The member HRM is still quiet about the real fact, that is, when discretionary powers are applied - pressure of collecting assigned targets.
As it is necessary to start by doing the necessary, then the possible and suddenly, CBR will start doing the impossible.
This article is an endeavour to analyse this root cause and causa causins of the problem, apart from the suggestive solution related thereto.
The problems relating to assessments, obtain refunds and/or their adjustment is not new to taxpayers.
The taxpayers are paying huge cost to get back refund. They have to engage in legal battles (thus to pay fees to attorneys) or gratification to the department to obtain what is their lawful right.
The infant baby, the Income Tax Ordinance, 2001 [hereinafter referred to as ITO 2001] is also following in the footsteps of his father, Income Tax Ordinance, 1979, [hereinafter referred to as ITO 1979] which is construed from the attitude of grandfather, Income Tax Act, 1922 [hereinafter referred to as ITA 1922] in respect of refunds and adjustments.
In order to understand the problem we must first go through sections 170 and 171 of the Income Tax Ordinance, 2001. Sections 170 and 171 are read as follows.
170.REFUNDS:
(1) A taxpayer who has paid tax in excess of the amount, which the taxpayer is properly chargeable under this Ordinance, may apply to the Commissioner for a refund of the excess.
(1A) Where any advance or loan, to which sub-clause (e) of clause (19) of section 2 applies, is repaid by a taxpayer, he shall be entitled to a refund of the tax, if any, paid by him as a result of such advance or loan having been treated as dividend under the aforesaid provision.
(2) An application for a refund under sub-section (1) shall be -
(a) made in the prescribed form;
(b) verified in the prescribed manner; and
(c) made within two years of the later of -
(i) the date on which the Commissioner has issued the assessment order to the taxpayer for the tax year to which the refund application relates; or
(ii) the date on which the tax was paid.
(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall -
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;
(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and
(c) refund the remainder, if any, to the taxpayer.
(4) The Commissioner shall, within 45 days of receipt of a refund application under sub-section (1), serve on the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of being heard.
(5) A person aggrieved by- (a) an order passed under sub-section (4); or (b) the failure of the Commissioner to pass an order under sub-section (4) within the time specified in that sub-section, may prefer an appeal under Part III of this Chapter.
171.ADDITIONAL PAYMENT FOR DELAYED REFUNDS:
(1) Where a refund due to a taxpayer is not paid within three months of the date on which it becomes due, the Commissioner shall pay to the taxpayer a further amount by way of compensation at the rate of fifteen percent per annum of the amount of the refund computed for the period commencing at the end of the three month period and ending on the date on which it was paid.
(2) For the purposes of this section, a refund shall be treated as having become due;
(a) in the case of a refund required to be made in consequence of an order on an appeal to the Commissioner (Appeals), an appeal to the Appellate Tribunal, a reference to the High Court or an appeal to the Supreme Court, on the date of receipt of such order by the Commissioner; [or]
(b) in the case of a refund required to be made as a consequence of a revision order under section [122A], on the date the order is made by the Commissioner; or
(c) in any other case, on the date the refund order is made.
In the light of above referred legal provisions, a taxpayer can claim refund in the following two cases.
Firstly, when the tax deducted or paid is in excess of taxpayer's tax liability. Secondly, on the repayment loan or advance, which was treated as dividend and tax, has been collected therefrom.
In the above-referred two cases, the taxpayer shall file a refund application under rule 71 read with Part VI of the first schedule of Income Tax Rules, 2002. The tax payment challans need to be verified from the Data Processing Centre (DPC) of the Department - a duty of the department to be done by the taxpayer in order to take the refund ASAP and avoid any delays.
The application for the refund must be made within two years of the date of payment of tax or from the date of order of commissioner, which ever is later.
The commissioner shall pass an order after firstly adjusting the excess tax against any tax due under this ordinance from the taxpayer and secondly against other taxes due from the taxpayer - the official delaying tactic incorporated in Income Tax Ordinance, 2001.
Hence, from now on the Commissioner is authorised to check whether there is any excise, customs or sales tax liability over the taxpayer! Although there is no such corresponding provision exist under the relevant statutes related to such taxes.
Apart from this blatant mistake, where the taxpayer is aggrieved either from the commissioner's order or where the commissioner has failed to pass such order within the prescribed time limit, he/she/it shall prefer to file an appeal.
It is worthwhile here to note that taxpayer is entitled for compensation @15% where no refund has been given within three months, that is, from the first days of fourth month till the date of payment.
Hence, where any delaying tactic is used, the taxpayer can either file an appeal or accrue compensation in the books of accounts.
PROBLEM: The problem relating to tax refund and adjustment can easily be understood through the example in the table.
The tax data relating to VAK Limited is as follows.
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Income year Assessment year Tax paid/deducted Refund/(Payable)
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1993-1994 1994-1995 5,000,000.00 2,000,000.00
1994-1995 1995-1996 6,000,000.00 1,000,000.00
1995-1996 1996-1997 7,000,000.00 2,000,000.00
1996-1997 1997-1998 8,000,000.00 (3,000,000.00)
1997-1998 1998-1999 9,000,000.00 3,000,000.00
1998-1999 1999-2000 5,000,000.00 1,000,000.00
1999-2000 2000-2001 8,000,000.00 (2,000,000.00)
2000-2001 2001-2002 5,000,000.00 2,000,000.00
2001-2002 2002-2003 9,000,000.00 (2,000,000.00)
Tax year Tax paid/deducted Refund/(Payable)
2003 14,000,000.00 3,000,000.00
2004 20,000,000.00 1,000,000.00
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The department normally uses delaying tactics in case of refund of tax. VAK limited approached the department after tax year 2004 for the refund. The detail of refund is as follows.
