Karachi, November 19, 2023 – In a bid to encourage voluntary compliance and streamline tax processes, tax evaders in Pakistan now have the opportunity to avoid severe consequences by paying fines and penalties at the preliminary stage of investigation.
The Federal Board of Revenue (FBR) has implemented certain fines and monetary penalties for sales tax evaders, providing an avenue for individuals to rectify their tax discrepancies.
Officials at the FBR have clarified that upon the payment of penalties and default surcharge at the preliminary stage, no further punitive actions will be taken by the tax authorities. This leniency is outlined in Section 25 of the Sales Tax Act, 1990, which delves into the procedures and consequences associated with tax evasion.
Section 25: Access to record, documents, etc.–
The first subsection of Section 25 outlines the obligation of individuals to produce records or documents as required by the Commissioner. This includes electronic data, for which access must be granted to authorized officers of Inland Revenue. Additionally, the Commissioner is empowered to conduct audits based on the obtained records, either physically or electronically through video links or other prescribed facilities.
Moreover, the Commissioner, if armed with information or evidence of tax fraud or evasion, may authorize an inquiry or investigation by an officer of Inland Revenue, not below the rank of Assistant Commissioner, under Section 38. However, audits can still be conducted by the officer of Inland Revenue even if the records were previously audited by the office of the Auditor-General of Pakistan.
Upon completion of the audit, the officer of Inland Revenue is required to obtain the registered person’s explanation on all raised issues and pass an order under Section 11.
Voluntary Payment and Penalties
Section 25(5) introduces a provision wherein a registered person, upon discovering a tax shortfall or evasion, can voluntarily deposit the amount along with default surcharge before receiving an audit notice. In such cases, no additional penalties will be imposed.
If the registered person wishes to make a voluntary deposit during the audit or before the issuance of a show cause notice, they may do so by paying the evaded amount, default surcharge under Section 34, and 25% of the penalty under Section 33. However, if the deposit is made after the issuance of a show cause notice, the individual must pay the evaded amount, default surcharge, and the full penalty amount under Section 33. Following this, the show cause notice will stand abated.
It is essential to note that the powers vested in the Board, Commissioner, or officer of Inland Revenue under these sections are declared independent of the powers under Section 72B. This clarification ensures that nothing in Section 72B restricts the authorities’ ability to access premises, stocks, accounts, records, etc., or conduct audits under the specified sections.
This initiative aims to strike a balance between enforcing tax compliance and offering a pathway for individuals to rectify their tax obligations voluntarily. The FBR believes that this approach will not only foster a culture of compliance but also streamline the tax assessment process in Pakistan.
