Author: Faisal Shahnawaz

KARACHI: In a significant move to enhance tax compliance, the Federal Board of Revenue (FBR) has updated the Income Tax Ordinance, 2001, granting Commissioners of Inland Revenue the authority to conduct ‘best judgement assessment’ for taxpayers who fail to file their annual returns and meet their tax obligations.

Under Section 121 of the amended ordinance, the commissioner is empowered to initiate a best judgement assessment in several scenarios. These include a taxpayer’s failure to furnish a statement as required by a notice under sub-section (5) of section 115, failure to submit a return of income in response to a notice under sub-section (3) or sub-section (4) of section 114, and failure to furnish a return as required under section 143 or section 144, among others.

The section stipulates that if a taxpayer neglects to produce necessary accounts, documents, and records required for assessment, the Commissioner may, based on available information and to the best of their judgement, assess the taxable income and determine the corresponding tax liability. Any such assessment is considered to have been made independently of the taxpayer’s filed return or revised return, rendering the latter of no legal effect.

Upon completing the assessment, the Commissioner is obligated to issue an assessment order to the taxpayer promptly. The order must include details such as the taxable income, the amount of tax due, any tax payments made, and information regarding the process of appealing the assessment order, including the time, place, and manner.

The revised ordinance also imposes a time constraint on the issuance of assessment orders under this section. Sub-section (3) dictates that such orders can only be issued within five years after the end of the tax year or the income year to which they relate. However, an exception is provided in cases where a notice for filing a return of income under sub-section (4) of section 114 is issued; in such instances, the assessment order must be issued within two years from the end of the tax year in which the notice is served.

The FBR’s move is aimed at bolstering the country’s tax collection efforts by ensuring that taxpayers fulfill their obligations and discouraging non-compliance. The provision of ‘best judgement assessment’ grants tax authorities the tools necessary to make informed decisions in the absence of complete and accurate information from non-compliant taxpayers.