Penalties for not filing, late filing income tax return, wealth statement

KARACHI: The tax laws have defined both soft and harsh penalties for persons having taxable income or registered with tax authorities but failed to file their annual returns or file their returns after the due date.

According to Income Tax Ordinance, 2001 updated up to June 30, 2019 issued by the Federal Board of Revenue (FBR) explained the different amount of fine and penalties for non-compliance to mandatory requirement.

Section 114 of the Ordinance is related to persons required to file annual income tax returns and Section 116 is related to filing of wealth statement.

According to Income Tax Ordinance, 2001:

— Where any person fails to furnish a return of income as required under section 114 within the due date.

Such person shall pay a penalty equal to 0.1 percent of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50 percent of the tax payable provided that if the penalty worked out as aforesaid is less than forty thousand rupees or no tax is payable for that tax year such person shall pay a penalty of forty thousand rupees:

Provided that If seventy-five percent of the income is from salary and the amount of income under salary is less than five million Rupees, the minimum amount of penalty shall be five thousand Rupees.

Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C.

— Where any person fails to furnish wealth statement or wealth reconciliation statement.

Such person shall pay a penalty of “0.1 percent of the taxable income per week or Rs 100,000 whichever is higher.”

— Where any person fails to furnish a foreign assets and income statement within the due date.

Such persons shall pay a penalty of 2 percent of the foreign income or value of the foreign assets for each year of default.

— Where a person:

(a) makes a false or misleading statement to an Inland Revenue Authority either in writing or orally or electronically including a statement in an application, certificate, declaration, notification, return, objection or other document including books of accounts made, prepared, given, filed or furnished under this Ordinance;

(b) furnishes or files a false or misleading information or document or statement to an Income Tax Authority either in writing or orally or electronically;

(c) omits from a statement made or information furnished to an Income Tax Authority any matter or thing without which the statement or the information is false or misleading in a material particular.

Such person shall pay a penalty of twenty five thousand rupees or 100 percent of the amount of tax shortfall whichever is higher:

Provided that in case of an assessment order deemed under section 120, no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayers’ position.

Under Section 182A where return not filed within due date, the FBR said that such person shall not be included in the active taxpayers’ list for the year for which return was not filed within the due date:

Provided that without prejudice to any other liability under this Ordinance, the person shall be included in the active taxpayers’ list on filing return after the due date, if the person pays surcharge at Rupees-

(i) twenty thousand in case of a company;

(ii) ten thousand in case of an association of persons;

(iii) one thousand in case of an individual.

Explanation.—For the removal of doubt it is clarified that the provisions of this section shall apply from tax year 2018 and onwards for which the first Active Taxpayers List is to be issued on first day of March, 2019 under Income Tax Rules, 2002.; and

(b) not be allowed, for that tax year, to carry forward any loss under Part VIII of Chapter IV;

(c) not be issued refund during the period the person is not included in the active taxpayers’ list; and

(d) not be entitled to additional payment for delayed refund under section 171 and the period the person is not included in the active taxpayers’ list, shall not be counted for computation of additional payment for delayed refund.

The income tax ordinance also explained under Section 191 that any person who, without reasonable excuse, fails to —

(a) comply with a notice under sub-section (3) and sub-section (4) of section 114 or sub-section (1) of section 116; shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year, or both.

If a person convicted of an offence, without reasonable excuse, to furnish the return of income or wealth statement to which the offence relates within the period specified by the Court, the person shall commit a further offence punishable on conviction with a fine not exceeding fifty thousand rupees or imprisonment for a term not exceeding two years, or both.

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