The Federal Board of Revenue (FBR) is seriously holding brainstorming on a major proposal of its tax advisors/consultants for amending Income Tax Ordinance 2001, making it compulsory for tax/government departments to record all economic transactions of a person wherever computerised national identity card numbers (CNICs) have been used for electronic documentation of business activities for taxation.
Sources told Business Recorder here on Sunday that senior tax advisors of FBR have submitted a plan for documentation of electronic transactions where a person has utilised the CNICs which would expose all purchases/sales, income and expenditures made by a person. The legal backing through amendment in the Income Tax Ordinance 2001 would ensure recording of each and every business transaction where CNIC has been used by the person. The tax consultants of the FBR have proposed amendments in the tax laws to ensure compulsory recording/documentation of all credit card transactions and banking deposits/withdrawals up to a certain limit on the basis of CNICs.
According to the plan, the importance of third-party data for any tax administration is imperative for the purposes of broadening the tax base, enforcing compliance, correct and faithful declaration of income, selection of cases for audit, etc. Pakistan's economy to a large extent is undocumented cash economy. This makes it more important for reliance on third-party data of economic transactions for taxation purposes.
The section 176 of the Income Tax Ordinance, 2001 gives ample power to the Commissioner to obtain third-party data but over the years it has been proved that this de-centralied power has occasionally been used for collection and use of third party data and that too on local level and not on national level.
Sources said there is a need to create a Central Third Party Data Collection Unit and Data Warehouse under FBR or preferably under the Federal Government. In this regard, proper legislation may be done to make it obligatory for recording of all economic transactions with reference to the Computerised National Identity Card Number in respect of all individuals and with reference to National Tax Number of all other entities (Common Identifier); and furnishing of data of economic transactions on periodical basis in a systematic manner electronically.
Through appropriate legislation in the tax laws, the utility companies should be required to introduce a concept of recording the CNIC/NTN of the current consumer/user of the services provided by them and of any change therein, in their existing data base of the consumers from which billing is done by them. Each current consumer should be required to provide his CNIC or NTN to the utility companies for this purpose. It should be obligatory on each current consumer to intimate the utility companies of any change in the current consumer alongwith the CNIC/NTN of the new consumer and the date of change.
In case the change is not intimated by the current consumer, then for all purposes he/she will be treated as the current consumer/user of the services. Once this is achieved, the data provided by the utility companies shall be with a common identifier for the tax department.
In case of purchase of locally manufactured vehicles, the motor vehicles sold by the manufacturers in Pakistan have complete record of each vehicle sold with complete particulars of the buyers including his/her CNIC and/or NTN.
The FBR plan on documentation further shows that the customs data is already available with FBR in respect of vehicles imported with complete particulars of each importer, including his/her CNIC and/or NTN.
About the foreign travel, sources said that the immigration data is already available with CNIC of each foreign traveller.
Sources said that the quantum of annual deposits and withdrawals in each bank account exceeding a threshold of say Rs 1,000,000 must be documented by tax department through proper legislation in the Income Tax Ordinance 2001.
To document the Credit Card Transactions, the FBR should introduce legislation in the tax laws to record and document quantum of annual utilisation of credit card facility exceeding a threshold of say Rs 500,000, the FBR plan added.