The Federal Board of Revenue (FBR) has provided clarity on the recovery of taxes from the estates of deceased persons and entities undergoing bankruptcy proceedings through the recent amendments to the Sales Tax Act, 1990.
As of June 30, 2021, these amendments, incorporated via the Finance Act, 2021, introduce Section 53 and Section 54, shedding light on the tax liabilities of deceased registered persons and those in bankruptcy.
Section 53: Estate of Deceased Person
Section 53 addresses the tax liabilities of a deceased registered person, establishing that such liabilities shall be the first charge on the estate in the hands of their successors. This provision aims to ensure that any outstanding tax obligations of a deceased registered individual take precedence over other claims on their estate. By making the tax liability the primary charge, the FBR emphasizes the importance of settling tax dues promptly to facilitate the orderly distribution of the deceased person’s assets.
The text of Section 53 reads, “The tax liability of a deceased registered person under the Act shall be the first charge on his estate in the hands of his successors.” This straightforward language reinforces the priority of settling tax liabilities before other claims are addressed.
Section 54: Estate in Bankruptcy
Section 54 deals with the scenario of a registered person being declared bankrupt. In such cases, the tax liability under the Sales Tax Act, 1990, is transferred to the estate in bankruptcy if it continues to operate the business. Moreover, if tax liability is incurred by an estate in bankruptcy, the tax is deemed a current expenditure in the operations of the estate, and it must be settled before other creditors’ claims are addressed.
The text of Section 54 outlines, “If a registered person is declared bankrupt, the tax liability under this Act shall pass on to the estate in bankruptcy if it continues to operate the business. If tax liability is incurred by an estate in bankruptcy, the tax is deemed to be a current expenditure in the operations of the estate in bankruptcy and shall be paid before the claims preferred by other creditors are settled.”
This provision establishes the priority of settling tax dues in bankruptcy proceedings, ensuring that the tax liability is treated as a current expenditure and takes precedence over other claims by creditors. This measure safeguards the revenue interests of the government during bankruptcy proceedings, aligning with the broader objectives of tax compliance and fiscal responsibility.
These amendments reflect the government’s commitment to strengthening the tax collection system and ensuring that tax liabilities are adequately addressed, even in situations involving the estates of deceased individuals or entities undergoing bankruptcy. By clearly defining the order of priority in settling tax obligations, the FBR aims to promote transparency, accountability, and the efficient administration of tax laws.
As businesses, legal professionals, and stakeholders engage with these provisions, it is crucial to understand the implications for estate management and bankruptcy proceedings. The amendments to Section 53 and Section 54 provide a framework that underscores the significance of fulfilling tax obligations in a timely manner, contributing to a fair and equitable distribution of assets in the face of estate-related challenges.
