Sources told Business Recorder that earlier FTO had ruled that the FBR act of issuing Circular 06 of 2009 and then inserting Clause 79 in the Second Schedule of the Income Tax Ordinance 2001 without approval of the Parliament speaks of improper motive, as also inefficiency, incompetence and ineptitude.
In particular, former FTO, Dr Muhammad Shoaib, had instructed the FBR to take immediate measures either to delete the Clause 79 from the Second Schedule of the Ordinance or to get it approved retrospectively by the Parliament. The FTO observed that FBR acted beyond its jurisdiction in exempting corporate sector service providers from minimum tax
The FBR's act of inserting the said Clause in the Second Schedule without Parliament's approval raises questions about its motives as well as its efficiency. An earlier order passed by the now former FTO had declared that the FBR has no authority to issue SROs/Circulars which contradict the statutory provisions of tax laws, as held by the Supreme Court.
Also as no amendment in Section 153 was approved by Parliament the insertion of Clause 79 in the Second Schedule changing the taxation regime was clearly an act without jurisdiction. Earlier in 2011 while deciding a complaint filed by Lahore based tax lawyer Waheed Shahzad Butt, Dr Suddle, directed the FBR to initiate appropriate action against officials who approved/issued Income Tax Circular No 06 of 2009.
The FBR subsequently filed a review petition titled "Secretary Revenue Division Versus Waheed Shahzad Butt" Dr. Suddle again ruled that sequence of Circulars and SROs leading to insertion of Clause 79 was wilful and mala fide. He also declared that the FBR has no authority to issue SROs/Circulars which contradict the statutory provisions of tax laws, as held by the Supreme
Sources further told that another review application was filed by one of the former member of FBR/ Appellate Tribunal Inland Revenue against the order passed by FTO. Review Petition of FBR has been rejected at liminal stage by the FTO with the remarks that there is no provision for second review in the FTO Ordinance, 2000 against the recommendations issued by FTO. Order passed by Dr Suddle in Review No 12/2012 in C.No 577/2011 titled as Secretary Revenue Division, Islamabad versus Waheed Shahzad Butt has been further challenged by a former Member FBR and Member ATIR in Re-Review before the present FTO Abdur Rauf Chaudhry, which has now been rejected at liminal stage with the remarks that there is no provision for second review in the FTO Ordinance, 2000.
The FTO order clearly said that the FBR issued Circular No 6 for which it had no mandate. The issuance of exemption certificates by certain Commissioners to corporate entities, especially Cellular Companies was clearly illegal as after introduction of minimum taxation of all service providers through Finance Act 2009, the 6 percent tax withheld became the minimum tax below which there was no possible threshold.
Following officials of the FBR had submitted their viewpoint to ascertain the facts: Taj Hamid, Secretary IR Judicial, Aftab Ahmad who issued FBR Circular 6 on 18.8.2009, Khalid Aziz Banth, the then Member DT/Additional Secretary Revenue and Chief Income Tax Policy.
FTO order further said that Aftab Ahmad, the then Chief ITP, stated that he signed the FBR Circular 6 under pressure from the said Member DT. He did not fully grasp the significance of the Circular but just signed it. He stated that Banth had made up his mind that companies deriving income from services ought not to be subjected to minimum tax at 6 percent under Section 153(1) (b).
He stated to have been upset by the act of signing the Circular and ultimately on 26.04.2011 withdrew the notification. Also, he was told by Banth that his predecessor had already approved the issuance of the Circular. This assertion however turned out to be false. The then Member DT, made a written deposition dated 24.09.2012. He stated that 1st Proviso to Section 153(6) had excluded companies rendering services from FTR and had also placed them out of the Minimum Tax Regime.
The FTO Office is concerned with the motive of former Member DT in pressurising his subordinates to issue Circular No 6. The attendant circumstances tend to show that he was doing this for improper motives. The service providers were first issued certificates of exemption by Commissioners, which were withdrawn when the FBR realised that the law did not provide for such exemptions, after Waheed Shahzad Butt lodged a complaint before the concerned Commissioners alleging huge loss of revenue being allowed to certain corporate sector service providers, FTO order said.
According to experts' opinion, Habib Fakhruddin pointed out that notifications for corporate returns for Tax Year 2010 and Tax Year 2011 were in line with Circular No 3 that correctly explained the minimum tax levy and were against Circular No 6 and its distorted view of minimum tax. Dr Ikramul Haq, Advocate Supreme Court, said that the statute was required to be read as a whole and not piecemeal. He said that the rationale for levy of alternate minimum tax was clear. So many inflated expenses are booked by taxpayers when filing returns that the tax base is drastically eroded and tax yield plummets to an intolerably low level.
The only way out of this predicament is to resort to measures like enactment of alternate minimum tax. Summing up, three of the four amicus curiae unequivocally held that minimum tax under Section 153(1)(b)/153(6), and, after Finance Act 2011, Section 153(1)(b)/ 153(3)(b), was for all service sector taxpayers, corporate as well as non-corporate. All three affirmed that Circular No 6 was based on a wrong and possibly motivated view of the law pertaining to minimum taxation under Section 153: FTO order added.