Some Members of the Tax Reform Co-ordination Group (TRCG) of the Ministry of Finance proposed compulsory allocation of National Tax Number (NTNs) to commercial and industrial connections of gas and electricity and imposition of 10 percent adjustable withholding tax on the locally purchased cars for necessary documentation of the economy.
Sources told Business Recorder here on Tuesday that the TRCG meeting focused on proposals for broadening the tax-base and measures to document the economy under the on-going exercise of issuance of notices to the potential persons. Vakil Ahmad Khan, Member of the Income Tax Sub-group strongly proposed that the NTNs be compulsorily issued to all the industrial and commercial consumers at the time of giving them connections. A column be introduced in the concerned forms with the help of power distribution companies and Sui Southern Gas Company Limited and Sui Northern Gas Pipeline Company.
It has been brought to the notice of the TRCG that the NTNs have been massively misused during purchase of cars. A large number of cars have been locally booked in the names of persons, who are unaware of the fact that their NTNs have been misused. In order to check the ongoing massive misuse of NTN, one of the members of the TRCG recommended that some kind of withholding tax may be imposed at the time of purchase of cars. Such kind of tax was applicable in the past, but later abolished. The tax should be imposed on the basis of value of car. This levy should be adjustable which would encourage the people to file their income tax returns for obtaining refund of the due amount of tax. For example, if 10 percent tax of the value of car is collected at the time of making payment through pay orders etc to the manufacturing company, the purchaser would be forced to file returns for obtaining refunds. It would also be instrumental in checking the misuse of the NTNs during purchase of cars.
The TRCG would further discuss these proposals under the measures to document the economy. According to the sources, the TRCG rejected a proposal floated by a Member of the TRCG to announce an amnesty scheme for legalisation of assets. It has been proposed that an amnesty scheme may be announced which should not ask source of investment for past transactions. However, the TRCG turned down the proposal of amnesty scheme based on the argument such schemes discourages honest taxpayers. The documented taxpayers are paying taxes at the standard rates and such proposals give a wrong impression to the compliant taxpayers across the board.
Another proposal was to collect one time amount of Rs 25,000 to Rs 30,000 from the non-filers of returns. Under the proposal, the tax department can confront the non-filers to pay one-time levy for documentation and ensure filing of returns in future. However, the TRCG considered the proposal as impracticable under the existing tax laws. On the basis of third party data, it was argued that lump sum amount be collected from the taxpayers to enforce filing of returns. Contrary to this, the proposal has been rejected by the TRCG.
The TRCG thoroughly reviewed the ongoing exercise on the broadening the tax-base. Shahid Hussain Asad Director General Broadening the Tax Base gave an update on the ongoing exercise of issuance of notices to the potential persons. There was a general consensus among the members of the TRCG that the notices should be initially issued to the wealthy persons having huge incomes and several bank accounts for bringing them into the tax net. Instead of focusing on small taxpayers, the major focus would be the richest people. It was also agreed to go after big people for giving am impression to the general public that the government would not spare the powerful or influential persons during the exercise of documentation of the economy. The notices to big people would also reflect that government''s commitment for hunting the wealthy people.
The TRCG endorsed the viewpoint of the Director General Broadening the Tax Base that the big people must be brought under the documented regime. A Member of the TRCG raised an issue that the FBR should not issue notices on the basis of information available in the bank accounts. It was further argued that the bank account information should not be formed basis for issuance of notices for filing of returns.
However, FBR officials explained that if a person is maintaining three bank accounts in foreign banks operating in the country, it could be assumed that he is earning table income and liable to file return. In case the bank accounts are dormant, the department would not take action against persons not liable to file returns. If a person has substantial money in his bank account, the department can ask source of investment to justify the income.
However, a person can file return and declare nil income or losses, but the purpose of the whole exercise is to enforce filing of returns as per Income Tax Ordinance 2001. The account holder can simply declare in the return that his income is not taxable, depending on the nature of his income. The department can properly confront the account holder after filing of return based on the third party data collected from external sources.
Sources said that the Ministry of Finance has asked the FBR and the NADRA to sign the relevant MoU for reaching agreement amicably on some fee for providing data for broadening the tax-base. Both the side should workout the modalities for sharing of NADRA data in this regard.
During the meeting of the TRCG, Minister of Finance Abdul Hafiz Sheikh appreciated the exercise of the FBR to broaden the tax-base. He directed the FBR to call a meeting of the Chief Commissioners of the Regional Tax Offices (RTOs) to review the ongoing exercise of the documentation of the economy.