FBR Allows “Best Judgement” Assessments for Sales Tax

The Federal Board of Revenue (FBR) is taking a significant step to improve tax compliance and collection through the introduction of “best judgement assessments” for sales tax.

Key Points:

  • New Authority for FBR: The Finance Bill 2024 empowers FBR officials to estimate tax liabilities in sales tax cases based on available information when taxpayers fail to comply.
  • Borrowing from Income Tax: This “best judgement” approach is already used for income tax assessments and will now be applied to sales tax as well.
  • Scenarios for Best Judgement: This method will be used when taxpayers:
    • Fail to submit a sales tax return despite receiving a notice.
    • Don’t provide required accounts, records, or documents after a request under specific sections of the Sales Tax Act.
  • Opportunity to Rectify: Taxpayers who receive a best judgment assessment due to a missed return can avoid penalties by filing the return along with the due tax payment.
  • Standardized Process: The FBR will follow established guidelines to determine the minimum tax liability under best judgement assessment, ensuring fairness and transparency.
  • Expected Benefits: This new approach is expected to:
    • Enhance FBR’s ability to address non-compliance.
    • Reduce tax evasion.
    • Improve overall revenue collection.
  • Importance of Compliance: Taxpayers are advised to:
    • Maintain accurate records.
    • Respond promptly to FBR notices.
    • Stay informed about the new regulations.
  • Seeking Professional Help: Businesses and tax professionals are encouraged to understand the new regulations and potentially seek professional guidance to avoid penalties.

Overall Impact:

The introduction of best judgement assessments signifies the FBR’s commitment to a more robust and efficient tax collection system in Pakistan. This move towards stricter compliance is expected to improve tax collection and strengthen the overall tax system.

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