Detection of income tax fraud cases: FBR to empower proposed DG I&I Inland Revenue

The Federal Board of Revenue (FBR) has decided to empower the proposed Directorate General of Intelligence and Investigation (DG I&I) Inland Revenue to check wrong issuance of income tax refunds and investigate matters relating to the non-reporting of taxable income, under-reporting of taxes and evasion of income tax, advance tax and withholding tax.
Sources told Business Recorder here on Sunday that the FBR has finalised the new organisational structure of the DG I&I Inland Revenue for creation of the intelligence agency to be headed by an official of Grade-21. Initially, three directors of Grade-18 are likely to be appointed at Karachi, Lahore and Faisalabad for DG I&I Inland Revenue. The organisational structure of the new agency further revealed that support staff would also be provided to the directors at Karachi, Lahore and Faisalabad. Later it would be replicated across the country.
The DG I&I Inland Revenue would also be empowered to investigate undocumented sectors earning huge income, but paying nothing in the form of revenue. This is for the first time that a new agency of the FBR would unearth potential cases of non-reporting of taxable income, which means a person with taxable income does not file his tax return. So far, the department is legally empowered to issue notices to the non-filer under section 114 of the Income Tax Ordinance 2001, asking him to file the tax return. Presently, the commissioner have jurisdiction over the taxpayer would be empowered to call for the tax returns. Following creation of intelligence agency, the FBR may empower the DG I&I to call for return of income from such undocumented persons. The exact legal powers of the agency would be clear after issuance of notification or amended on the Income Tax Ordinance to define duties and functions of the new agency covering income tax, sales tax and federal excise duty.
Sources said that the DG I&I Inland Revenue would also have the authority to check the income tax fraud cases across the country. The income tax concealment and other cases of under-reporting of taxes would be detected by the agency. The inadmissible issuance of income tax refunds is an important area, which would be investigated by the new directorate. The proposed DG Intelligence for IRS would specifically be instrumental in detection of corporate frauds related to domestic taxes. The FBR has to move a Bill to the Parliament for bringing changes in the Income Tax Ordinance 2001 for creation of the new agency. Through FBR notifications and office orders, the FBR can only empower the DG I&I Inland Revenue to deals issues like inquiries of income tax, but legislation is required for proper functioning of the new organisation.
In the past, the DG Intelligence had sought powers for selection of cases for income tax audit under the Universal Self-Assessment Scheme (USAS). However, the proposals were dropped at the Board''s level. The agency had requested the FBR to provide all investigative powers of the Ordinance 2001 to their officials. Similarly, additional directors, deputy/assistant directors of the agency had sought powers of section 177 except 177(1) and 177(4) of Ordinance 2001. The FBR had rejected the proposals of the directorate in the past.
The DG Intelligence had also sought powers to amend an assessment order under section 122 of the Ordinance 2001 by making such alterations or additions, as the directorate deems necessary. They also demanded powers to issue notices to obtain evidence from any person whether or not liable for tax under section 176 of the Ordinance 2001 The DG intelligence officials had also demanded powers to impose penalty for non-compliance of notices and penalty for making false or misleading statements. However, the FBR had repeatedly rejected these proposals of the agency in the past to avoid creation of a parallel investigation system in the presence of self-assessment scheme and audit under the Income Tax Ordinance 2001. Most of these proposals were floated by the existing DG intelligence in the past as a part of the budget proposals. However, the income tax assessment and audit powers were not delegated to the DG intelligence.