Finance Act 2010: FBR may invoke biggest enforcement provision

The Federal Board of Revenue is planning to invoke the biggest enforcement provision of the Finance Act 2010 to issue system generated notices to the non-compliant taxpayers including non-filers of sales tax returns, income tax returns, advance taxpayers, withholding statements, etc, taking action against them in minimum possible time.
Sources told Business Recorder on Wednesday that an important amendment to the Finance Act 2010 has empowered the FBR to issue system generated notices to the non-compliant taxpayers, providing them opportunity to explain their position on non-payment of taxes or non-filing of returns. The FBR is in the process of finalisation of the rules for implementation of the provision of section 217(3) of the Income Tax Ordinance as introduced through Finance Act 2010.
The persons receiving system generated notices would have no option other than to timely respond to notices to avoid penalties. In the manual environment, there are arguments that notices have not been properly served at the declared business addresses of the taxpayers.
Details revealed that through Finance Act 2010 amendments have been passed for authorising issuance of system generated notices under section 217(3) of the Income Tax Ordinance 2001. However, imposition of penalties without affording opportunity of being heard is not upheld by courts. After rules are being framed, automated intimation letters would be sent to the non-compliant taxpayers before applying penalties. This will enable the IT system of the FBR to issue notices to the taxpayers without requiring authorisation by an officer to have the same effect as those notices currently issued by the field formations.
Sources said that the system generated notice would automatically give hearing opportunity to the concerned taxpayer. The first electronic notice would be treated as an opportunity to the taxpayers to submit his viewpoint on the notice before the imposition of the penalty. The reason for introducing provision of electronic notice through Finance Act is that a large number of people become defaulters and do not file returns in due date.
Practically, it is not possible to issue notices to each and every person manually. On the other hand, through the IT system, notices could be served instantly throughout the country on the day of default. At the same time, the issuance of notice and delivery of notice would be instant. The issues about the delivery of notices would be resoled once the same is served to the taxpayer electronically. Taxpayers would have no justification to say that notice has not been received at the official address.
The issuance of electronic notices is also linked with the enforcement scheme of the "Active Taxpayer List" (ATL). A provision included in the ATL is that if someone do not respond to notice, he would be disqualify from becoming an active taxpayer. Resultantly, compliance level will be automatically improved for timely payment of taxes and filing of documents.
According to sources, the minimum penalty for non-compliance is Rs 5,000. As soon as electronically notice is being served, minimum penalty of Rs 5,000 would be due on account of late filing of returns under Ordinance 2001, sources added.
The section 217 (3) of the Income Tax Ordinance says, a notice or other document issued, served or given by the Commissioner under this Ordinance shall be sufficiently authenticated if the name or title of the Commissioner, or authorised Officer of Inland Revenue, is printed, stamped or written on the notice or document or if it is computer generated and bears the authentication in the manner prescribed by the Board.