FBR to clip IR officers' wings

RECORDER REPORT

ISLAMABAD: The Federal Board of Revenue will curtail the powers of the Inland Revenue officers for valuation of the assets for which the Board has been empowered under the Finance Bill (2012-13) to prescribe rules for valuation or determination of the market value of the assets for implementation of the Capital Gains Tax (CGT) on sale of property.

While reviewing Finance Bill (2012-13) here on Tuesday, FBR Member Inland Revenue Shahid Hussain Asad and Chief Income Tax Policy Dr Muhammad Iqbal informed the Senate Standing Committee on Finance under the chairmanship of Senator Nasreen Jalil of MQM that the FBR has proposed amendment to section 76 and section 77 of the Income Tax Ordinance 2001 through Finance Bill (2012-13). Under the proposed amendments in section 76 and section 77 of the Income Tax Ordinance 2001, the Board may prescribe rules for determination of the cost for any asset. Similarly, the Board may prescribe rules for determination of consideration received for any asset. As per existing section 76 of the Ordinance 2001, the tax officials can determine the cost of an asset for determination of fair market value of an asset.

Chief Income Tax Policy explained that the FBR will be empowered under the Finance Bill (2012-13) to give a comprehensive framework for the valuation of cost of assets or determine the market value of the assets. This does not mean that the FBR will fix valuation benchmarks for property, but the tax authorities wanted to curtail the powers of the IRS officers for calculating of the valuation of the assets. The Inland Revenue Officers would be restricted to check any misuse of the powers for the valuation of assets. These rules would be generalized parameters to be framed in consultation with the stakeholders. The FBR is not acquiring any new powers but check the powers of the tax officials already available to them. To check such powers of the IRS, the FBR has proposed amendments in the section 76 and section 77 of the Income Tax Ordinance 2001 through Finance Bill (2012-13).

The FBR is of the view that arbitrary powers of the field officers in order to determine cost and consideration received from an asset will be curtailed by prescribing rules under the proposed amendments in section 76 and 77 of the Ordinance.

The FBR's powers to specify rules for valuation or determination of the market value of the assets would not have any impact on the provincial DC rates. The real estate per unit price index is commonly known as DC rates in provinces. If the federal government and the provinces reach consensus for brining DC rates to the actual market value of the immovable assets, the FBR may prescribe provincial DC Rates as standard rates for valuation of property across the country. This is possible in case the provinces are ready to bring the DC Rates to the actual market value of the immovable property. The FBR's rules can proscribe adoption of the DC rates applicable in the provinces.

Secretary Ministry of Finance Abdul Wajid Rana informed the committee that for the purpose of valuation of property, the FBR can make a committee of 5-10 tax officials who would prescribe rules for valuation of assets. The government's intention is to place a fair system of valuation of property. The FBR cannot formulate the rules in isolation, but input of all stakeholders would be taken before finalization of such rules. Shahid Hussain Asad referred to a meeting of the FBR will provincial finance secretaries of all four provinces that the DC Rates applicable in provinces was discussed during the meeting. The federal and provincial governments have discussed in detail the existing mechanism of the DC Rtes for the valuation of the property.

Senator Syeda Sughra Imam of PPP apprehended that the powers to the FBR to prescribe rules for valuation of the market value of the assets would only result in litigation as DC Rates are already prevailing in provinces. Any person can challenge the FBR's valuation formula on the argument that the DC Rates are applicable for calculation of the valuation of property. In the presence of DC Rates, how the FBR can force the taxpayer to workout the value of property on the formula laid down by the Board. The proposed amendments in amendment in section 76 and section 77 of the Income Tax Ordinance 2001 would increase litigation in courts. People would reject the FBR's valuation rates and prefer provincial DC Rates applicable for the last many years. If the Board would be given discretionary powers to prescribe such rates, it would only increase litigation. The solution for accurate valuation of properties is to review the existing DC Rates and bring them at par with the actual market value of the properties, she added. Senator Muhammad Talha Mehmood also contested the proposed powers of the FBR for the valuation or determination of the market value of the assets.

Some of the committee members were of the view that the FBR will make arbitrary rules instead of curtailing the arbitrary powers of the field officers. Therefore, in the best interest of justice the DC prescribe rates by the district administrations of the provinces for the purposes of stamp duty and registration of the immovable property should be made the basis for determination of cost and consideration of the asset. They were of the FBR that if the arbitrary rules are prescribed the taxpayers will go into litigation and most of the revenue would stuck in litigation.