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Penalties for not filing, late filing income tax return, wealth statement

KARACHI: The tax laws have defined both soft and harsh penalties for persons having taxable income or registered with tax authorities but failed to file their annual returns or file their returns after the due date.

According to Income Tax Ordinance, 2001 updated up to June 30, 2019 issued by the Federal Board of Revenue (FBR) explained the different amount of fine and penalties for non-compliance to mandatory requirement.

Section 114 of the Ordinance is related to persons required to file annual income tax returns and Section 116 is related to filing of wealth statement.

According to Income Tax Ordinance, 2001:

— Where any person fails to furnish a return of income as required under section 114 within the due date.

Such person shall pay a penalty equal to 0.1 percent of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50 percent of the tax payable provided that if the penalty worked out as aforesaid is less than forty thousand rupees or no tax is payable for that tax year such person shall pay a penalty of forty thousand rupees:

Provided that If seventy-five percent of the income is from salary and the amount of income under salary is less than five million Rupees, the minimum amount of penalty shall be five thousand Rupees.

Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C.

— Where any person fails to furnish wealth statement or wealth reconciliation statement.

Such person shall pay a penalty of “0.1 percent of the taxable income per week or Rs 100,000 whichever is higher.”

— Where any person fails to furnish a foreign assets and income statement within the due date.

Such persons shall pay a penalty of 2 percent of the foreign income or value of the foreign assets for each year of default.

— Where a person:

(a) makes a false or misleading statement to an Inland Revenue Authority either in writing or orally or electronically including a statement in an application, certificate, declaration, notification, return, objection or other document including books of accounts made, prepared, given, filed or furnished under this Ordinance;

(b) furnishes or files a false or misleading information or document or statement to an Income Tax Authority either in writing or orally or electronically;

(c) omits from a statement made or information furnished to an Income Tax Authority any matter or thing without which the statement or the information is false or misleading in a material particular.

Such person shall pay a penalty of twenty five thousand rupees or 100 percent of the amount of tax shortfall whichever is higher:

Provided that in case of an assessment order deemed under section 120, no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayers’ position.

Under Section 182A where return not filed within due date, the FBR said that such person shall not be included in the active taxpayers’ list for the year for which return was not filed within the due date:

Provided that without prejudice to any other liability under this Ordinance, the person shall be included in the active taxpayers’ list on filing return after the due date, if the person pays surcharge at Rupees-

(i) twenty thousand in case of a company;

(ii) ten thousand in case of an association of persons;

(iii) one thousand in case of an individual.

Explanation.—For the removal of doubt it is clarified that the provisions of this section shall apply from tax year 2018 and onwards for which the first Active Taxpayers List is to be issued on first day of March, 2019 under Income Tax Rules, 2002.; and

(b) not be allowed, for that tax year, to carry forward any loss under Part VIII of Chapter IV;

(c) not be issued refund during the period the person is not included in the active taxpayers’ list; and

(d) not be entitled to additional payment for delayed refund under section 171 and the period the person is not included in the active taxpayers’ list, shall not be counted for computation of additional payment for delayed refund.

The income tax ordinance also explained under Section 191 that any person who, without reasonable excuse, fails to —

(a) comply with a notice under sub-section (3) and sub-section (4) of section 114 or sub-section (1) of section 116; shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year, or both.

If a person convicted of an offence, without reasonable excuse, to furnish the return of income or wealth statement to which the offence relates within the period specified by the Court, the person shall commit a further offence punishable on conviction with a fine not exceeding fifty thousand rupees or imprisonment for a term not exceeding two years, or both.

December 4, 2019
Hafeez Shaikh directs FBR to simplify Form-H within a week, expedite sales tax refund payment

ISLAMABAD: Dr. Abdul Hafeez Shaikh, Adviser to the Prime Minister on Finance and Revenue, on Tuesday directed Federal Board of Revenue (FBR) to simplify form-H within a week and expedite payment of sales tax refunds.

He gave the instruction during a meeting with the office-bearers and members of All Pakistan Textile Mills Association (APTMA).

