Provisional Assessment Under Section 123 of Income Tax Ordinance, 2001

Provisional Assessment Under Section 123 of Income Tax Ordinance, 2001

Section 123 of Pakistan’s Income Tax Ordinance, 2001, provides guidelines for provisional assessment in cases where concealed or undisclosed assets are discovered by the government.

This section enables the Commissioner of the Federal Board of Revenue (FBR) to take swift action against individuals who have hidden assets that were not reported for taxation purposes.

Key Provisions of Section 123:

1. Provisional Assessment of Concealed Assets: According to Subsection (1) of Section 123, if a concealed asset belonging to an individual is uncovered by any department or agency of the Federal Government or Provincial Government, the Commissioner of Inland Revenue may issue a provisional assessment order. This order is issued for the last completed tax year of the individual, taking into account the hidden asset. It can be issued before any formal assessment order under Section 121 or any amended assessment order under Section 122 is finalized. The provisional order ensures that the concealed asset is included in the tax calculations for the relevant year.

2. Provisional Assessment of Offshore Assets: Subsection (1A) extends the Commissioner’s powers to offshore assets, which are often more challenging to track. If an offshore asset, which was not previously declared by the taxpayer, is identified by the Commissioner or any government agency, a provisional assessment order may be issued. Similar to concealed assets, this provisional order covers the last completed tax year of the individual and incorporates the value of the newly discovered offshore asset. This provision addresses tax evasion through hidden offshore accounts or investments.

3. Timely Finalization of Provisional Assessments: Subsection (2) emphasizes that provisional assessments must be finalized “as soon as practicable.” This means the Commissioner is required to conclude the provisional assessment process promptly, ensuring that the taxpayer’s liability is accurately determined based on the hidden assets.

4. Definition of Concealed Asset: Under Subsection (3), a “concealed asset” is defined as any property or asset that, in the opinion of the Commissioner, was acquired using income that is subject to taxation under the Income Tax Ordinance but was not disclosed by the taxpayer.

Purpose and Impact: The main objective of Section 123 is to combat tax evasion by targeting hidden or undeclared assets, whether domestic or offshore. By allowing the issuance of provisional assessment orders, this section ensures that the revenue authorities can quickly incorporate concealed assets into tax calculations, preventing individuals from benefiting from non-compliance with tax laws.