Sources told Business Recorder here on Tuesday that the FBR is taking steps to resolve issues of tax adjustment and application of Active Taxpayer List (ATL) between FBR and AJK following constitution of a committee by Prime Minister Shahid Khaqan Abbasi. Recently, a meeting was held in FBR with the Commissioners of AJK Syed Farooq Jamil and Asim Shaukat on the issues of tax adjustment, application of ATL and grant of access to FBR/PRAL system.
It was reported by the said commissioners of AJK that PRAL has agreed to the use of the system by AJ&K without upfront payment and that the AJK Inland Revenue Department and their taxpayers would be treated as regional tax office and would be allowed access to STRIVe as well as IRIS to file their sales tax and income tax returns thereon respectively by having direct access to STRIVe and IRIS, like other taxpayers.
As the Prime Minister has constituted a three-member committee headed by secretary Finance Division, with chairman FBR and chief secretary AJK being its members, the PRAL would expedite the finalization of how and at what terms the AJK tax collectors and taxpayers would get access to FBR/PRAL system for filing income tax as well as sales tax returns and for uses by AJ&K tax officials/ officers.
The CEO PRAL would also provide a draft Service Level Agreement (SLA) determining such modalities as soon as possible, before the next meeting of the committee constituted by the PM, sources added. Giving background of the issue, a tax expert said FBR had raised an ambiguity that companies/businessmen, who are residing and filing their income tax returns in Pakistan, are treated as non-filers in Azad Jammu & Kashmir (AJK) and Gilgit-Baltistan and are supposed to pay higher rate of withholding taxes in AJK territory.
If the name of a taxpayer (filer in Pakistan) is not appearing in the Active Taxpayer List (ATL) of AJK and Gilgit-Baltistan, such taxpayer is treated as a non-filer in the territories of AJK and is liable to enhanced rates of withholding taxes. The FBR has approached the governments of AJK and Gilgit-Baltistan to resolve the issue because the companies operating in AJK and GB are being treated as non-filers despite being filers in Pakistan.
According to the FBR, the Income Tax Ordinance, 2001 extends to the whole of Pakistan. The territories comprising Pakistan are specified in Article 1(2) of the Constitution. According to the said article, the areas comprising Pakistan are as follows: the provinces of Balochistan, Khyber Pakhtunkhwa, Punjab and Sindh; Islamabad Capital Territory; Federally Administered Tribal Area and such states or territories as are or may be included in Pakistan, whether by accession or otherwise.
The territories of Azad Jammu and Kashmir and Gilgit-Baltistan do not constitute a part of Pakistan in terms of Article 1(2) of the Constitution and therefore are not federally administered territories as mentioned in the agenda. The Azad Jammu and Kashmir and Gilgit-Baltistan are independent jurisdictions and, as such, the income tax law in Pakistan does not extend to these areas which are treated as foreign territories as far as application of Pakistan's tax laws is concerned.
In view of the said constitutional position, the AJK Council and the Gilgit-Baltistan Council have adapted the income tax law in Pakistan through their legislative assemblies. These acts are called the Azad Jammu and Kashmir Adaptation of Laws Act, 1959 and the Gilgit-Baltistan Council Income Tax (Adaptation) Act, 2012.
Under these enactments, the Gilgit-Baltistan and AJK Councils have adapted Pakistan's Income Tax law ie the Income Tax Ordinance, 2001 and the Finance Acts passed subsequently by the National Assembly of Pakistan for purposes of their own territories. However, the Azad Jammu and Kashmir and Gilgit-Baltistan are foreign territories as far as applicability of the Income Tax Ordinance, 2001 is concerned.
Persons residing in Pakistan who are filing their income tax returns in the country are treated as non-filers in the AJK and Gilgit-Baltistan and vice versa unless such taxpayers are simultaneously filing their returns in AJK/Gilgit-Baltistan and Pakistan as the case may be.
In terms of the Income Tax Ordinance, 2001 a "filer" is a person whose name appears on the active taxpayers list issued by the Federal Board of Revenue. However, if the name of the taxpayer is not appearing in the ATL of AJK and Gilgit-Baltistan, such taxpayer is treated as a non-filer in these territories and is subjected to enhanced rates of withholding taxes, the tax expert added.