Adviser to the Prime Minister on Institutional Reforms & Austerity Dr Ishrat Hussain, Adviser to Prime Minister on Commerce, Textile, Industry and Production Abdul Razak Dawood, Chairman Task Force on Textile Ali Habib, Chairman FBR Syed Shabbar Zaidi, former finance minister Shaukat Tareen and Secretary Finance Naveed Kamran Baloch were also present among others.

Dr Abdul Hafeez Shaikh told the exporters that the government was not at all interested in keeping their money held up for any length of time and the government was willing to listen to and accommodate any solution or recommendations from the exporters to simplify the H-Form and ensure a prompt payment of sales tax refunds to them.

He also directed the FBR to expedite the payment of nearly Rs 10 billion worth of customs duty drawback to the exporters.

FBR Chairman Shabbar Zaidi told the meeting that FBR had so far received claims for sales tax refunds to the tune of Rs 10.14 billion pertaining to the period from July to October 2019 and cases amounting to Rs 8.02 billion had already been processed for payment out of which 1604 cases has been accepted for payment which would be made at the earliest.

Earlier, the APTMA leaders and members told the Adviser they were happy and satisfied with the documentation drive of the government and wanted to process their claims for sales tax refunds through the newly-introduced Form-H.

They said they had formulated their recommendations to further simplify the Form-H in view of certain problems being faced by them in filling out the form.

December 3, 2019
FBR chairman warns non-compliant immovable property, motor vehicle owners of penal action

ISLAMABAD: Syed Shabbar Zaidi, Chairman, Federal Board of Revenue (FBR) has warned of taking penal action against non-compliant persons own immovable properties and motor vehicles.

The chairman in a tweet message on Monday urged taxpayers to avail extension in income tax return filing date up to December 16, 2019.

He said that every person owning a car above 1000CC and house measuring 500 square yards or above is required to file income tax return.

The FBR on November 29, 2019 granted third extension in date for filing income tax returns for tax year 2019.

Under Section 114 of Income Tax Ordinance, 2001 following classes of persons and companies are required to file annual income tax returns:

114. Return of income.

(1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:–

(a) every company;

(ab) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year;or

(ac) any non-profit organization as defined in clause (36) of section 2;

(ad) any welfare institution approved under clause (58) of Part I of the Second Schedule;

(b) any person not covered by clause (a), (ab), (ac) or (ad) who,—

(i) has been charged to tax in respect of any of the two preceding tax years;

(ii) claims a loss carried forward under this Ordinance for a tax year;

(iii) owns immovable property with a land area of five hundred square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory;

(iv) owns immoveable property with a land area of five hundred square yards or more located in a rating area;

(v) owns a flat having covered area of two thousand square feet or more located in a rating area;

(vi) owns a motor vehicle having engine capacity above 1000 CC;

(vii) has obtained National Tax Number; or

(viii) is the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees five hundred thousand;

(ix) is a resident person registered with any chamber of commerce and industry or any trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan; or

(x) every resident person being an individual required to file foreign income and assets statement under section 116A.

(1A) Every individual whose income under the head ‘Income from business’ exceeds rupees three hundred thousand but does not exceed rupees four hundred thousand in a tax year is also required to furnish return of income from the tax year.

December 3, 2019
Salary income to include all allowances for tax determination

KARACHI: Federal Board of Revenue (FBR) has said that for determination of tax the salary income shall include the value of all perquisites, allowances and benefits received by employees.

FBR officials said on Tuesday that the salaried persons should include all such income while filing their annual income tax returns, if their employers had not deducted tax on such prerequisites.

For the purposes of computing the income chargeable to tax under the head ‘salary’, the value of all perquisites, allowances and benefits provided by the employer to the employee shall be included in the said income.

The value of accommodation provided by an employer to the employee shall be taken equal to the amount that would have been paid by the employer in case such accommodation was not provided.

Provided that the value taken for this purpose shall, in any case, not be less than forty five percent of the minimum of the time scale of the basic salary or the basic salary where there is no time scale.

Provided further that where House Rent Allowance is admissible at the rate of thirty percent, the value taken for the purpose of this rule shall be an amount not less than thirty percent of minimum of the time scale of basic salary or the basic salary where there is no time scale.]

