RECORDER REPORT

ISLAMABAD: Senate Standing Committee on Finance here on Friday stressed upon the Federal Board of Revenue (FBR) to introduce ‘Undisclosed Foreign Income and Assets Act’ in budget (2015-16) for declaration of assets including bank accounts held by Resident Pakistanis out of Pakistan and undisclosed income aboard and regularize declared assets by payment of tax at specified rate.

According to the budget proposals of Senate Standing Committee on Finance chaired by Senator Saleem Mandviwala for coming budget (2015-16), a separate committee should be constituted with a mandate to simplify Income Tax Ordinance, Sales Tax & Federal Excise Duty to ease the tax compliance. A period of six months should be given for this task considering the urgency.

It suggested that all tax laws should be translated in URDU language and moving forward all FBR circulars, instructions should be released both in URDU and ENGLISH.

A separate committee should be formed to review and simplify tax return forms with a mandate to reduce the level for compliance effort by 50% in two years. Three months should be given to the committee to complete its task.

It suggested setting up an ethics line, taxpayer grievance redressal system needs to be setup.

It suggested establishment of a stronger institutional set up consisting both of FBR officials and those from private sector and professionals for monitoring implementation of the Reform Agenda as all efforts for Tax Reforms have been a failure in achieving overall objectives of these reforms due to unsuccessful implementation.

Other than LTU and jurisdiction of corporate sector, for next five years FBR field formation should operate on territorial jurisdiction basis effective from July 1, 2015. LTU and corporate sector should operate on truly specialized functional basis.

For next Five years, deploy 50% of the FBR IRS staff assigned to territorial jurisdiction for broadening the tax base with specified KPIs and timeline, it suggested.

The IT system of FBR and PRAL including e-filing platform IRIS should be independently audited. TRC feels that the current IT system is a big drag on FBR and a significant cause of difficulties being faced by tax payers in tax compliance.

FBR has to massively invest in IT and the current IT backbone of FBR provided by PRAL should be put under an independent board and run by IT Specialists. In case this does not substantially improve the performance of PRAL then its functions may be outsourced in the medium to long term. This is mission critical for the new FBR that TRC envisions, it suggested.

Issuance of Prize Bond of Rs 25,000 or Rs. 40,000 needs to be discontinued as these high denomination bearer instruments fuel corruption and tax evasion. Prize bonds of these denominations should be allowed to be deposited in Bank Accounts till 31 Dec 2015 with a tax withholding of 0.1%. Tax so deducted on the Prize Bonds should be made adjustable and the evidence of tax deduction will suffice the purpose of documentation.

After 31 December 2015, the said prize bonds can be deposited in the Bank Accounts till 30 June 2016 with tax deduction of 10 percent and the tax so deducted will be adjustable tax. The Government should publicize these measures extensively. In case of all other prize bonds Government should encourage purchase and redemption through bank accounts and any cash withdrawal should attract the adjustable withholding tax as applicable to cash withdrawal, committee suggested.

Tax Reform Commission (TRC) after considering the erosion of trust in dispute resolution mechanism by taxpayer under FBR umbrella recommends the alternative dispute resolution (ADR) process should be under Federal Tax Ombudsman operating under Federal Tax Ombudsman Ordinance 2000 (FTO 2000) Section 33 of the FTO 2000 empowers FTO to resolve informally conciliate, amicably resolve, stipulate, settle or ameliorate any grievance of a tax payer and Customs and Tax laws.

Section 33(2) of FTO also authorizes the FTO to appoint liaison counselors, whether honorary or otherwise for the above purpose of informally resolving the disputes, it suggested.

TRC is of the view of that that Appellate Tribunal should be considered as the First level of appeal and then as a remedy tax courts / special benches should be established within High Court.

Members for Tax Appellate Tribunal should be recruited in the same manner as judges of High Court and if this is not possible because of some legal/ constitutional bar, all members of the Tribunal should be recruited through Federal Public Service Commission (FPSC).

It suggested that the pay, perquisites and salary structure of Chairman, members and staff should be the same as of a Judge of a High Court Judge, Sessions Judge and staff of the lower judiciary respectively.

Selection of members of the Inland Revenue and Customs Tribunal should be made through the Federal Public Service Commission (FPSC) and High Courts.

TRC further recommends that the Tax and Customs Appellate system like all other judicial institutions should be independent in the true sense of the word. The Honourable Supreme Court of Pakistan has elaborated this principle in Government of Baluchistan V Azizullah Memon PLD 1993 SC 31 by holding that “separation of judiciary from executive is the cornerstone of independence of judiciary”. TRC strongly feels that this should be equally applicable to tax/Customs appellate system.

Selection of members of the Inland Revenue and Customs Tribunal should be made through the Federal Public Service Commission (FPSC) and High Courts.

