FBR advised to substantially reduce penalties on non-filing, late-filing of tax returns

KARACHI: Federal Board of Revenue (FBR) has been advised to substantially reduce penalties for non-filing or late filing of income tax returns and wealth statements.

“Penalties for non/late filling of return of income, statement of final tax, wealth statement its reconciliation and withholding statement specified under section 182(1) are very harsh and excessive.”

This was stated by Pakistan Tax Bar Association (PTBA) in its tax proposals for budget 2019/2020.

It said that the quantum of penalties raised through substitution of section 182(1) read with the explanation is very harsh and unfair.

“It is also unjustifiable and illogical to impose such huge penalties; which may create harassment among the existing taxpayers rather to facilitate them.”

The tax bar said that through Finance Act, 2011, an explanation has been inserted whereby for the purpose of this entry, it has been declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C of the Income Tax Ordinance, 2001.

The prescription of above penalty for default in submission of withholding tax statement is not relevant as the same is not related to tax on taxable income.

Generally the main reason for levying penalties on commitment of offences is only to educate the taxpayers and create deterrence; so that they may file the return/statement within stipulated time.

The intention of legislature has never been to create huge demands or to achieve revenue target through such penalties.

“Consequent to insertion of the said explanation, it has been noted that the tax authorities have invariably started levying penalty for a single day of default on the basis of tax payable in the return without taking into account the taxes already paid/ deducted.”

Further, the tax authorities are now imposing this penalty for prior years/ periods as well, which is against the established principle that any amendments putting additional burden can operate only prospectively.

This situation is causing a serious hardship to the taxpayers, as now due to this explanation, the tax authorities are using the explanation as tax collection avenue instead of a deterrent.

It is, therefore proposed that:-

Minimum penalty of Rs.5, 000/- shall be levied if any person without reasonable excuse fails in filing the return of income under Section 114 and statement under Section 115(4), thereafter an additional penalty higher of 0.1 percent per day of tax payable under Section137(1) of the Ordinance or Rs.500/- per day during which the default continues.

The maximum penalty should not exceed 25 percent of tax payable along with return/statement.

Minimum penalty of Rs.2,000/- shall be levied if any person without reasonable excuse fails in filing the wealth statement / reconciliation under section 116 or withholding statement under Section165, thereafter an additional penalty of Rs.100/- per day during which the default continues.

The maximum penalty should not exceed 25 percent of tax withheld/collected, whichever is higher.

The PTBA said that imposing of penalty should be restricted to the extent of short tax paid with the return, as was held by the appellate authorities before insertion of the said explanation, and if there was no tax payable then token amount of penalty should be imposed, as was the cause before substitution of section 182 of the Ordinance.

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