The value of conveyance provided by the employer to the employee shall be taken equal to an amount as below:- (i)

Partly for personal and partly for official use

The tax rate shall be five percent of:

(a) the cost to the employer for acquiring the motor vehicle; or,

(b) the fair market value of the motor vehicle at the commencement of the lease, if the motor vehicle is taken on lease by the employer;

For personal use only

The tax rate shall be 10 percent of:

(a) the cost to the employer for acquiring the motor vehicle; or,

(b) the fair market value of the motor vehicle at the commencement of the lease, if the motor vehicle is taken on lease by the employer; and

For the purpose of this part, “employee” includes a director of a company.

December 3, 2019
Property tax collection sharply rises by 214 percent

KARACHI: The collection of property tax witnessed unprecedented growth of 214 percent owing to back to back increase in valuation of immovable properties by Federal Board of Revenue (FBR), sources said.

The quarterly data released by the finance ministry revealed that the provinces had collected property tax to the tune of Rs7.8 billion during first quarter (July – September) 2019/2020 as compared with Rs2.48 billion in the corresponding period of the last fiscal year.

The sources attributed the significant rise in property tax to increase in FBR valuation which was introduced in August 2016 and increased by 20 percent in February 2019 and further increased with the same ratio in July 2019.

The provinces have jurisdiction over the collection of property tax in the shape of rented properties in their respective localities.

The sources said that with the increase of FBR valuation the provinces could able to increase their revenue because the rent agreements are being made on the basis of existing valuation.

On the other hand the valuations of immovable properties notified by the provinces are very low comparing the open market values. However, under the proposed reform program funded by the World Bank the provinces may review their valuations of immovable properties.

The major increase in property tax comes from Punjab as the province collected Rs6 billion during first quarter of the current fiscal year.

It was followed by Sindh, which collected Rs1.5 billion, Khyber Pakhtoonkhwa collected Rs243 million and Balochistan collected Rs89 million.

The sources said that digitalization of property record and effective measures of documentation would further help the provinces to increase the revenue collection under the head of property tax.

December 1, 2019
SRB suspends sales tax registration of rice mill

KARACHI: Sindh Revenue Board (SRB) has suspended sales tax registration of a rice mill for defaulting payment and non-compliance of return filing.

The SRB through a notice suspended the registration of sales tax of M/s. Abdullah Lakhair Rice Mill for failure to deposit due amount of Sindh Sales Tax of Rs502,400.

Besides, the rice mill also failed to file its monthly returns for the tax periods from August 2017 to December 2017 and from January 2019 to October 2019.

The SRB asked the mill that the suspension of the registration would only be revoked if it ensures compliance by December 03, 2019.

The SRB said that in case of non-satisfactory response to take remedial measures the case would be further proceeded for cancellation of registration with SRB.

December 1, 2019
FBR collects Rs1,617 billion in five months; shortfall increases by Rs206 billion

ISLAMABAD: The shortfall in revenue collection by Federal Board of Revenue (FBR) has soared to Rs206 billion during first five months (July – November) 2019/2020 making it more difficult for revenue authorities to achieve full year target of Rs5,550 billion.

As per the revenue collection till Friday evening, the FBR provisionally collected Rs1617 billion during July – November 2019/2020 as compared with the five – month target of Rs1,829 billion.

The FBR sources said that the provisional figures may increase to Rs1623 billion after finalization of collection.

However, the FBR achieved 17 percent growth in first five months by collecting Rs1617 billion when compared with Rs1383 billion in the corresponding months of the last fiscal year.

In the month of November 2019 the FBR collected Rs334 billion, which is 18 percent higher when compared with Rs282 billion in the same month of the last year.

The FBR also missed the monthly target for the month of November 2019, which was Rs381 billion.

It is worth mentioning here that the collection for fiscal year 2018/2019 had posted negative growth in 51 years.

November 30, 2019
Customs detects fake financial instruments by importers for provisional clearance

KARACHI: Customs authorities have foiled a bid to clear consignments by some fabric importers on basis of fake financial instruments as payment of duty and taxes.

In a statement on Saturday, Model Customs Collectorate (MCC) Port Muhammad Bin Qasim said that importers M/s. Gravity Trading Company, M/s. Iqra Textile and M/s Voroly Impex were required to submit pay order in lieu of provisional assessment of value on the basis of Sindh High Court order dated October 31, 2019 in various petitions.