It is considered that it is the Appellate Fora should be made independent from the formal / informal influence of FBR. The tax adjudication system must rest on fundamentals of independence, insulation and isolation from tax collection. The prosecution has to he separated from adjudication with gradual shift towards independence by transferring the adjudication system under the command and control of independent office or Ministry of Law or most preferable under the respective High Courts in conformity with section 1 OA of the Constitution. In transitional phase, transfer of tax officials to adjudication system should be based on option exercised by tax officials and there should be a bar on repatriation to the administrative function. In long term, there should be a separate process in place for appointments and career management in tax adjudication system.

TRC recommends that Accountant member of the Appellant Tribunal Inland Revenue and the Technical members Custom Tribunal should be appointed through open competition by advertising the position of FPSC so that the Chartered Accountants and ICMA can also compete for these positions. The automatic filling of these positions by the officers of the FBR should be discontinued immediately. This step will go a long way in restoring the confidence of the taxpayers.

TRC recommends that LTUs should continue to function on functional specialized system with stronger IT support and better customer services FBR should seriously consider placing Customs services for LTU clients in LTU. For next five years, field units for the remaining taxpayers and potential taxpayers should revert to territorial jurisdiction based set up with main function of these field units being broadening the tax base. TRC recommends that FBR should consider deploying about 50% of its field units for broadening the tax base

FBR should work towards establishing a toll free ETHICS LINE (Whistle Blower Policy). And each LTU/ RTO/ Custom house also should have a secure complaint/ suggestion box, where any citizen or FBR staff can offer a suggestion or register a complaint of mal-practice and evasion of tax or duty without fear of any retaliation.

Committee suggested that there are obvious leakages of tax revenue from even tax filers on account of tax enforcement procedures. Various measures taken in past by FBR for increasing the tax base have fallen short of the expectations. FBR should take full cognizance of these unacceptable shortcomings and get determined to turn the things around. Tax base needs to be broadened and deepened. An out of box approach to broadening the tax base is “Self Employed Tax Preparer Scheme”.

FBR needs to set up Service Standards for IRS Field units and Customs. This will give confidence to taxpayers and with fixed time line, malpractices will be reduced.

TRC recommends that FBR should recruit on contract basis from private sector through a transparent recruitment process, a high caliber Chief Finance Officer (CFO). In a large organization, the CFO who is a key member of the management team plays a very crucial role in its affairs.

TRC recommends the preparation and implementation of Whistle Blowing Policy to boost the confidence of the taxpayer and FBR staff.

It is also proposed that the 10% extra Income Tax on banking companies should be imposed as compared to the rate of normal companies.

It is proposed that the fix tax of Rs. 5000 imposed on the Hajj Tour Operators be withdrawn as the tour operators will impose this tax on the Hajj performers. The performance of Hajj has already become difficult due to increased expenses and the routine increases of petroleum are also transferred to Hajjis. Any more taxes on this will only make it impossible for ordinary Muslims to perform Hajj.

Advance tax on functions and gatherings, which is also imposed on marriage halls, hotels, markets, restaurants, commercial lawns, clubs and community centers, should be withdrawn as the general public hardly manages to save enough for wedding of their children. This will add to their miseries and will amount to cruelty of government towards people.

It is proposed that the decision to impose advance tax on educational institutions be withdrawn because it has become already difficult for parents to meet the educational expenses of their children while these institutions will charge the said tax from parents. This tax will discourage the parents and they will not be able to continue education of their children. Resultantly, there will be more disappointment, terrorism and lawlessness in the youth.

It is proposed that the decision to impose advance tax on distributors, dealers and whole sellers at the time of sale be withdrawn as this small amount to be an additional burden on the people who are already taxpayers. This decision will create an impression that the government is multiplying the burden of the existing taxpayers instead of brining other people in the tax-net. Secondly, some industrialist are already facing difficult situation and this tax will aggravate their miseries and they will have no option except to close down their business ins. And this tax will also promote departmental corruption and high handedness.

It is recommended that at least 20% raise in the salaries of Government employees and other workers may be made and provision may be made in the budget for this purpose.

There should be money allocated for a Special Fund for Victims of Drone Strikes in the budget: Compensation for dead persons or whose houses were destroyed, medical treatment are for wounded, education for orphans who lost parents in drone strikes. This can be called Special Fund for Drone Victims. This will also send the right message to the outside world that we are serious on opposing the Drone Strikes & that there is no longer any dual policy on drone strikes as in the past (condemning publicly but condoning privately).

Budget should be allocated for a Cyber Security Strategy since Pakistan is a victim of Cyber Warfare and Cyber regression.

FBR should encourage the complaint tax payers by providing recognition. The said recognition should be in the form of ‘Tax Complaint Card’.

FBR should introduce ‘FBR privilege Card’ for complaint taxpayers who significantly contribute to national exchequer. The said privilege card should he provided to individuals and corporate with the benefits including but not limited to availability of finances at discounted rates, travel privileges, easy processing of utilities connections, incentives to investment in new business ventures, exemption of taxes on royalties and technical fees for bringing fees for bringing new technologies in the country, reduced rates of taxes on dividends, Committee added.