According to income tax circular 4 of 2017 issued by the FBR here on Wednesday, prior to the Finance Act, 2017, under section 122C of the Ordinance the Commissioner was empowered to make provisional assessment specifying the income assessed and the tax payable thereon, by exercising his best judgment and utilizing any available information in respect of any person who has failed to furnish a return of income in response to a notice under sub-section (3) or (4) of section 114 of the Ordinance. Such order attained finality after the expiry of 45 days from the date of service of such order if the taxpayer failed to furnish a complete return of income.
Also, there was no right of appeal under section 127 of the Ordinance against a provisional assessment order passed under section 122C of the Ordinance which attained finality after the expiry of 45 days from the date of service of such order. Through the Finance Act, 2017 the concept of provisional assessment has been done away with.
However, simultaneously an amendment has been made in section 121 of the Ordinance, whereby, as an alternative to invocation of 122C of the Ordinance, Commissioners have now been empowered to make a best judgment assessment on the basis of available material/information if a taxpayer fails to furnish a return in response to notice issued under section sub-section (3) or sub-section (4) of the Income Tax Ordinance, 2001.Therefore,with effect from 1st July, 2017 section 121 shall be invoked as a result of the failure of a taxpayer to furnish a complete return of income in response to a notice under sub-section (3) or (4) of section 114 of the Ordinance.
Furnishing of information by financial institutions for "reportable persons". [Section 1658, Section 182]: Prior to the Finance Act, 2017, financial institutions were required to make arrangements for furnishing of information to FBR for non-resident persons in the prescribed form and manner for the purpose of automatic exchange of information under bilateral agreements or multilateral conventions .Subsequently, in September 2016, Pakistan signed OECD's "Multilateral Convention on Mutual Administrative Assistance in Tax Matters". In light of the recently introduced Common Reporting Standard Rules as per Chapter XIIA of the Income Tax Rules, 2002 vide SRO 166(1)/2017 dated 15t March, 2017 the scope of information which financial institutions are required to provide to FBR has been extended to include "other reportable" persons as defined under the Common Reporting Standard Rules through the Finance Act, 2017.
Under the Common Reporting Standard Rules a "Reportable Person" means a Reportable Jurisdiction /Person other than :
(i) a corporation the stock of which is regularly traded on one or more established securities markets;
(ii) any corporation that is a Related Entity of a corporation described in (i) above;
(iii) ) a Governmental entity
(iv) an International Organization
(v) a Central Bank; or
(vi) a Financial Institution
The Reportable Jurisdiction Person has also been defined in the Common Reporting Standard Rules as an individual or Entity that is resident in a Reportable Jurisdiction or an estate of a decedent that was a resident of Reportable Jurisdiction. For this purpose, an Entity such as a partnership, limited liability partnership or similar legal arrangement that has no residence for tax purposes shall be treated as resident in the jurisdiction in which its place of effective management is situated.
Furthermore, the term "financial institution" is not specifically defined for purposes of section 165B of the Ordinance, therefore, definition contained in section 2(24) is applicable. This definition is restricted to financial institutions as defined under the Companies Ordinance, 1984. On the other hand, Common Reporting Standard's definition of "financial institution" means "a Custodial Institution, a Depository Institution, an Investment Entity or a Specified Insurance Company." These types of financial institutions have been explained in detail in the Common Reporting Standards. To forestall any interpretational issues and to align the provisions of section 165B with Common Reporting Standards (CRS) through insertion of Chapter XII in the Income Tax Rules, 2002 the Finance Act, 2017 stipulates that the term "reportable person" and "financial institution" shall have the same meaning as provided in the "Common Reporting Standards".
Moreover, through appropriate amendment in section 182 of the Ordinance the Finance Act, 2017 has also introduced a new penalty of Rs 2000 for each day of default subject to a minimum penalty of Rs 25,000 where a financial institution or reporting entity fails to furnish information or country by country report to the Board as required under section 107,108 of 165B by the due date.
Copyright Business Recorder, 2017