PTBA urges FBR to correct computation
ISLAMABAD: Pakistan Tax Bar Association (PTBA) has requested the Federal Board of Revenue (FBR) to immediately correct the wrong computation of minimum tax liability issues in the new income tax return form.
In a letter to Rashid Mehmood Langrial, the FBR Chairman, the PTBA argued that there are policy matters with regard to the incorrect computation of the total tax liability in cases where tax has been collected or withheld and such tax falls within the ambit of discharge of the minimum tax liability.
The incorrect computation of minimum tax liability has been observed in cases where tax collected or withheld under the statutory provisions is expressly recognized as discharge of the minimum tax liability, while the taxpayer simultaneously derives taxable income from another source. In such cases, it has been observed that the IRIS system appears to apportion the taxable income between the relevant sources and, consequently, creates an additional tax demand by restricting the credit of tax already collected or withheld towards the minimum tax liability against the very source in respect of which such tax was collected or withheld and which falls within the ambit of minimum tax.
Furthermore, the system appears to compute the tax liability in respect of the income derived from the other source at the average rate of tax, thereby creating an additional and consequential tax demand. Such computation effectively results in the taxpayer being denied the full statutory benefit of the tax already collected or withheld towards the discharge of the minimum tax liability, notwithstanding the express treatment of such tax under the statutory scheme.
Such computation, prima facie, appears to be inconsistent with the statutory scheme, insofar as the tax already collected or withheld and expressly treated by law as discharge of the minimum tax liability cannot, merely by reason of the taxpayer having income from another source, be disregarded or denied its corresponding statutory credit.
It is further pointed out that even in cases where the entire receipts are subject to deduction of tax, and there is no other source of income and the tax deductible is on the higher side as compared to normal tax liability, the system is still charging extra tax being the difference of minimum tax.
The PTBA pointed out that such computation and the consequential demand are contrary to the express statutory provisions, the scheme and spirit of the law, and the legislative intent, as they result in an unwarranted duplication of tax liability despite the taxpayer having already discharged the minimum tax liability through tax collected or deducted under the relevant provisions of the Ordinance.
However, the IRIS system, in its present configuration, does not appear to be functioning in consonance with the express statutory provisions, the scheme of the law, and the legislative intent.
The situation becomes even more anomalous and legally untenable where the IRIS system requires a taxpayer, from whose payments tax has already been collected or withheld under the relevant provisions, to discharge an additional tax liability in excess of the tax payable by another taxpayer having the very same taxable income, but in whose case no tax was otherwise collectible or deductible at source.
Such computation creates an inherently discriminatory and inequitable tax outcome, whereby a taxpayer who has already discharged tax at the time of receipt of income or execution of a transaction is subjected to a higher ultimate tax liability than a taxpayer earning an identical amount of taxable income without such tax having been collected or deducted at source. This clearly defeats the scheme, spirit, and legislative intent of the statutory provisions governing advance tax and minimum tax and warrants immediate rectification in the IRIS system, the PTBA maintained.
It is also brought on record that the concept of apportionment of income in cases falling under the minimum tax regime is alien to the scheme of the Ordinance. The very essence and statutory scheme of the minimum tax provisions is that the entire amount of tax collected or deducted under the relevant provisions is to be treated as discharge of the minimum tax liability and, accordingly, is adjustable against the tax liability determined under the Ordinance. Such tax may not, however, necessarily be refundable merely by reason of its collection or deduction.
In other words, the statutory scheme contemplates adjustment, and not refund, of the tax collected or deducted towards the minimum tax liability. The apportionment of such tax or taxable income for the purpose of creating an additional tax liability, therefore, defeats the very scheme and objects of the law and the minimum tax regime and is inconsistent with the statutory framework of the Ordinance.
It is further pointed out that, in cases falling under the Final Tax Regime (FTR), the income chargeable to final tax is treated as a separate block of income and is excluded from the total taxable income for the purpose of computation of tax under the normal regime. Accordingly, the prescribed rates under Division I of Part I of the First Schedule are applied only to the balance of taxable income falling within the normal tax regime.
The position, however, is materially different in cases falling in the minimum tax regime. On the one hand, the IRIS system is apparently apportioning the taxable income into two components, one purportedly subject to minimum tax and the other subject to normal tax; on the other hand, it is failing to correspondingly exclude the income subjected to minimum tax from the total taxable income on which the normal rates are to be applied. Consequently, the system is effectively subjecting the taxpayer to an additional tax liability by applying the normal rates without giving due effect to the statutory treatment of the income already subjected to minimum tax.
Such computation results in an anomalous and excessive tax liability, as the same income is, in substance, being taken into account both for minimum tax and for determining the tax chargeable under the normal regime. This manner of computation is contrary to the scheme of the Ordinance, the statutory provisions governing minimum tax, and the legislative intent and, therefore, warrants immediate correction in the IRIS system. Taking benefit of this opportunity, we are pleased to append separately certain illustrations to substantiate the incorrect calculations of tax payable by virtue of the insertion of formulas in the software, which are, inter alia, contrary to the statutory provisions and the intent of the legislature. Before parting with these submissions, it is brought on record that the formulas being incorporated into the IRIS software are tantamount to an interpretation of the law, which amounts to travelling beyond jurisdiction, as no such authority vests either in the Board or in the PRAL Team, particularly when taxpayers are mandatorily required to adopt and comply with the computation generated through the said system.—SOHAIL SARFRAZ
