PkRevenue.com – The Federal Tax Ombudsman (FTO) has proposed that tax authorities streamline income tax returns to make it easier for taxpayers to fulfill their civic duties.
This recommendation is part of a broader set of proposals for the 2024-25 budget aimed at making the tax system more accessible and efficient.
Simplified Tax Returns for Small Entities
A key proposal from the FTO is the creation of a simplified and separate tax return process for small companies, Associations of Persons (AOPs), and individual business owners. This tailored approach aims to reduce the administrative burden on these smaller entities, making compliance less cumbersome.
Major Changes to Tax Policy and Laws
The FTO’s recommendations extend beyond simplified tax returns, advocating for significant changes in tax policies and laws. These changes are designed to support various sectors, including exporters, the real estate sector, and startup companies. Specific measures include encouraging voluntary compliance, expediting refund payments, and introducing a straightforward tax return process for small businesses.
To tackle issues of fraudulent invoicing, the FTO suggests stringent controls on fake or flying invoices and endorses a 100 percent input tax adjustment. Additionally, the proposal includes increasing the income tax threshold to provide relief to salaried individuals.
Addressing Hurdles in the Real Estate Sector
The FTO has highlighted several taxation policies that are currently hindering the development of the real estate sector. Among these are section 7E, which imposes a tax on deemed income, and a 15% capital gains tax. Other barriers include high stamp duties and significant advance taxes on the buying and selling of immovable property. The FTO has called for these negative taxation policies to be revisited to spur growth in the real estate market.
Reducing Litigation and Simplifying the Appeal Process
To reduce litigation and streamline the appeal process, the FTO has proposed several amendments to existing tax laws. One notable recommendation is to reduce the time limit for issuing an appeal effect order from two years to 120 days. This change aims to resolve tax disputes more quickly and efficiently, cutting down on unnecessary litigation.
Additionally, the FTO has pointed out that recent increases in appeal filing fees have placed an undue burden on taxpayers. Therefore, it is recommended that the Income Tax Ordinance, 2001, be amended to rationalize the fee structure.
Modernizing Assessment Procedures
The FTO has also called for a revamp of outdated assessment procedures, which often result in the harassment and blackmail of taxpayers. Current practices mean assessments and reassessments can drag on for more than two years, causing significant delays and increasing business costs. The FTO suggests setting reasonable time limits for completing assessments and audits to provide relief to taxpayers and reduce business expenses.
Addressing Delays in Income Tax Refund Payments
The FTO has proposed a specific amendment to address the issue of delayed income tax refund payments. The recommendation includes inserting a time limit of 30 days for electronically transferring the refund amount to the taxpayer’s bank account. This change would help expedite the refund process, alleviating the financial strain on taxpayers awaiting their returns.
Taxpayers with small refund amounts often face significant delays in processing their refunds. To address this, the FTO has recommended the development of an automated system, similar to CITRO, which would allow for automatic processing of refunds up to Rs50,000 within 30 days of filing a return through the IRIS system.
Proposed Amendments to the Sales Tax Act
Another major recommendation involves the removal of section 8B of the Sales Tax Act, 1990. This section currently limits the claim of input tax to 90% of output tax, which the FTO argues creates unnecessary procedural hurdles and contributes to refund backlogs. The adjustment of input tax is a fundamental right for registered taxpayers engaged in taxable activities, and the removal of this section would streamline the process.
The FTO also suggests expanding the list of five Export Oriented Sectors to include other sectors whose exports exceed those of some currently listed sectors. This adjustment would recognize and support high-performing export sectors.
Relief for the Salaried Class Amid High Inflation
In light of rising inflation, the FTO has proposed measures to provide relief to the salaried class, who are among the most adversely affected. Currently, income tax is withheld at source from gross salaries exceeding Rs 600,000 per annum. With the increasing cost of utilities and travel, many employees struggle to meet basic expenses, including commuting to work.
To alleviate this burden, the FTO suggests providing rebates against utility expenses and increasing the income threshold for tax exemption to Rs1,200,000. This adjustment would offer much-needed relief to the salaried class and help mitigate the impact of inflation.
Support for Startup Companies
The FTO has also focused on the needs of startup companies, which currently enjoy a 100% tax credit for the first three years. However, their income becomes taxable at a rate of 29% in subsequent years, which can be discouraging. The FTO recommends extending the benefits by offering a reduced tax rate for startup companies beyond the initial three-year period. This move would align with the reduced rate already enjoyed by small companies at 20%, fostering a more supportive environment for startups.
The FTO’s comprehensive set of proposals for the 2024-25 budget aims to simplify tax processes, reduce litigation, provide relief to various sectors, and support the growth of small businesses and startups. By addressing these key areas, the FTO seeks to create a more efficient and equitable tax system that benefits both taxpayers and the broader economy.
