The newly-introduced tax return form for Tax Year 2014 has not been able to grasp the documentation measures taken by the government through Finance Act, 2013. Experts told Business Recorder on Thursday that tax return form is unable to cater for the crucial issue for examining exemption claimed on account of agriculture income, set-off of losses and wealth statement requirements.
A Lahore-based tax lawyer Waheed Shahzad Butt has written a letter to Member Inland Revenue wherein these issues were communicated under objections/suggestions in proposed income tax return form such as ignorance of government's documentation measures through Finance Act, 2013 in case of agricultural income as exempt source versus addition under section 111 of the Income Tax Ordinance, 2001, misreading/non-reading of Finance Act, 2013 in case of Set off of Losses and issues in wealth statement requirements. Suggestions forwarded to the Member IR states, "certain amendments in the Income Tax Rules, 2002 have been announced under Notification dated 30.06.2014. There are certain issues in the proposed tax return form which needs modification:
1. GOVERNMENT'S DOCUMENTATION MEASURES THROUGH FINANCE ACT, 2013 IGNORED - AGRICULTURAL INCOME - EXEMPT SOURCE VS ADDITION U/S 111:
Proposed return is unable to grasp the crucial issue to examine exemption claimed on account of agriculture income. Certain amendments have been introduced by the present Government through Finance Act, 2013 to cater this issue. Proposed return form also failed to cater the major changes introduced in section 111 through Finance Act, 2013 by the present Government to tax the income misclassified under the umbrella of Agricultural Income. Taxpayer could not be allowed to misclassify his taxable income under Federal legislation as being exempt from income tax under the blanket of agricultural income thereby to avoid payment of lawful taxes. Declaring agricultural income different under one Legislation (provincial) than other Legislation (federal) is against the ethics and in violation of income tax law.
It appears the provisions of section 111 of the Income Tax Ordinance, 2001 as amended through Finance Act, 2013 have not been consulted while issuing present SRO to devise tax return form for Tax Year 2014:
[Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.]
In the return form only a single column for declaration of "Agricultural Income" has been devised, how an Officer of Inland Revenue will judge, what is quantum of Agricultural income declared under the Provincial Laws and what was the amount of Agricultural Income Tax Paid to the exchequer under provincial levy?
It is the primary obligation at the part of FBR functionaries to cross examine/reconcile the data of agricultural income with the concerned provincial taxation authorities but the official responsible to devise the income tax return form have miserably failed to cater the documentation measures taken by the present Government through Finance Act, 2013, therefore, to avoid futile litigation (hide and seek game between taxpayer and IR officials to seek data of agricultural tax) it is strongly suggested that following vital information may be added in the return form:
Agricultural Income (Exempt under Income Tax Ordinance, 2001) Rs......
Agricultural Income (Taxed under Provincial Agr-Income Tax Law) Rs......
Agricultural Income tax paid (under Provincial Agr-Income Tax Law) Rs......
MISREADING/NON READING OF FINANCE ACT, 2013 - SET OFF OF LOSSES
It appears while devising proposed tax return for Tax Year 2014 certain amendments made by the present Government in the statute book have been skipped by the FBR. Section 56 of the Income Tax Ordinance, 2001 was modified vide Finance Act, 2013 in the following manner:
...the person shall be entitled to have the amount of the loss set off against the person's income, if any, chargeable to tax under any other head of income except income under the head salary or income from property for the year
Income under the head salary or income from property shall not be available for set off but while devising tax return form following formula has been devised:
Total Income [2+3+((12+13+14+15+16)if>0))+17]
Income/(Loss) from Property
Income/(Loss) from Business
2. WEALTH STATEMENT REQUIREMENTS
Through Finance Act 2013, it was made compulsory by the present Government for all taxpayers to submit wealth statement irrespective of amount of their income declared in tax returns. Every resident being an individual or member of an AOP filing return of income, or statement under sub-section (4) of section 115 was required to file wealth statement along with reconciliation of wealth statement. This mandatory filing of wealth statement was made effective from the Tax Year 2013 onwards, however, condition was waived through SRO 978(I)/2013 for tax year 2013 only.
It also appears the provisions of section 116 of the Income Tax Ordinance, 2001 as amended through Finance Act, 2013 have not been consulted while issuing present SRO to devise tax return form for Tax Year 2014: Every resident taxpayer [being an individual] filing a return of income for any tax year shall furnish a wealth statement [and wealth reconciliation statement] for that year along with such return
The law on the issue is very clear but it appears following guide lines issued by the FBR is nothing but outcome of cut and paste activity: All Individuals, including members of AoPs or directors of companies, whose last declared or assessed income or the declared income for the year is equal to or more than PKR 1,000,000 or the final tax paid is equal to or more than PKR 35,000, must file Wealth Statement.
In the light of above, it is requested to examine the amendments made by the present Government through Finance Act, 2013 (especially documentation measures), avoid cut and paste policy and aforementioned suggestions/objections be considered while finalising the tax return form for Tax Year 2014: tax lawyer added.
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