Financial Risk Manager

The Federal Board of Revenue (FBR) has succeeded in broadening the tax base by 29 percent, just in one year, by mopping up new companies, associations of persons (AOPs), individuals, salaried persons and employers. There has been an increase of 29 percent in the existing tax base during the period under review, reflecting extraordinary performance of the FBR in discovering new taxpayers.

As compared to previous fiscal year the increase in number of new companies, AOPs, individuals and salaried persons, who filed returns/statements has been unprecedented this year as a result of more practicable enforcement strategy of the department. Every year, the government fixes target of achieving 20 percent for broadening the tax base.

However, 29 percent increase in the tax base showed successful implementation of the enforcement plan, monitoring policy and voluntarily compliance by new taxpayers.

Documentation of property transactions and enforcement of returns filing by the business suppliers had also helped the tax department to amassed 29 percent growth in the tax base. The FBR has also witnessed substantial increase in the number of statements filed by employers and return filing by non-salaried individuals during this period.

The FBR latest data showed that the FBR had received 2.31 million returns and statements during period from July 1, 2009 to June 30, 2010 as compared to 1.79 million returns in the corresponding period of previous fiscal year, reflecting an increase of 0.516 million. The data clearly reflected that the 0.516 million new taxpayers had been discovered during the period.

According to sources, the FBR has been able to bring 0.516 million new taxpayers into the tax net due to proper monitoring and enforcement in the field formations. The policy measures vis-à-vis direct taxes also played an important role to encourage voluntary compliance.

The FBR data further showed that it had discovered over 21,099 companies cases during the period under review, reflecting improved compliance by the corporate sector. A total of 46,657 AOPs had responded to FBR's awareness campaign to enforce filing of returns during July 1, 2009 to June 30, 2010 as compared to 27,649 return filers in the same period of previous fiscal year. This showed that 19,008 new AOPs had been brought into the tax net during the said period. Over 21,099 taxpayers, falling within the category of individuals, filed returns during the period under review.

Similar trend had been observed in the salaried class where the number of return filers by the salaried individuals showed sudden jump during this period. The data showed that 197,743 salaried persons filed returns during the period under review. Within the category of non-salaried individuals, 639,233 persons filed returns as compared to 548,790 returns filed by non-salaried taxpayers. The statements filed by the employers after deduction of tax from the salaried persons stood at over and above 1.3 million as compared to 0.9 million, the FBR data said.

Sharing some of the factors responsible for increase in the number of taxpayers, sources said that the extended date in filing of returns, massive awareness campaign and effective enforcement strategy to ensure filing of returns by potential taxpayers helped the department to broaden the tax base

In view of findings of the system audit report of leading chartered accountant firm The Federal Board of Revenue has principally decided to close down Pakistan Customs Computerised System (PACCs). The report observed that the system is ineffective with deficiencies.

Whereas the representative of Agility in Pakistan has denied any knowledge of the decision by the Finance Minister and observed that the information about the company provided by the audit firm and FBR is not correct. He said Agility was a strong, robust and financially strong company which was actively being traded at the Kuwait Stock Exchange, in fact even on March 2, 2010, over 4.3 million shares of this company were traded at the Kuwait Stock exchange at 660 Kuwaiti dinar each.

He expressed strong reservations at the unilateral decision saying no copies of the audit report or the executive summary were ever provided to the company. The company reserves the right to take any appropriate action after studying the system audit report, when provided to them.

1. The reference has been made to the Board to clarify that who will take the credit of the tax withheld under clause (c) of sub-section (1) of section 233A of the Income Tax Ordinance, 2001. Whether the Member of the Stock Exchange or the seller of shares who did the trading of shares through the said Member?

2. The matter has been considered. Though the tax in respect of trading of shares is deducted from the member by the stock exchange yet the tax so withheld under clause (c) of sub-section (1) of section 233A of the Income Tax Ordinance, 2001, does not pertain to him exclusively. He is only an intermediary and the tax withheld under the aforesaid provisions of law, belongs to the seller of shares also who traded through him. Legally speaking, the seller is entitled to take the credit of the tax so withheld as well as the member in respect of the shares owned by him. The member of the stock exchange is the custodian of the record,as the transactions of shares are made through him on the stock exchange.

3. It is, therefore, clarified that the Member would certify the quantum of tax withheld from each person traded through him and shall furnish a statement, to the concerned Director General, RTO, for the verification of claim of the taxpayers who traded the shares through him.

Circular no. 02 of 2009 dated 26 March, 2009

Under clause (b) of section 158 of the Income Tax Ordinance, 2001 (hereinafter referred as “Ordinance”), a person is required to deduct tax from an amount paid by the person at the, time the amount is actually paid. It has, however, been noticed that some inter-account adjustments of receivable/collectable against payable are carried out through ledger accounts or journals maintained by the persons and such “adjustments” are not construed as “payments” or “actually paid” and no tax is withheld therefrom.

2. Though the word “adjustment” has not been defined in the Ordinance yet it as a matter of common prudence that it is at par with the word “paid”, because by such “adjustment” the payables are reduced which amounts to “actual payment” by other means.

3. The matter has been examined. According to Black’s Law Dictionary, “adjustment” amounts to “an arrangement; a settlement”. This obviously means that payable settled by payment or inter-account adjustment of receivables against the payables tantamount to “actually paid” and thus attracts the provisions of clause (b) of section 158 of the Ordinance, whenever any such adjustment is made. It is, therefore, clarified that in such circumstances, the person who is making such interaccount adjustments is required to withhold tax under the relevant provisions of law at the relevant rates and in case of any default, provisions of the Ordinance shall apply accordingly.

Circular No. 01 of 2009 Income Tasx - February 20, 2009