is the end of the road for self-assessment and they better be prepared for submitting correct and proper accounts.