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ISLAMABAD: The Auditor General of Pakistan (AGP) has strongly recommended the Federal Board of Revenue (FBR) to collect/ recover taxes to the tune of billions from certain categories of taxpayers, whose status was changed from final tax regime (FTR) to minimum tax regime (MTR).

In some test cases, the AGP has asked the FBR to recover nearly Rs 2 billion from taxpayers, who were earlier operating under the FTR and now shifted to the minimum tax regime. In this regard, the AGP has conducted a special study on the FTR and MTR, exposing ongoing frauds taking place in the FTR/ MTR.

Prior to Finance Act 2019, persons involved in certain transactions were not required to pay tax on their actual profit. Instead, the tax collected or deducted on such transactions, since the tax deducted was final tax, therefore such person was not subject to detail scrutiny through audit.

The actual tax potential from such transactions is not realized due to presence of final tax regime. Now the Government through Finance Act, 2019 has abolished FTR in major cases and relevant incomes streams have been made subject to minimum tax in all cases (other than exports, dividends, prizes and winnings, sale of petroleum products, etc.), with tax deducted/ deductible to be treated as minimum discharge of tax liability. Moreover, there has been a realization that this regime was effectively contributing in a negative manner resulting in non-documentation of economy.

This Special Study Report detected loss of revenue on account of minimum tax, amounting to Rs.1960.847 million. The special report revealed that the government introduced the scheme to enhance tax collection by introducing/ changing final tax into minimum tax regime for certain persons.

FBR fails to detect Rs2.6bn wrong input tax adjustments

Final Tax Regime was available for commercial importers, commercial supplies of goods, contractors, persons deriving the brokerage or commission and persons earning income from CNG stations. In order to tap the actual potential, amendments have been made through Finance Act 2019 whereby the tax collected or deducted from aforesaid transaction shall be treated as minimum tax except for exporters, persons winning prize and sellers of petroleum products.

The AGP has recommended the FBR that the department has to frame adequate regulations and procedure to plug the loopholes in the system of universal self-assessment and secure effective check on assessment, collection and proper allocation of revenue.

It asked the department to find ways of reducing the quantum of revenue forgone as result of taxpayers availing un–entitled benefit due to the existing system. Efforts may be made to recover the losses due to incorrect computation. The system of Internal Controls should be in place for effective monitoring for collection of tax, assessment, besides monitoring of outstanding recoveries/ dues of arrear, special study report added.

Copyright Business Recorder, 2022

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