The importers submitted 43 pay orders amounting Rs63.50 million, in the bank guarantee section of the collectorate as securities.

The collectorate said that the importers were involved in submission of fake pay orders. The phenomenon was detected after scrutiny of the financial instruments, such as printing of same branch code pertaining to different branches of Karachi and Lahore of same bank. The bank has also confirmed the pay orders as fake.

The illegal and fraudulent act, with the active connivance of their clearing agent M/s Kanwal Enterprises and M/s. Welcome Services constituted an offence. Accordingly the GDs of the importers have been blocked.

The collectorate lodged FIR against the importers and their facilitators.

The bank guarantee section has also been directed to be vigilant on submission of the securities along with verification of available and new securities, especially pay orders and bank guarantees.

November 30, 2019
Information of account holders to be furnished by banks under Section 165A

KARACHI: Federal Board of Revenue (FBR) and banks have agreed on sharing information of financial transactions made by account holders.

The information to be furnished by the banks was to be implemented in 2013 but due to litigation it was not enforced.

However, on November 27, 2019 the banks, in a meeting with FBR chairman, agreed to provide information of transactions. They also agreed to withdraw cases filed against implementation of Section 165A.

The Section 165A was introduced to Income Tax Ordinance, 2001 through Finance Act, 2013.

165A. Furnishing of information by banks

(1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act, 1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and the regulations made under the State Bank of Pakistan Act, 1956 (XXXIII of 1956), if any, on the subject every banking company shall make arrangements to provide to the Board in the prescribed form and manner,—

(a) a list of persons containing particulars of cash withdrawals exceeding fifty thousand Rupees in a day and tax deductions thereon, aggregating to Rupees one million or more during each preceding calendar month.”

(b) a list containing particulars of deposits aggregating rupees ten million or more made during the preceding calendar month;

(c) a list of payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to rupees two hundred thousand or more during the preceding calendar month;

(d) a list of persons receiving profit on debt exceeding five hundred thousand rupees and tax deductions thereon during preceding financial year.

(2) Each banking company shall also make arrangements to nominate a senior officer at the head office to coordinate with the Board for provision of any information and documents in addition to those listed in sub-section (1), as may be required by the Board.

(3) The banking companies and their officers shall not be liable to any civil, criminal or disciplinary proceedings against them for furnishing information required under this Ordinance.

(5) Subject to section 216, all information received under this section shall be used only for tax purposes and kept confidential.

November 30, 2019
PTBA asks FBR to allow amnesty declaration filing on already paid tax

LAHORE: Pakistan Tax Bar Association (PTBA) has said that those persons who had made payment for availing tax amnesty scheme but failed to file their returns should be given an opportunity for compliance.

In a letter to Syed Shabbar Zaidi, Chairman, Federal Board of Revenue (FBR) on Friday, the PTBA requested for filing of declaration under Asset Declaration Act, 2019 of persons who made payment of tax prior to deadline.

The PTBA referred to its letter sent to the chairman on September 18, 2019 on the same issue.

The tax bar said that in this regard the desired independent legal opinion was also forwarded as given by Makhdoom Ali Khan, Senior Advocate Supreme Court of Pakistan with the previous letter.

The legal opinion concluded as under:

The FBR should allow the taxpayers to file their declaration after July 03, 2019 considering –

That the scheme of the Act 2019 foresees the possibility of the late filing of declaration.

That the deadline under Section 3 is a directory provision.

That filing late return cannot be penalized if tax has been paid.

And that factually the issue arose due to a technical failure of FBR’s online system.

The FBR’s online portal should be reopened at the very least for filing of declaration of those persons who deposited the tax under the Act 2019 on or before June 03, 2019.

The PTBA said that the taxpayers, who had paid due tax under this Act, should have been allowed to file their declaration as the basic purpose of the said scheme was to facilitate the taxpayers in order to achieve the objective of documentation of economy and revival of taxation system within the country by bringing more and more people into tax net.

“Needless to say that, the taxpayers also cannot be suffer from the technical failure of the FBR system.”

The tax bar once again urged the FBR to allow the taxpayers, who had already paid due tax in this regard, to file their declaration under the Asset Declaration Act, 2019 through their e-portals.

November 30, 2019