The WB updated action-plan contains recommendations for further harmonisation of taxes. This requires legislation in both the sales tax and income tax laws for harmonisation of penalty regime. According to WB review mission report, the FBR should introduce a Revenue Administration Act to separately deal with the basic provisions of administrative procedures of income tax, VAT and excise duty.
The administrative issues of these federal taxes should be exclusively handled under one proposed law ie Revenue Administration Act. The proposed Act would also help in dealing with administrative issues of similar nature with respect to sales tax, income tax and federal excise duty.
The WB pointed out that some countries have adopted revenue administration Acts to consolidate administrative procedures, which otherwise would have been repetitive. This simplifies the tax laws, and thereby reduces compliance and administration cost, as well as harmonises the administrative procedures for the taxes.
Some of the salient features of the proposed Revenue Administration Act include (i) definition of the staff's authority and powers to deal with the administrative matters; (ii) establish rules for communication with taxpayers (service of notices and notifications) and chalk out criteria for access to information; (iii) specify the registration requirements for the new taxpayers; (iv) clearly define penalties and default surcharge in federal taxes; (v) define criteria for assessment, payment of taxes and refunds; (vi) clearly define the criminal procedures and lay down rules and procedures for recovery of taxes and filing of appeals; and (vii) incorporate a provision to specify the taxpayers' obligations.
The WB noted that the FBR took an important step towards full integration of tax administration in November 2009 through Finance Amendment Ordinance to harmonise income tax and sales tax legislation. The Finance Amendment Ordinance focused on modernisation and integration of authorities for administering both taxes.
The next step will be to harmonise the penalties in the two laws. Presently, different penalties are applied to the same type of non-compliance in income tax and sales tax laws. For example, there is a fine of Rs 5000 for not registering with the sales tax department, but there is no fine for not registering with the income tax department. The late payment of withheld tax is penalised under the income tax laws, but the same provision is not applicable on the sales tax. Similarly, repeating erroneous calculation in the sales tax return is penalised under the sales tax laws, but not under income tax law.