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ISLAMABAD: The Federal Tax Ombudsman (FTO) has directed the FBR to recheck/reexamine the record in 103 tax credit cases for the tax years, 2014-2021 in the light of provisions of Section 65-D of the Income Tax Ordinance 2001 and to process 281 cases of tax credit claim pending with the department.

An own motion investigation initiated by the FTO against the systematic maladministration and gross abuse of tax credit regime under Section 65-D of the theme tax Ordinance 2001, brought to light glaring misuse and abuse of tax credit regime under the above said law.

It was observed in the findings by the FTO that tax authorities allowed undue tax credit to taxpayer companies formed as new industrial undertakings without laying down any standard operating procedures for such credit allowance.

In terms of Section 65D of the Income Tax Ordinance, tax credit is admissible equal to 100% of the income tax payable on income arising from new industrial undertaking, for a period of five years. It was however, observed that upon introduction of Universal Self-Assessment Scheme (USAS), the returns of income, filed by taxpayer companies automatically became assessment orders under Section 120(1)(b) of the Ordinance, on the day the same were furnished.

Manufacturing units, industrial undertakings: FBR initiates probe into wrongly claimed tax credit

During investigation, by the FTO Office, it was noted that in the cases where tax credit under Section 65D of the Ordinance, was claimed, the income tax department paid no heed to the verification process required for determining validity of the claim of tax credit.

Ironically it was after the pointation by the Office of the Federal Tax Ombudsman, that too, in a case of complaint against delay in issuance of refund, that the Income tax department took cognizance of such undue claims. Therefore it was aptly observed by the Federal Tax Ombudsman that evidently, no workable Standard Operating Procedure (SOP) had been evolved by FBR for timely examination of the cases of tax credits claims filed by the taxpayer companies and to create built-in monitoring mechanism for ensuring strict compliance of the mandates of Section 65D(4) of the Ordinance.

In his orders the Federal Tax Ombudsman has observed that the tax credit available under Section 65D of the Ordinance, was grossly misused because of the absence of inbuilt checking system to monitor the genuineness of tax credit claims and its timely disposal.

Absence of foolproof preventive mechanism, had opened the flood gates of blatant and indiscriminate misuse of this provision of law.

FTO probes 'misuse' of powers by Large Taxpayer Office

After examining the record, the FTO has directed the FBR to re-check/re-examine the tax credit already allowed by the department in 103 cases, claimed during the period 2014-2021.A Check List prepared by Office of the Federal Tax Ombudsman has also been issued for circulation to the FBR's field formations to procure/collect complete data/information/ documents required in each case and re-examine the same in terms of the provision of Section 65D of the Ordinance. It was also pointed out through the FTO directive that 281 cases of tax credit claims under Section 65D of the Ordinance were pending unduly with the Income tax department. Thus, delay, neglect, inattention, incompetence, ineptitude and negligence in timely disposal of tax credits claims and allowing wrong tax credit under Section 65 of the Ordinance, on part of the Income tax department, was established which is tantamount to maladministration.

Hence the Federal Tax Ombudsman directed the FBR to conduct enquiry in the cases discussed in the investigation were tax credit was unlawfully allowed and initiate disciplinary proceedings against the Official(s) who are found responsible for causing loss to exchequer; develop a comprehensive IT based solution; (a) whereby all tax credit claims under Section 65D of the Ordinance Should automatically be taken up for verification as soon as the returns are filed and disposed of, on first come first basis, after thorough examination, within first year of filing of the returns.

Federal Tax Ombudsman directed the FBR to direct the Chief Commissioners-IR, RTOs/CRTOs/LTUs and MTOs concerned and complete the verification and dispose of pending cases of tax credit under Section 65D of the Ordinance, strictly as per law and procedure and complete the verification in the cases, where tax credit for investment was already allowed under Section 65D of the Ordinance, in the light of information/details collected and take appropriate action/measures, where required to retrieve loss of revenue as per law and take strict disciplinary action against those officials who had allowed illegal tax credit with corrupt/ulterior motive; and report compliance within 60 days.

Copyright Business Recorder, 2021

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