Home »Taxation » Pakistan » Expiry of VTCS: non-filer traders will be subjected to penalties, prosecution: FBR

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  • Jan 12th, 2016
  • Comments Off on Expiry of VTCS: non-filer traders will be subjected to penalties, prosecution: FBR
Federal Board of Revenue (FBR) Member and Spokesperson Dr Muhammad Iqbal has said that the un-registered and non-filers traders, who would not avail the Voluntary Tax Compliance Scheme (VTCS), would be subjected to penalties, additional tax and prosecution under relevant provisions of the Income Tax Ordinance 2001. Talking to Business Recorder here on Monday, FBR Member was responding to different queries raised by Pakistan Tax Bar Association (PTBA) regarding Income Tax (Amendment) Act, 2016.

PTBA raised question that there may be strict punitive measures for all taxpayers after expiry period of the VTCS and such punitive measures should clearly be included as part of the legislation of the VTCS Act otherwise people may take opportunity as non-serious as happened previously. It may be disseminated through media that "No Concession" whatsoever will be granted to anyone after this scheme.

Responding to this Dr Iqbal said that the normal penalty provisions of the Income Tax Ordinance 2001 would be applicable on traders, who would not avail the scheme. Those not availing the scheme would be subjected to penal provisions of the income tax law. PTBA said there is a need to remove discrimination from VTCS. It is a considered view of constitutional as well as tax lawyers that the VTCS is discriminatory in nature as the scheme is being launched only for traders who are either not in the tax net or have properly declared their volume of business. Other segments of business community like manufacturers have been excluded in the scheme which may attract unnecessary litigation that may result into ultimate relief from superior courts of law in favour of the taxpayers as it is clear discrimination within the business community which is against the provisions of the Constitution. Therefore, the government should include all segments of business community irrespective of the nature of business so that maximum number of businessmen may avail the VTCS. Therefore the amnesty may be for everyone and without any discriminatory treatment.

Responding to a query, Dr Iqbal said that the discrimination is in build in taxation laws. The taxation system has some inherited discrimination. Supreme Court has allowed law makers to make reasonable classification to separately treat different classes if you have reasonable justification.

Moreover, the scheme is trader's specific and how taxpayers including professionals liable to pay applicable rate of income tax be allowed to pay nominal rate of 0.2 percent etc. PTBA said that it is apprehended with great concern by the business community that the VTCS is silent about the Sales Tax and is feared that Federal Board of Revenue (FBR) is spreading a net in order to bring the Traders in the ambit of sales tax through VTCS and afterwards they might face sales tax audit and investigations. Therefore, it would be appropriate to bring the VTCS both for income tax and sales tax.

Dr Iqbal was of the view that a simplified procedure for registration of retailers has already been notified through an SRO 608 to pay tax on the basis of electricity bills. If any retail outlet wants to operate under the said simple regime, the FBR is ready to register the said unit.

PTBA said that now the government is going to introduce the VTCS for traders which shall mean that the traders will enjoy immunity from any probe of their banking transactions within a period of last 10 years prior to the year 2015 which is also discriminatory and shall attract litigation by other segments of business community. In order to avoid all these complications it is appropriate that the scope of the VTCS may be extended up to banking transactions of all undeclared bank accounts of the Filers as well as Non-Filers.

FBR Member said that the scheme do not cover any kind of bank accounts of traders. Bank accounts of filers or non-filers are not covered under the said scheme. It only covers working capital as per scheme.

FBR Member and Spokesman Dr Muhammad Iqbal further said by definition, amnesty scheme offer concessional rates of taxes for declaring/legalising people's old income and assets. On the other hand, the existing scheme is forward looking as it would start from Tax Year 2015 for which tax returns have yet to be filed. In this scheme, there is no option given to the traders to legalise their past income and assets. This is an important feature of the scheme which would not make it an amnesty scheme. Moreover, amnesty schemes allow time opportunity to the taxpayers to declare their assets. There is no compulsion in the amnesty schemes to come into the tax or not. On the other hand, the VTCS provide an easy entry into the tax system.

In the last few years, the FBR has taken measures to expand the tax-base. As a policy measure, cost of doing business has been raised for non-filers through different rates of withholding taxes. In last budget, 0.6 percent withholding tax was imposed on banking transactions of non-filers. The rate was temporarily reduced to 0.3 percent on agitation of traders. It was decided to convene meetings with traders to work out some formula to make them filers under the formal regime. It was decided to remove their problems which were creating hurdles in becoming filers.

He said that the target of the new scheme is small and medium size traders who are not working in formal sector. These traders opined that their scale of business is not big to establish a full-fledged accounts department to fulfil requirements of documentation. They are also not ready to pay withholding tax, which according to them, would make them uncompetitive. In consultation with the traders representatives, a new scheme has been finalised ie VTCS.

Under the scheme, traders would not have any option to legalise their assets like vehicles or real estate assets. In the first year, they would declare their working capital without including the fixed assets. Tax based on turnover during the year, at the rates specified shall be payable provided that the turnover declared shall be at least three times the working capital declared during 2015. It is worth mentioning that the capital rotation is very high in trading sector. They have high turnover but profit margins are low like fast moving consumer goods etc.

Under existing law, the rate of turnover tax is 1 percent, but we have reduced rates of tax for specific sectors under present law. For example, exporters and fast moving consumer goods have reduced rates of tax. There are other sectors which are paying reduced rate of turnover tax. Therefore, the introduction of reduced rate of turnover tax for traders is not a new move.

Instead of considering VTCS as an amnesty scheme, it should be considered that a special regime drafted for the traders with special tax rates. Under new mindset of the FBR, the tax department is treating the traders as their costumers. The features considered as amnesty are actually the safeguards provided to them, Dr Iqbal added.

Copyright Business Recorder, 2016


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