Imposition of default surcharge on trade associations assailed

LAHORE: The Income Tax department is allegedly imposing default surcharge on trade associations by dividing expenses between the exempt income and taxable income after creating fake demands, said sources.

According to the sources, the department imposes default surcharge (additional tax) despite the fact that no individual gains or any monetary benefit are involved by evasion or non-payment of tax in case non-profit trade organizations. Therefore, no mens rea or guilty intention can be attributed to such trade bodies, operating for the welfare of various business sectors in the country.

Furthermore, they said, it is a settled law that additional tax is payable only where non-payment of tax was either willful or due to mala fide intention of evasion.

The sources said the income tax officers were involved in creating fake demands of millions of rupees against the voluntary contributions collected by trade associations from their members to render inspection services against the exportable consignments. They said most of the trade associations submit nil-returns, which are taken up by the Assessing Officers (AOs) to create fake demands by treating voluntary contributions and attributing notional figures, running into millions or rupees, in their assessment orders. The higher authorities entertain such fake demands by allowing certain expenses as prorated expenses. Interestingly, they said, the AOs create huge expenses for a simple exercise of colleting voluntary contributions through cheques from members and their deposit to the bank. In one case, they said, the department created fake spending of Rs 15,10,894 for collection of voluntary contributions of Rs 22,00,500 and Rs 25,49,505 against a collection of Rs19,00,000 by Rice Exporters Association of Pakistan (REAP) during the tax years 2001-02 and 2002-03 respectively. The relevant forum had astonished that how such a huge expense can be made by the trade association for a simple task of rice inspection to issue a certificate for export purposes.

Talking to Business Recorder, leading tax practitioner Hussain Ahmed Sherazi said the department was not only creating fake demands but also charging additional tax (default surcharge) without proving mala fide on the part of trade associations, which could not hold ground once challenged before the court of law. He said the relevant forums have maintained time and again that trade associations do not accrue any individual gain or monetary benefit out of their welfare work for the collective good of their members.

He has expressed the hope that the department would stop imposing default surcharges against trade associations by creating fake demands out of their routine expenses.

Copyright Business Recorder, 2023