Income Tax (Amendment) Act 2025

General

Just four weeks before the introduction of the Finance Bill 2025 in the National Assembly, the President of Pakistan has introduced an Income Tax (Amendment) Act 2025. From a semantics point of view this is not a good omen. However, this shows the desperation of the government with respect to recovery of taxes.

On the matter of income tax both the provisions introduced were not required. The recovery proceedings already available in the Ordinance were enough to cater for the measure, which has been introduced. There was a need for refinement of procedures instead of introducing a substantive legal provision, which has no precedent in other jurisdictions. It is recommended that this provision should not be approved in the forthcoming budget.

The placement of officers of Inland Revenue at the premises is also not a desirable step. Keeping in view the past experience this step is not expected to give positive results.

The action undertaken on the matter of Federal Excise Duty are correct and the requirement of bar coding, etc., which is a step towards track and trace are to be promoted. Goods available in the market without such codes are required to be confiscated.

Income Tax

Recovery provisions

Through this amendment in the Income Tax Ordinance, 2001 two new sections being 138(3A) and 140(6A) have been inserted. The text of the respective sections is as under:

“(3A) Notwithstanding anything contained in this Ordinance or any other law or any rule, any decision or judgment of any court, forum or authority, the tax payable under any provision of this Ordinance or any assessment order shall become immediately payable or within the time specified in the notice issued by the income tax authority under this sub-section, irrespective of the time provided under any other provision or the said decision or judgment, in case the issue giving rise to the tax payable is decided by a High Court or Supreme Court of Pakistan

“(6A) Notwithstanding anything contained in this Ordinance or any other law or any rule, any decision or judgment of any court, forum or authority, the tax payable under any assessment order shall become immediately recoverable or within the time specified in the notice issued by the income tax authority under this sub-section irrespective of the time provided under any other provision or the said decision or judgment, in case the issue giving rise to the tax payable is decided by a High Court or Supreme Court of Pakistan.

These sections provide special and additional recovery rights to the tax department. In our view there is no need for this amendment as this right already exists in the present provisions of law. There is no change with respect to the right of the department to recover the amount of tax after a decision in their favour the mannerism has apparently been changed which is explained in the following paragraphs.

The law provides that in case if there is a decision by the High Court or the Supreme in favour of the department then the demand relating to the matter in appeal or writ will become payable immediately. This is not practically possible as an order of the High Court and the Supreme Court is not concerned with the recovery of tax. Accordingly, it has been provided that as soon as the order is passed, the concerned tax officer shall issue a notice of recovery whereby the amount under dispute would become immediately payable as laid down in the notice. Through this section the time limitation of the number of days for recovery under any law, regulation or judgement has effectively been made inapplicable.

It is reiterated that this right already exists in the present provisions and the tax officer has the right to amend the assessment as per the decision of the High Court or the Supreme Court and initiate recovery proceedings. If this provision is read independently then it means that the provision of amending the assessment and raising the demand has been dispensed with by the insertion of these two provisions. If it is so then we consider that this aspect would have to go through the test of judicial validity.

A practical difficulty would arise with respect to announcement of the decision in the court and receipt of the certified copy of the order. It is our view that the order of the High Court or the Supreme Court becomes effective only on the receipt of the certified copy by the taxation officer.

Physical presence of officers at premises of the taxpayers

“175C Posting of Officer of Inland Revenue.— Subject to such conditions and restrictions, as deemed fit to be imposed, the Board or the Chief Commissioner, may post an Officer of Inland Revenue or such other officials with any designation working under the control of the Board or the Chief Commissioner, to the premises of any person or class of such persons, to monitor production, supply of goods or rendering of or providing of services and the stock of goods not sold at any time.”

A new provision has been inserted whereby it has been made possible that officers working for the proceedings or recovery of income tax under the Income Tax Ordinance, 2001 can be posted at the premises of any person or class of such persons, to monitor production, supply of goods or rendering of or providing of services and the stock of goods not sold at any time.

The provision introduced is a verbatim copy of the provisions contained in the Sales Tax Act 1990

Section 40B; Subject to such conditions and restrictions, as deemed fit to impose, the Board may post an Officer of Inland Revenue to the premises of a registered person or class of such persons to monitor production, sale of taxable goods and the stock position

In our view, this provision is not required and such provisions are generally there where the incidence of tax is based on production or supplies such as sales tax etc. We are not aware of any reason for having such provisions in the case of a tax which is not payable on production or supply or rendering of services but the net income arising from such production, supply or rendering of services.

Federal Excise Act 2005

Counterfeited cigarettes or beverages

Seizure and confiscation

The power to seize and confiscate counterfeited cigarettes or beverages has been extended. Previously, the same was limited to only those goods on which tax has not been paid. Now it has been extended also to those goods which are available in the market without affixing or affixing counterfeit tax stamps, bar codes, banderoles, stickers, labels or bar codes, as required under section 45A of this Act.

This means that any product available in the market without stamps, bar codes, banderoles, stickers or labels shall be treated as if it is a product on which tax has not been paid; though the tax may have been paid on such goods. This is a step for initiating a track and trace system.

This is a very positive amendment. The amended section now reads as under:

1. Power to seize.– 1 [(1) The counterfeited cigarettes or beverages which have been manufactured or produced unlawfully and other dutiable goods on which duty of excise has not been paid in the manner as required under this Act and the rules made thereunder, or such goods without affixing or affixing counterfeit tax stamps, bar codes, banderoles, stickers, labels or bar codes, as required under section 45A of this Act shall be liable to seizure along with the conveyance, which has been used for the movement, carriage or transportation of such goods.] (2) For the purpose of this section, ‘conveyance’ shall include all of its fixtures, fittings and accessories etc.

2. Confiscation of goods subject to federal excise duty.– (1) The cigarettes or beverages seized for the reasons of counterfeiting or such goods without affixing or affixing counterfeit tax stamps, bar codes, banderoles, stickers, labels or bar codes, as required under section 45A shall be liable to outright confiscation and shall be destroyed in the manner prescribed in sub-section (10) of section 19.

Powers to other officers

The powers of undertaking actions under Section 26 and 27 of the Federal Excise Act 2005 which were limited to officers under the Federal Excise Act has been extended to any other officer of the tax department under Federal Board of Revenue. This is a good step with reference to coordinated operation of FBR.

“(4) Without prejudice to the foregoing provisions of this section, the Board in case of goods subject to monitoring under section 45A of this Act and counterfeited goods, may authorize any officer or employee of the Federal or Provincial Government to exercise the powers and perform the functions of the Officer of Inland Revenue under section 26 and sub-section (1) of section 27, by notification in the official Gazette subject to such conditions, if any, it may deem fit to be imposed.”.

Copyright Business Recorder, 2025