Islamabad, Pakistan: The Pakistan Polypropylene Woven Sacks Manufacturers Association has urged Finance Minister Muhammad Aurangzeb to amend existing tax laws to address the concerns of taxpayers and investors, thereby restoring trust and boosting tax revenue.
In a detailed letter to the Finance Minister, the association outlined several issues and proposed digital solutions aimed at enhancing the efficiency and transparency of the tax system. Here’s a summary of the key proposals:
1. Automation of Withholding Income Tax Exemptions
The current tax law, under Section 159, grants the Commissioner Inland Revenue (IR) discretionary power to issue withholding income tax exemptions under Sections 153 and 235. These powers, however, are often misused, contradicting the principle of automatic exemption issuance stipulated in the Income Tax Ordinance. If the Commissioner fails to issue the exemption within 15 days, the system should automatically approve it, yet this is rarely practiced.
The association recommends automating the issuance of withholding tax exemptions through the Federal Board of Revenue’s (FBR) IT Management System (ITMS). This would allow the system to calculate eligibility and issue exemption certificates without human intervention, using readily available data on advance tax and sales.
2. Implementation of Electronic Tax Refunds (Section 170A)
Section 170A of the Income Tax Ordinance 2001, introduced in 2021, mandates the automatic issuance of tax refunds without requiring manual applications. Despite this provision, no refunds have been processed automatically, and delays persist due to unnecessary tax demands, contradicting Section 170(4), which requires processing within 60 days.
The FBR should fully implement the automated tax refund mechanism under Section 170A, eliminating discretionary powers that allow selective processing of refund cases. This automation would promote transparency and reduce corruption in the tax system, encouraging timely refunds.
3. Curbing Misuse of Assessment Powers (Section 122(5A))
Section 122(5A) has been a controversial tool often misused to harass taxpayers and undermine the concept of self-assessment. The provision is meant to allow revisions by a superior authority only after an initial audit or assessment, yet it is frequently exploited without meeting these conditions.
To address this misuse, the association suggests inserting an explanatory clause clarifying that Section 122(5A) applies only to assessments already amended under Sections 122(1) and (4). Alternatively, the contentious section could be removed altogether to eliminate ambiguities.
4. Reforms in Tax Adjudication Framework
Recent amendments to the Income Tax Ordinance 2001 and Sales Tax Act 1990 have reduced the adjudication hierarchy, limiting appeals to one quasi-judicial body before requiring a High Court reference. This change imposes high appeal fees and demands payment of 30% of disputed taxes, restricting taxpayers’ fundamental rights.
Currently, around 98,000 tax cases are pending in various courts, involving Rs 3.6 trillion, with 80% stuck at the Appellate Tribunal stage.
The association calls for reinstating the first appellate forum of Commissioner Appeals, appointing independent commissioners with extensive taxation experience, and creating more Tribunal panels to handle cases efficiently. Oversight by High Court judges would ensure accountability and transparency in the adjudication process, enhancing confidence in the tax system.
5. Monitoring the Quality of Assessment Orders
The association highlights the need for monitoring the quality of tax assessments, as many frivolous cases are initiated without accountability, harming business confidence.
A quality assessment scheme should be established, requiring tax officers to provide clear reasons, allow taxpayer responses, and base decisions on detailed evaluations. The performance of assessing officers should be judged on the success rate of their cases in appellate forums, ensuring accountability and reducing harassment of taxpayers.
6. Revamping the Tajir Dost Scheme (TDS)
Launched to bring traders and shopkeepers into the tax net, the Tajir Dost Scheme (TDS) has failed to gain traction due to fears of harassment by tax officials.
To make TDS successful, the association recommends introducing a simplified self-assessment scheme under the Final Tax Regime with a single flat turnover tax rate. This would be designed in consultation with trade and retail unions, with a 10-year audit exemption for those who voluntarily register and pay taxes under the scheme.
Conclusion
The Chairman of the association, Iskandar Khan, emphasized that the success of the proposed reforms hinges on building an equitable tax system that inspires confidence among taxpayers. The association urges the finance minister to implement these recommendations to foster a transparent, fair, and efficient tax environment in Pakistan.