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Assessment year Tax paid/deducted Refund/(Payable Balance
1994-1995 5,000,000.00 2,000,000.00 2,000,000.00 DR
1995-1996 6,000,000.00 1,000,000.00 3,000,000.00 DR
1996-1997 7,000,000.00 2,000,000.00 5,000,000.00 DR
1997-1998 8,000,000.00 (3,000,000.00) 2,000,000.00 DR
1998-1999 9,000,000.00 3,000,000.00 5,000,000.00 DR
1999-2000 5,000,000.00 1,000,000.00 6,000,000.00 DR
2000-2001 8,000,000.00 (2,000,000.00) 4,000,000.00 DR
2001-2002 5,000,000.00 2,000,000.00 6,000,000.00 DR
2002-2003 9,000,000.00 (2,000,000.00) 4,000,000.00 DR
Tax year Tax paid/deducted Refund/(Payable)
2003 14,000,000.00 3,000,000.00 7,000,000.00 DR
2004 20,000,000.00 1,000,000.00 8,000,000.00 DR
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No sooner, VAK Limited approached the department with the above-referred data, the commissioner asks the company to verify the tax payment challans from DPC. While issuing the above referred instructions, the Commissioner used not to consider the following three important facts.
1. When was the DPC created?
2. Which tax payment challans are not adjusted during the process of assessment during the relevant year?
3. For how long the companies are required to retain the records under the Companies' Ordinance, 1984?
The Commissioner used to overlook these three basic questions in case of companies and put the taxpayer - the company - in real trouble.
The commissioner should consider the following facts before putting the taxpayer into astray.
1. DPC department is created around three to four years back
2. Assessing officer used to adjust the lump sum advance tax and used not to adjust each individual amounts/tax payment challans against the given demand.
3. Companies are required to retain the record for 10 years' only and Income Tax Ordinance, 2001 cannot override the basic law, that is, Companies' Ordinance, 1984.
The rechecking of tax payment challan for refund purpose is highly illogical because the assessing officer has already checked the same during the process of assessment.
Could the Central Board of Revenue high-ups provide any justification in respect of such rechecking of advance tax challans on submission of refund application - just for the sake of delaying the refund? I think VAK limited should submit the tax challans along with refund application and let the commissioner do the rest.
The obligation lies over the taxpayer is in respect of submission of tax challans photocopies till tax year 2004 but not relating to assessment year 1994-1995.
SUGGESTED SOLUTION: It seems that the sea of change in the Central Board of Revenue does not have any roots in basic organisational structure of income tax.
The root level personnel are busy in meeting their targets by way of hook and crook without recognising the fact that this will create an adverse impression over the taxpayers about the Central Board of Revenue.
Such attitude will falsify or deteriorate all the efforts of the Central Board of Revenue and will compel the tax payer to think about the fact that appearance of goodwill gestures from Central Board of Revenue in the newspapers is just for portraying purposes and the high-ups are instructing the opposite to their sub-ordinates.
The most effective solution of this problem is a running statement of tax account of a taxpayer.
The running statement can be similar to a bank statement in respect of appearance but should be based on a knowledge-based programme.
For this very basic reason, the Central Board of Revenue should adopt a double entry system of accounting.
The point of time for the revenue recognition is the point of intimation from the taxpayer.
The statement should-highlight the sections of taxes due, for instance, Section 147 etc, as the revenue cannot be determined in advance, except in some cases.
In furtherance, the Central Board of Revenue should prepare a standard checklist of normal sections applications while framing an assessment and judge the efficiency of a commissioner in case the CIT (A) or ITAT upholds the order.
The thoroughly corrupt tax machinery has delayed the assessment of assessment year 2002-2003 of some taxpayers.
As the tax law was an infant baby, hence, they have stopped the assessment of some taxpayers in the hope of getting huge bribes during this uncertainty phase.
The Central Board of Revenue needs to sort out the detail of all such pending cases.
In furtherance, DPC should be instructed to prepare a report in running statement of account form of taxpayers to immediately identify the tax recovery positions under different sections of the Income Tax Ordinance, 2001 and that need to be reconciled with the advance tax challans claimed by the recipient, where applicable.
In furtherance, clause (b) of sub-section (3) of section 170 needs to be deleted.
Apart from this, Member HRM must assess the performance of assessing officer on the basis of orders upheld by the different appellate forums.
The Central Board of Revenue must appear what it wants to appear before the taxpayers - the present image portrayed by its greedy and hawkish tax officials is not what any government would like to have of its revenue authority.
Efficient and people-friendly tax revenue machinery is the need of the hour, which can only be created by bringing a qualitative change in the human fibre of the CBR.
It is not possible till the time the hawkish elements sitting in the CBR are removed.
They misbehave with taxpayers and the officers alike. They consider them above law, portray them as honest, but in reality are the most corrupt, both intellectually and financially.
They extend unprecedented benefits to their masters at the nation's cost and deny the taxpayers their rights.
They have only one agenda to please their foreign masters and make the life of the common people of Pakistan as miserable as possible and destroy the local industry and business.
The present elected government should appoint the top management of CBR through a parliamentary process that is by interviewing the able people through a special committee of both houses.
These officials should be accountable before the people of Pakistan through parliamentary committees.
At present the top slot of CBR is filled through a process of favouritism and the ruling clique wants those who can show just higher figures of collection even if in the process it destroys the very economic and social structure of society.
(The writer is an international tax advisor.)