The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has advocated that the government must make judicial reforms and create such environment that courts can decide matters in the shortest possible time.
In a communication to Federal Finance and Commerce Ministers, the Federation noted that time and again the government has claimed that it is also undertaking judicial reforms programme in order to strengthen the rule of law and enhancing transparency and accessibility of the legal system by modernising the courts system at all levels and strengthening capacity, effectiveness and accountability of law enforcement agent.
Despite the government's claim, the fact remains that in Pakistan, a commercial dispute in courts normally takes 20 years to settle. "Under these circumstances, how many foreign and local investors are we expecting who will consider Pakistan as a viable country?"
The government instead of taking positive steps has withdrawn the provisions like sub-section 8 and 9 of section 132, which provided that if the Appellate Tribunal has not made an order in respect of an appeal before the expiration of six months from the end of the month in which the appeal was filed, the relief sought by the appellant in the appeal shall be treated as having been given and all the provisions of this Ordinance shall have effect accordingly. "I feel that the government has to take concrete step to dispense justice at the doorstep to every resident free of cost."
The FPCCI proposed that government should take positive steps for undertaking judicial reforms and in this direction first step may be fixing time limit for finalisation of appeals.
AMENDMENTS OF LAW: The Federation pointed out that it is also a global practice that fiscal laws are amended prospectively so that the contracts/agreements already concluded are not affected. Such norms are not practised in Pakistan.
If such fiscal ethics are adopted in Pakistan; it will not only enhance the credibility of the government but will also attract investment.
The FPCCI suggested that fiscal laws be amended prospectively.
Sub-section (1) of section 20 provides that 'expenditure incurred for deriving business income' shall be allowed as admissible deduction. Whereas section 23 (1) (xviii) of the Repealed Ordinance provided that 'any expenditure incurred or expended wholly and exclusively for the purpose of business' shall be allowed as admissible deductions.
The officials of the CBR time and again have assured that there are no material and conceptional changes and the general principles of admissibility of expenses as far as both the ordinances concerned are same. However, the FPCCI is apprehensive, especially in the presence of provisions for amendment in assessment, that this provision may be misused.
The federation suggested that the sub-section be replaced with the following:
'In computing the income under the head "Income from business" for a tax year, allowances and deductions shall be admissible for any expenditure laid or expended or incurred wholly and exclusively for the purpose of such business.'
The federation pointed out that the business community of the country has been made responsible to act as Tax Collecting Agency as this mode and manner is a cause of hindrance in day to day business activity; therefore, the dependence on withholding taxes be reduced.
Various provisions of the Income Tax Rules, 2002 make it mandatory for the withholding agent to deposit the tax deducted within 15 and 7 days from the respective dates of tax deduction.
It was proposed by FPCCI that time limit for deposit of taxes may be extended to 30 days from the date of deduction.
The federation proposed that the original challans of payment including outstation challans be accepted and the credit for deduction of tax be allowed based on presentation of original challans.
Recently, the facilitation centres of the Corporate Region, Karachi, have started compilation of tax challans party-wise, which is commendable effort. "We feel this good work may be continued and the department itself should verify from DPC without bothering the assessee."
The federation pointed out that the government, on the advice of IMF and World Bank, is taking steps to tax the real income and moving in this direction to reduce the withholding tax regime. "We all know that it will take a long time in realising this dream."
The Federation proposed that in the meantime all the assessees should be given an option to opt out of the presumptive tax regime and assessed under the normal regime.
Sub-section (1) to (13) of Section 101 provide various types of Pakistani Source Income and sub-section (14) provides that any amount, not specifically provided under above sub-sections to be Pakistani Source Income, shall be considered as Pakistan source income if paid by a resident or borne by a PE of Non-resident. The chargeability of an amount should not be based on payment from Pakistan but its accrual in Pakistan.
The FPCCI proposed that in order to avoid confusion, the concept of 'accrue or arise in Pakistan' should be built in instead of 'paid by a resident or borne by PE'.
The definitions and terms provided in different fiscal laws be harmonised, as the same practice is available in most part of the civilised world.
The government in the Federal Budget 2003-04 had reduced Withholding Tax on the Commission of Indenters (Imports) from 10 percent to 5 percent but the government did not declare it as full and final tax liability as it was before July 1, 2002.
The FPCCI proposed 5 percent Withholding Tax on Indenting Commission be considered as full and final tax liability.
The federation pointed out that the old concept of coinciding cotton, sugar and etc season with September is not valid. Cotton starts arriving in August. Therefore, by June most of cotton crop is disposed of by the ginners.
Textile mills are required to close their accounting year on September 30 under the law. It is recommended that suitable amendment be made in Section 74 to allow textile mills closing of year on June 30. This will help in better budgeting of expected revenue collection, and correct reconciliation of tax collection.
It will also facilitate reconciliation of books of accounts.
There are three Auditors for checking the Income Tax Assessment Order. Besides two from within the Tax Department, there is one Auditor from Revenue Department, Islamabad.
No parameters are fixed for these Auditors. The Revenue Department Auditors check the assessment orders after 2 to 4 years at the completion of assessments.
Due to non-availability of scope of audit, these auditors tend to start Re-Assessment of the completed Assessment.
Audit objections are thrusted upon Income Tax Officers. Frivolous demands are created to the determent of assessee.
The FPCCI proposed that:
i) Audits be taken up within six months of the completion of Assessment;
ii) Parameters of Audits by Internal Auditor and Revenue Department Auditors be fixed and made known to Department and Assessees.
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