TRCG for continuation of functional-based IT system

SOHAIL SARFRAZ

ISLAMABAD: The Tax Reform Core Group (TRCG) has opposed restoration of the income tax circular based system and suggested continuation of the functional based system under reforms with full-fledged implementation of the Integrated Tax Management System (ITMS) along with existing Universal Self Assessment Scheme (USAS).

On the conclusion of the second day meeting of the TRGC at the FBR House, sources told Business Recorder that the idea of restoration of the income tax circle based system was discussed threadbare during the TRCG meeting. The issue came to the light while reviewing the status of the implementation of the reforms in Pakistan to see whether reforms have been practically taken roots or not.

Sources said that the positive impact of the old circle-based system was also highlighted during the meting. The advantages of the old circle-based system were that it was easily manageable and the concerned Income Tax Officer (ITO) knows well about the whole area or market falling within his jurisdiction. In case of any kind of tax evasion or concealment the ITO knows about each and every person who is responsible for concealment or under-reporting of taxes. The ITO had all the necessary information about the businessmen and retailers etc of his areas and he can easily trace them for recovery of taxes, if required. Besides, the circle-based system was also manageable by the concerned ITO. Due to mapping of business markets/areas, nobody was able to escape from the ITO.

It was pointed out during the TRGC meeting that even if the government tries to implement the old income tax circle based system in view of ground realties of the country, it would not be possible as per accepted principles of reforms all over the world.

The functional based system which is internationally recognised and used as best practice is the ultimate need of the FBR. The TRGC made detailed deliberations to implement the functional based system in its true spirit. It was observed that there is a need for full-fledged ITMS as technology tool. The reforms cannot be fully implemented till the full-fledged ITMS is implemented major part of which is already available and all the taxpayers are using this system for the purpose of electronic filing of income tax and sales tax returns, withholding statements and electronic payments. The ITMS is being widely used for audit purposes and training on remaining components of the ITMS has been planned. Under the first stage the training of the modules would be done in January 2012 as planned by the FBR Human Resource Management (HRM) Wing. The real discussion whether reforms have been implemented or not. So far functional based organisational structure with full support of technology under the IT has been implemented. Globally, all tax administrations are making best use of IT for handling large tax bases and implementation of risk based audit in the country. For this purpose, it was agreed during the meeting of the TRCG that the Commissioners Audit in the Regional Tax Offices (RTOs) should directly report to the FBR Member Taxpayer's Audit, sources added.

Sources said that the circle-based system was replaced with the functional based system. Structurally, a number of steps were taken including implementation of the USAS and the FBR has been focusing on risk based audit. However, there is a need for training of officers and selection of cases for audit and conducting audit. At the international level, the audit has been used as a tool for better compliance and enforcement wherever USAS is implemented. Therefore, the criteria for selection of cases for audit and risk involved in the cases are very important which is also deterrent for the taxpayers and resultantly they tend to report the correct income and due taxes on voluntary basis.

In the modern tax administration, the function performed by the ITO under the old circle based system has now been done with the help of the IT system.

According to sources, the TRCG has further asked the tax managers to simplify the Tax Lucky Draw Scheme-2011 and change of the organisational structure to ensure direct reporting of the Commissioners Audit of the Regional Tax Offices (RTOs) to the FBR Member Taxpayer's Audit. During the meeting, it was observed that the Tax Lucky Draw Scheme-2011 has to be further simplified as schemes applicable in China and Taiwan were operating as per requirements of their tax administrations. Sharing the key features of the scheme, it was informed that the scheme should be extended to restaurants, hotels and guesthouses. The sales tax invoices of the registered persons should be used in the scheme and balloting be done to select the lucky consumers or winners.

In the past, the FBR had finalised the Sales Tax Lucky Draw scheme and even Sales Tax Rules were issued with the approval of the budget for implementation of the scheme. The scheme was dully approved by the Board-in-council of the FBR and a steering committee was consisted to implement the scheme. However, the old Sales Tax Lucky Draw scheme was not cleared by the Law Division in the past, sources said.

Meanwhile, a statement of the FBR issued on Tuesday said, the Tax Reform Core Group, in its two-day meeting with the Federal Board of Revenue officials has expressed its extreme reservation over frequent extensions being granted by the Board in filing of Income Tax and Sales Tax returns. A firm policy decision was taken in the meeting, presided over by FBR Chairman Salman Siddiq that the statutory dates of filing the Income Tax/Sales Tax returns will not be extended, particularly for the returns required to be filed by the companies on December 31, 2011. The taxpayers have been advised to file their returns on the stipulated dates as no extension in date will be contemplated, as decided by the Tax Reform Core Group in its meeting.

The meeting was attended by Tax Reform Core Group members Abdullah Yusuf, Arshad Zuberi, Shabbar Zaidi and Ashfaq Tola and the top officials of FBR including Member (IR) Shahid Hussain Asad, Member (Customs) Mumtaz Haider Rizvi, Member (FATE) Riffat Shaheen Qazi, Member (Taxpayers Audit) Hafiz Anis, Member (Enforcement & Accounting) Sardar Aminullah Khan, DG (HRM) Raana Seerat, DG (SP&S) Amna Khalifa and GM (Pral) Imtiaz Ali Khan, the FBR added.