FBR empowered to recover income tax on sectoral benchmark basis

FBR empowered to recover income tax on sectoral benchmark basis

ISLAMABAD: The officials of Federal Board of Revenue (FBR) have been authorized to recover income tax on sectoral benchmark ratio basis where a taxpayer fails to provide record or required details.

The concept of sectoral benchmark ratios has been introduced through Finance Act 2020 for making recovery of unexplained income by taxpayers. In this regard an amendment has been made to Section 177 of Income Tax Ordinance, 2001.

A new subsection 2AA has been introduced to Section 177, under which, where a taxpayer

(a) has not furnished record or documents including books of accounts;

(b) has furnished incomplete record or books of accounts; or

(c) is unable to provide sufficient explanation regarding the defects in records, documents or books of accounts,

Is shall be construed that taxable income has not been correctly declared and the commissioner shall determine taxable income on the basis of sectoral benchmark ratios prescribed by the FBR.

An explanation has been added to sub-section, stating that the expression ‘sectoral benchmark ratios’ means standard business sector ratios notified by the board on the basis of comparative cases and includes financial ratios, production ratios, gross profit ratio, net  profit ratio, recovery ratio, wastage ratio and such other ratios in respect of such sectors as may be prescribed.