The Pakistan Tax Bar Association (PTBA) has advised the Federal Board of Revenue (FBR) to significantly reduce penalties imposed on non-filers and late filers of income tax returns and wealth statements.
In its tax proposals for the budget 2019/2020, PTBA highlighted that the existing penalties are excessively harsh and could create unnecessary challenges for taxpayers.
The PTBA expressed concern over the quantum of penalties, emphasizing that the penalties specified under section 182(1) are unduly severe. According to PTBA, the penalties, particularly those imposed for non/late filing of return of income, statement of final tax, wealth statement, its reconciliation, and withholding statement, are unfair and may lead to harassment among existing taxpayers rather than facilitating them.
The tax bar association noted that the Finance Act of 2011 introduced an explanation, declaring that the expression “tax payable” means tax chargeable on the taxable income based on assessments made or treated to have been made under specific sections of the Income Tax Ordinance, 2001. However, PTBA argued that the imposition of penalties for the default in the submission of withholding tax statements is irrelevant as it is not related to tax on taxable income.
Furthermore, the PTBA raised concerns about the recent trend where tax authorities started levying penalties for a single day of default based on tax payable in the return without considering taxes already paid or deducted. Additionally, tax authorities are now imposing this penalty for prior years/periods, which contradicts the established principle that any amendments putting additional burden should operate only prospectively.
To address these issues, PTBA proposed the following:
1. For Failure to File the Return of Income (Section 114) and Statement under Section 115(4):
• Minimum penalty of Rs. 5,000 shall be levied if any person without reasonable excuse fails to file the return of income.
• An additional penalty higher of 0.1 percent per day of tax payable under Section 137(1) of the Ordinance or Rs. 500 per day during the default.
• The maximum penalty should not exceed 25 percent of tax payable along with return/statement.
2. For Failure to File Wealth Statement/Reconciliation (Section 116) or Withholding Statement (Section 165):
• Minimum penalty of Rs. 2,000 shall be levied for failing to file the wealth statement/reconciliation or withholding statement.
• An additional penalty of Rs. 100 per day during the default.
• The maximum penalty should not exceed 25 percent of tax withheld/collected, whichever is higher.
PTBA suggested that the imposition of penalties should be restricted to the extent of short tax paid with the return. This recommendation aligns with the approach taken by appellate authorities before the insertion of the explanation in question.
These proposed changes aim to strike a balance between enforcing compliance and avoiding excessive penalties that could discourage taxpayers and create undue challenges in the filing process. PTBA hopes that these recommendations will be considered for the upcoming budget, fostering a more taxpayer-friendly environment.
