ISLAMABAD: The Federal Board of Revenue (FBR) has introduced a significant amendment to the Income Tax Ordinance, 2001, through the Finance Bill, 2021, empowering tax officers to arrest individuals in cases of income concealment.
The proposed changes, aimed at enhancing enforcement, mark a crucial shift in the FBR’s authority to combat tax evasion.
PwC A.F. Ferguson & Co. Chartered Accountants, in their commentary on the 2021/2022 budget, elaborated on the introduction of the term “concealment of income.” According to the proposed definition, concealment includes: (a) the suppression of any item of receipt that is liable to tax, in whole or in part, or the failure to disclose income chargeable to tax; (b) claiming deductions or expenses that were not actually incurred; and (c) any act mentioned in sub-section (1) of section 111 of the Income Tax Ordinance, which relates to unexplained income or assets.
Additionally, an explanation has been proposed to clarify situations where mere disallowance of a tax exemption or deduction does not automatically qualify as concealment. Specifically, if a taxpayer claims an exemption for any income or deduction for an expense, the disallowance of such claims would not be deemed as concealment unless it is proven that the taxpayer deliberately misrepresented or falsely claimed the exemption or deduction for expenses not actually incurred.
The introduction of this explanation is designed to provide a safeguard against penalizing taxpayers for honest mistakes or legitimate tax claims that may be disallowed upon review. However, if deliberate concealment or false claims are established, the FBR will have the authority to proceed with stringent actions, including arrest.
This expanded definition is critical for the proposed provisions under sections 203A to 203H, which outline the powers of authorized officers to arrest individuals based on material evidence of income concealment. The detailed provisions also cover the procedural aspects surrounding these powers, including the arrest process.
While the amendments are expected to bolster the FBR’s efforts to curb tax evasion, there are concerns about the potential abuse of these powers. PwC A.F. Ferguson & Co. highlighted the need for rationalizing these provisions, suggesting that a structured approval or adjudication process be instituted before such powers can be exercised. This would ensure that the arrest authority is applied judiciously, protecting taxpayers from undue harassment and safeguarding their legal rights.
The proposed amendments reflect the government’s commitment to increasing tax compliance, but careful implementation and oversight will be key to preventing misuse of these expanded powers.