FBR rules flood surcharge leviable on proportionate basis

RECORDER REPORT

ISLAMABAD: The Federal Board of Revenue (FBR) on Wednesday ruled that the amount of surcharge payable on the income tax liability for the tax year 2011 under section 4A of the Income Tax Ordinance 2001 shall be computed on the proportionate amount of income tax liability for three and a half months.

In this connection, the FBR has uploaded the SRO.977(I)2011 dated October 19, 2011 on its website on Wednesday wherein the scope of levy/collection of surcharge has been explained by exercising powers available u/s 53(2) of the Income Tax Ordinance, 2001.

When contacted, Waheed Shahzad Butt, a Lahore-based tax lawyer, told Business Recorder that the issuance of the SRO.977(I)2011 to collect a tax (surcharge) seemed to be not valid in the eyes of law. However, the FBR is attempting to provide legal cover to the levy and collection of surcharge u/s 4A of the Income Tax Ordinance 2001. The FBR has already issued Income Tax Circular 11 of 2011 on the same issue and now the SRO.977(I)2011 has also been issued to provide legal cover to FBR decision of collection of surcharge on the proportionate amount of income tax liability for three and a half months.

In this background Income Tax (Amendment) Ordinance, 2011 inserted a new section 4A in the Income Tax Ordinance, 2001 on March 15, 2011. The law says that it is to be paid @15 percent of the income tax payable for the period commencing from the promulgation of this Ordinance.

He said that u/s 237 of the Income Tax Ordinance 2001, the FBR may make rules for carrying out the purposes of the Ordinance while it is obligatory on the part of FBR to publish any proposed changes and consider the objections/suggestion raised by any person in the proposed changes published through issuance of SRO. FBR is legally obliged to satisfactorily clarify the each and very objection/suggestion in the proposed changes. Under section 206 of the Income Tax Ordinance 2001, the FBR may issue circulars to provide guidance to the taxpayers and its functionaries. The circulars shall be binding on FBR functionaries but, quite amazingly, at the same time it shall not be binding on a taxpayer.

Waheed was of the view that apparently it is strange that a document issued by the FBR to clarify a proposition of law or interpreting any law shall be binding on its functionaries but it shall not be binding on taxpayers? It clearly means that FBR is not empowered by the statute to clarify, interpret and explain the legal provisions of Ordinance. That's why taxpayers have intentionally been excluded from the domain of circular/clarification issued by FBR.

The powers vested under section 206 of the Income Tax Ordinance 2001 are of administrative nature having clear restriction to explain the legal issues, due to the reason any clarification/circular issued by the FBR shall not be binding on a taxpayer. It appears that the legislature wisely drafted the provision of section 206 and intentionally restricts the scope of jurisdiction and powers granted to FBR to issue circular/clarification, the tax expert said.

By using powers available under section 206, the FBR had earlier clarified that all taxpayers irrespective of their income closing year will pay 15 percent surcharge for 3.5 months on pro rata basis. In this connection, the FBR issued Income Tax Circular 11 of 2011 dated 12/09/2011, wherein scope and applicability of law has been extended.

It is clarified by the tax expert that to collect a tax which is legally due is the primary right of the state but collection of tax without any lawful justification and on the basis of ambiguous clarification is not fair. A person must be taxed only if he comes within the letter of law otherwise he is free even though his case falls within the spirit of law. The language of a taxing statute should not be stretched to hold the subject liable to tax, Waheed maintained.

Waheed further pointed out that the FBR has already issued three clarifications and one SRO on the issue of levy and collection of surcharge from time to time. In this regard, he has provided background information on the issue of surcharge.

Earlier, the FBR has also said that imposition of 15 percent surcharge on the amount of payable income tax for the period March 15, 2011 to June 30, 2011 is applicable on all income of taxpayers whether individual, Association of Persons (AOPs), or companies. In an official statement released on FBR website it says: "In order to remove any misconception which may have been caused by a press report appearing in a section of the media, the government wishes to clarify that the imposition of 15 percent surcharge on the amount of payable income tax for the period 15th March, 2011 to 30th June, 2011 is applicable on all income tax payers whether individual, Association of Persons (AOPs), or Companies.

Furthermore, while issuing "procedure for payment of 15 percent surcharge on payable income tax", FBR specifically clarified the mode of payment of surcharge.

He further added that earlier on a representation to FBR, a clarification was issued by the Chief IR (Income Tax Policy) vide letter C.No.4(27)ITP/2010 dated April 22, 2011 is quite self-explanatory:- "15 percent Surcharge is payable on any amount of tax which is payable (under any of the provision of Income Tax Ordinance, 2001) during the period 15-03-2011 to 30-06-2011".

Even in the SRO 793(I)/2011 dated August 24, 2011 the levy of surcharge was correctly computed in the proposed tax returns for tax year 2011, being in accordance with the provisions of section 4A read with Income Tax (Amendment) Ordinance, 2011. But for unforeseen reasons the said SRO was withdrawn on September 16, 2011, the tax lawyer stated.

Waheed raised questions that the FBR must clarify the following crucial issues:-

i) When the law was promulgated on 15/03/2011, how it can be applied for the period prior to its promulgation?

ii) How surcharge can be levied on the income which belongs to the period prior to the promulgation of the Income Tax (Amendment) Ordinance 2011?

iii) When language of law clearly says that it is to be paid @ 15 percent of the income tax payable for the period commencing from the promulgation of this Ordinance i.e., "15/03/2011" till the 30/06/2011, how, it could be charged and collected on pro rata basis against proportionate income of 3-1/2 months?

iv) In case if any taxpayer does not earn any income during the period from 15/03/2011 to 30/06/2011 and there is no business transactions/activity during such period, duly proved from the books of accounts, why he would pay 15 percent surcharge u/s 4A on proportionate basis?

v) How surcharge can be levied and collected on portion of income which is subjected to final tax under the provisions of the Ordinance?

vi) When earlier clarifications issued by the FBR on the issue of levy and collection of Surcharge are very much clear (except Clarification/Circular 11 of 2011) then how scope of Income Tax (Amendment) Ordinance 2011 can be extended through a circular or through SRO?