Finance Act 2020: Suppression of sales to be taxed under income from business

Finance Act 2020: Suppression of sales to be taxed under income from business

An attempt by a businessman to suppress sales chargeable to tax in order to reduce tax liability shall be taxed under the head of income from business, according to the Finance Act 2020 recently passed by the National Assembly.

Officials at the Federal Board of Revenue (FBR) stated that an amendment has been made to Section 111 of the Income Tax Ordinance, 2001 to ensure that concealed business activities are treated as income from business. This amendment aims to curtail tax evasion and bring all income sources under the tax net.

The amendment is detailed as follows:

(a) The amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person’s income chargeable to tax under the head ‘income from other sources’ to the extent it is not adequately explained.

(b) The suppressed amount of production, sales, or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person’s income chargeable to tax under the head ‘income from business’ to the extent it is not adequately explained.

This legislative change is expected to tighten the noose around those attempting to evade taxes by hiding sales and other business-related revenues. The FBR officials emphasized that the measure is aimed at enhancing transparency and accountability in business transactions, ensuring that all taxable income is accurately reported and taxed accordingly.

The Finance Act 2020 introduces this amendment as part of a broader strategy to improve tax collection and reduce the fiscal deficit. The government has been under pressure to increase tax revenues and has taken several steps to widen the tax base and improve compliance. By targeting concealed income, the FBR hopes to generate additional revenue and create a fairer tax system where all income is appropriately taxed.

Tax experts have welcomed the amendment, noting that it will deter tax evasion and encourage businesses to maintain accurate financial records. However, they also caution that the FBR must ensure fair implementation and avoid harassment of taxpayers. Proper guidelines and procedures should be in place to differentiate between genuine mistakes and deliberate attempts to evade taxes.

The Finance Act 2020 has introduced several other measures aimed at boosting tax revenues and improving economic stability. These include revisions to tax rates, introduction of new taxes, and enhanced penalties for non-compliance. The government’s focus on increasing tax revenues is crucial for funding public services and infrastructure projects, thereby supporting economic growth and development.

With the passage of the Finance Act 2020, businesses are advised to review their financial practices and ensure full compliance with the amended tax laws to avoid penalties and legal complications. The FBR remains committed to enforcing the law and ensuring that all taxable income is properly reported and taxed.