A tax consultant told Business Recorder on Tuesday that 'advance ruling' procedure is not in line with the international procedure applicable in neighbouring countries. Thus, the scheme is less lucrative for foreign investors as compared to other countries.
As there is no inherent right of appeal in 'advance ruling', such advance rulings should be construed in a liberal, reasonable and particle manner.
But, income tax officials engaged in processing of ruling are adopting the same mindset as if screwing the taxpayers.
It is normal approach of the CBR that whenever question of law is involved in any case of advance ruling, they usually take bureaucratic view in favour of income tax department which is against the practice.
Moreover, in the absence of member from judiciary, these rulings lack credibility, tax practitioners opined.
In India, an independent authority known as 'Authority for Advance Rulings' was constituted for giving rulings on income tax matters to foreign companies.
As compared to committee on 'advance ruling' in Pakistan headed by CBR chairman, 'Authority for Advance Rulings' in India is headed by a retired judge of the Supreme Court. Other members include an officer of the revenue service, who is qualified to be a member of the Central Board of Direct Taxes and an officer of the Indian Legal Service.
He said an independent department, which deals with 'advance ruling' matters, ensures issuance of impartial ruling under the chairmanship of retired judge of the Supreme Court.
Quoting international practices on 'advance rulings', experts said that Taxes Management Acts of New Zealand, UK and Australia have more or less similar type of provisions.
Revenue authorities in these countries are empowered to issue three types of rulings. First, Public Ruling, which is for general public. Second, Private Ruling, which is issued to a particular assessee or taxpayers and third type of ruling is known as 'Product Ruling' relating to a specific industrial sector or relates to a specific type of product.
In the tax administration act, 1994 of New Zealand, part-VA was introduced and sections 91A to 91J have been added for public, private and product ruling, which has considerably facilitated local and foreign investors in New Zealand in last couple of years.
In United Sates, the Internal Revenue Service (IRS) issues two main types of rulings interpreting and applying tax laws to specific situations for transactions.
One, revenue ruling and the other private letter ruling. In this regard, the secretary (IRS) may prescribe the extent to which any ruling relating to internal revenue laws shall apply.
Revenue rulings are official interpretation, which are published for the guidance of taxpayers and IRS officials.
In case of private ruling, a taxpayer, who wishes to determine IRS's view on a transaction (local or foreign), he enters into a private ruling interpreting and applying tax laws to a specific set of facts.
To obtain a private ruling, 'technical advice memorandum' is submitted to an officer of IRS who forward the case for the evaluation of facts for the local or foreign investor.
Tax consultant said that the government in budget speech (2003-2004) announced that non-residents will be given the facility of 'advance ruling' for promoting foreign direct investment in the country and to resolve all uncertainty regarding tax matters.
Obviously, the provision was a big relief for foreign investors, but the poorly drafted scheme was unable to attract foreign investors in this regard.
The authority working in neighbouring country for issuance of 'advance ruling' is independent as evident from the fact that it is empowered to exercise all powers of a civil court.
Moreover, the advance ruling pronounced by the 'authority' shall be binding on the applicant and income tax authorities including Commissioner of Income Tax.
Tax consultant added that there is a need to re-draft procedure of 'advance ruling' in line with the international practices.
The CBR has already agreed with the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) that the facility of "advance ruling" will be extended to local investors from fiscal 2005-2006.
This assurance was given by CBR chairman Abdullah Yusuf and line members in a meeting with the FPCCI delegation after budget (2004-2005) for removal of anomalies.