Taxation in Pakistan is a complex system with various assessments, processes, and procedures. Two of the most important assessments used by the Federal Board of Revenue (FBR) are the Normal Assessment and the Best Judgement Assessment. These assessments are used to determine the tax liability of taxpayers and are critical in ensuring compliance with the tax laws in Pakistan. In this article, we will delve into the differences between these two assessments.
Normal Assessment:
The Normal Assessment is the most common form of assessment used by the FBR in Pakistan. It is an assessment carried out by the FBR to determine the tax liability of a taxpayer based on their declared income, assets, and expenses. The taxpayer is required to submit their tax returns annually, and the FBR verifies the declared income and assets to determine if they are accurate and complete.
If the FBR finds any discrepancies in the declared income or assets, they may issue a notice to the taxpayer to explain the discrepancies. The taxpayer may be required to provide additional documentation to support their declared income and assets. Based on the evidence presented by the taxpayer, the FBR will make a determination of the taxpayer’s tax liability.
Best Judgement Assessment:
In cases where a taxpayer fails to file a tax return, or the return is not complete, the FBR may use the Best Judgement Assessment to determine the taxpayer’s tax liability. The Best Judgement Assessment is an assessment made by the FBR based on the best information available to them.
The FBR will use their knowledge of the taxpayer’s business, financial affairs, and other relevant information to make an assessment of the taxpayer’s tax liability. This assessment is made based on the FBR’s best judgement, and the taxpayer may not agree with the assessment made.
Differences between Normal Assessment and Best Judgement Assessment:
The primary difference between the Normal Assessment and the Best Judgement Assessment is the information used to determine the taxpayer’s tax liability. In the Normal Assessment, the FBR relies on the taxpayer’s declared income and assets to determine the tax liability. In contrast, the Best Judgement Assessment is based on the best information available to the FBR, which may include information obtained through external sources.
Another significant difference is that the Normal Assessment is made with the cooperation of the taxpayer. The taxpayer is required to submit their tax returns, and the FBR verifies the declared income and assets. In contrast, the Best Judgement Assessment is made when the taxpayer fails to file a tax return or the return is incomplete.
Consequences of Non-Compliance:
Non-compliance with tax laws in Pakistan can have serious consequences for taxpayers. Failure to file a tax return, or filing an incomplete return, can result in the imposition of penalties, fines, and even imprisonment.
In cases where the FBR issues a notice to explain the discrepancies in the declared income or assets, failure to provide an explanation or providing a false explanation can result in penalties and fines. In cases where the FBR uses the Best Judgement Assessment, the taxpayer may not agree with the assessment made, and they may dispute the assessment in court.
Conclusion:
Normal Assessment and Best Judgement Assessment are both critical assessments used by the FBR in Pakistan to determine the tax liability of taxpayers. The Normal Assessment relies on the taxpayer’s declared income and assets, while the Best Judgement Assessment is made based on the best information available to the FBR. Non-compliance with tax laws in Pakistan can have serious consequences, and taxpayers are encouraged to comply with the tax laws and file their tax returns accurately and on time.
In summary, understanding the differences between Normal Assessment and Best Judgement Assessment can help taxpayers ensure compliance with the tax laws in Pakistan and avoid penalties, fines, and imprisonment.
