Unearthing of business deals: DGIAIR submits report on documentation of economy

A special report of the Directorate General of Internal Audit Inland Revenue (DGIAIR) on documentation of the economy strongly proposed use of withholding tax data pertaining to banking transactions for unearthing the business deals made by the taxpayers to assess the actual volume of their businesses.
Sources told Business Recorder here on Monday that the directorate has submitted a report with some suggestions on the documentation of the economy, taking into account business transactions made by a taxpayer. The report has suggested usage of banking information for checking actual business transactions of the taxpayer on the basis of data collected under section 231(A) of Income Tax Ordinance, 2001.
According to the report, through recent amendment in section 231(A) of Income Tax Ordinance, 2001, the tax has been imposed on all kinds of bank instruments. If a taxpayer sends cash through bank instruments to out stations etc, tax on the transaction would be deducted. This kind of tax information may go a long way in unearthing all business transactions of a taxpayer, giving ample information to the department on the quantum of business. Thus this sort of documentation blocks all the concealment means and enhances tax collection.
The directorate further proposed that the tax to be deducted on each cash withdrawal exceeding Rs 25,000. The report suggested that the tax rebate may be given on maintenance of accounts and books. It further suggested that each transaction/expense exceeding Rs 10,000 has to be paid through cross cheque or banking channel.
The report further suggested that since a large segment of our economy is still undocumented or in process of documentation, there is a need to create awareness among masses especially, business community to step forward and contribute to development of the country at both individual and community level.
Cognisance by state for default may yield good results. In developed countries, people pay taxes regularly and honestly due to fear of excessive penalty. The government may own carrot and stick policy to enforce tax laws and collection. Certain amendments in tax laws have recently been made to effectively enforce documentation of economy through Finance Acts.
The report said that the 70 percent of total tax collection is being contributed by the corporate sector (companies) ie documented sector whereas only 30 percent is being contributed by undocumented sector. Needless to emphasise that much potential segment of economy is still not paying taxes vis-à-vis economic activity, capital cash flow. The FBR has to tap this segment and bring it in net of documentation.
The goal should be to bring undocumented sector at par with documented sector to boost up revenue. It further suggested that the provision of section 231 A, B, 233, 233A, 234A. 235, 236 of the Income Tax Ordinance, 2001 being every tax payment and receipt on record. The FBR should compile all sorts of information about taxpayer in tax office regarding asset purchased, electricity, Sui gas bills paid, new investment made, motor vehicle purchased in a year. In this way the department would be in a better position to assess quantum of income more equitably and judiciously.
The report said that the documentation of economic activity is a pre-requisite for monitoring country's resources up to optimum level Internal Control on economy can be exercised through documentation and registration which ultimately serves as a tool in accomplishing our goals and objectives. In the wake of tax reforms, restructuring of FBR, certain amendments in tax laws were accordingly made.
The emphasis was laid down on documentation of economy. Regional tax officers were established. The Income Tax and Sales Tax were merged and office was named as 'Inland Revenue". Henceforth Income Tax and Sales Tax record is being simultaneously maintained/monitored. The officer in Land Revenue is now in a better position to have an eye on declared sales as per return and as declared in Sales Tax thus preventing, detecting leakages and irregularities.
Needless to reiterate that documented economy plays a pivotal role in progress and prosperity. Every transaction is on record. The element of tax evasion and avoidance and leakage of revenue is plugged which ultimately contributes a lot in enhancing revenue collection, report of the Directorate General of Internal Audit Inland Revenue added.