The Karachi Tax Bar Association (KTBA) has strongly criticized tax authorities for their handling of unresolved issues surrounding the filing of income tax returns for the tax year 2022.
The association, in a letter addressed to the Chairman of the Federal Board of Revenue (FBR), highlighted numerous concerns and called for an extension of the filing deadline, currently set at October 31, 2022.
In the letter, KTBA President Syed Rehan Hasan Jafri underscored that the tax return for the specified year has not been finalized, with a number of corrections still pending. Jafri emphasized the dynamic nature of ongoing changes, urging the FBR to provide reasonable time for taxpayers to navigate through the evolving situation.
Notably, the original deadline for filing income tax returns was September 30, 2022. However, various stakeholders, including tax bars, raised issues related to the difficulties faced in the filing process. Consequently, the FBR extended the deadline to October 31, 2022.
While acknowledging the FBR’s efforts in resolving some issues, KTBA pointed out several outstanding concerns that require immediate attention for the smooth filing of tax returns. The highlighted issues include:
1. Inactive Column for Refund Adjustment: The association expressed dismay over the continued inactivity in the system for the adjustment of bona fide tax refunds to taxpayers. KTBA emphasized that withholding refunds adversely affects taxpayers and urged the FBR to address this fundamental concern promptly.
2. Income Attribution with Respect to Minimum Taxation U/S. 153: KTBA raised concerns about the IRIS web portal attributing income associated with Section 153 based on predefined and programmed formulas. The association suggested allowing taxpayers to compute and attribute their incomes based on the facts of their individual cases, providing more flexibility.
3. Initial Depreciation Allowance on Plant & Machinery U/S. 23: The association highlighted the issue of incorrect calculation of the initial depreciation allowance at 25% for plant and machinery under Section 23. The current discrepancy in the IRIS portal results in inaccurate tax depreciation computations.
4. Erroneous Calculation of Written Down Value: KTBA pointed out an unresolved issue related to the incorrect calculation of the written-down value of assets. The calculation error stems from the application of a 50% reduction on depreciation for additions to fixed assets made after July 1, 2020.
5. Adjustment of Brought Forward Capital Losses Not Available: The association raised concerns about the absence of a column for adjusting brought forward capital losses on listed securities under the capital gains head. This omission affects the accurate calculation of tax on capital gains under Section 37A.
6. Return for SMEs Finalized Without Draft Returns: KTBA drew attention to the absence of draft return forms for the simplified scheme introduced for manufacturing SMEs with a turnover of up to 250 million, as mandated by Section 100E. The association emphasized the importance of issuing draft forms to comply with legal requirements.
7. Value of Properties for Calculation of Deemed Income U/S. 7E: KTBA reiterated its earlier recommendation for incorporating property values under Section 7E from the 42 notifications (SROs) issued by the FBR in March 2022. The association urged the FBR to ensure swift and correct computation of the 20% tax on 5% value under Section 7E.
In addition to these unresolved issues, KTBA raised concerns about a new 7E Annexure introduced on October 13, 2022, in the IRIS. The association criticized the annexure’s unnecessary complexity and detailed format, creating challenges for taxpayers and advisors in the final days of tax return filing.
Furthermore, the letter highlighted the timing of the introduction of the 7E Annexure, which fell within the last 15 days of October. KTBA suggested reconsidering the timing, emphasizing the need for better coordination between taxpayers and the FBR to address these complex issues.
The association concluded the letter by requesting a tutorial or demo presentation to assist taxpayers in navigating the intricacies of the income tax return filing process. KTBA also proposed a joint meeting between representatives of KTBA and FBR’s Policy, Legal, and IT/PRAL Divisions for a collaborative resolution of the highlighted issues.
As the deadline for filing income tax returns approaches, the concerns raised by KTBA underscore the importance of addressing systemic issues to ensure a smooth and equitable tax filing process for all stakeholders involved. The response from the FBR to these concerns will likely shape the landscape of tax compliance in the upcoming weeks.