Karachi, August 31, 2024 – The Pakistan Tax Bar Association (PTBA) on Saturday highlighted key tax challenges and issues facing taxpayers in a letter to Rashid Mehmood, the newly appointed chairman of the Federal Board of Revenue (FBR).
The PTBA congratulated Mehmood on assuming his role at Pakistan’s apex tax-collecting agency and emphasized the need for urgent reforms to streamline tax processes and reduce taxpayer grievances.
The PTBA outlined several pressing tax issues requiring immediate attention and resolution from the FBR. Key challenges raised by the PTBA include:
1. Stay at the First Appellate Stage: The PTBA urged the inclusion of the appellate tribunal inland revenue in the addendum to the FBR’s circular dated October 5, 2022. The existing circular addresses undue recovery proceedings under Section 138 of the Income Tax Ordinance, 2001, at the first appellate stage. The PTBA argued that this inclusion would provide greater clarity and consistency in the handling of cases at the appellate stage.
2. System Glitches in Sales Tax Rules: Following the issuance of SRO 350 for amendments in Sales Tax Rules, an explanatory SRO 1130 dated August 1, 2024, was released to clarify the application of HS Code in cases of disallowance of purchase. Despite this, the PTBA reported ongoing system glitches that hinder the implementation of these clarifications, causing confusion and delays.
3. Integration of Sales Tax and Income Tax Proceedings: The PTBA recommended that notices, proceedings, and appeals related to sales tax be conducted on the IRIS portal, similar to income tax. This integration would enhance transparency and streamline the tax filing process for taxpayers.
4. Issues with Tax Deduction Columns: The PTBA highlighted that the column for tax deductions under Section 148 of the Income Tax Ordinance, 2001, at 5.5% and 6% rates, is missing from the tax return forms. This omission complicates the filing process and leads to inaccuracies in tax calculations.
5. Use of IRIS for Challan Creation: The PTBA proposed that challans should be generated through the IRIS portal instead of the PRAL system. This would simplify the payment process and reduce administrative burdens on taxpayers.
6. Input Tax Claims and Reverse Charge Mechanism: The PTBA noted that the FBR currently bars the claim of input tax paid under the reverse charge mechanism to the Sindh Revenue Board (SRB). This restriction complicates compliance for businesses and results in financial strain.
7. Delayed Exemption Certificates: The PTBA expressed concern over the FBR’s failure to issue exemption certificates within the 15-day period mandated by the ordinance. Delays in certificate issuance disrupt business operations and create uncertainty for taxpayers.
8. Pending Approvals for NPOs: At the Karachi Corporate Tax Office (CTO) Commissioner Zone II, numerous approvals and exemptions for non-profit organizations (NPOs) have been pending for over two months. The PTBA urged swift resolution of these cases to support the operations of charitable organizations.
9. Monitoring Withholding Taxes: The PTBA highlighted the lack of effective monitoring of withholding taxes due to the absence of a synchronized withholding administration and payment system (SWAP). This gap undermines the transparency and efficiency of tax collection.
10. Issues with Refund Jurisdictions: The PTBA pointed out that the mode of operation and procedures for the new jurisdiction established at the Commissioner Refund have yet to be defined, leading to confusion and delays in processing refunds.
11. NTN Issues for SECP Registered Companies: The Securities and Exchange Commission of Pakistan (SECP) issues national tax numbers (NTNs) when companies are incorporated. However, in cases of a name change, taxpayers face significant difficulties in updating their tax profiles. The PTBA suggested that once the SECP approves a name change, it should be automatically updated in the FBR’s tax profile system.
12. Ex-Parte Orders and Compliance Challenges: The PTBA reported that hundreds of cases were passed ex-parte in June, with taxpayers given only one day to comply. These orders, due to new laws, ended up in CIT Appeal or ATIR, creating significant hardships for tax filers. The PTBA called for better communication and extended compliance periods to ensure fairness in the tax process.
13. Biometric Verification Issues: The PTBA also raised concerns related to biometric verification under SRO 350. Individuals abroad or permanently relocated face challenges in meeting verification deadlines. The PTBA suggested allowing biometric verification through respective embassies or within 15 days of arrival in Pakistan for returning individuals.
The PTBA concluded by suggesting the formation of an oversight committee to monitor and assess the legitimacy of orders issued by field officers. This committee would aim to minimize frivolous demands and enhance accountability within the FBR.
The PTBA’s letter underscores the need for systemic reforms and efficient tax administration to foster a more taxpayer-friendly environment and encourage compliance across the board.
