Non-compliant taxpayers: FBR cannot impose penalty/fine via e-system

The Federal Board of Revenue (FBR) has informed the World Bank (WB) supervision mission that the tax authorities are not legally empowered to impose penalty/fine automatically through electronic system to the non-compliant taxpayers without providing them opportunity to be heard.
Sources told Business Recorder here on Saturday that the FBR team of tax managers, headed by Chairman Salman Siddique, discussed in detail the issue of application of fines and default tax automatically by the IT system without human intervention with the WB mission during video conferencing at the WB Headquarters Islamabad. According to the Action Plan, to be implemented by the FBR under the Tax Administration Reform Project (TARP), the tax authorities would have to start application of fines and default tax automatically by the IT system without human interference.
The system would automatically work out penalty/fine and generate a notice to the taxpayers. The proposal was part of the overall reforms in the tax administration to end interaction between the taxpayers and the tax officials. The automatic imposition of penalty was proposed by the WB to issue computer-generated notices to directly impose penalty/fines on the non-compliant taxpayers with the help of computer-generated reports.
According to sources, the tax managers have informed the WB that legally the FBR has to give opportunity to the taxpayers to give their viewpoint before imposition of the penalty and fines. The taxpayers have to be heard before starting proceeding for imposition of penalty on the non-compliant persons. The penalty cannot be imposed unilaterally along with the notice of filing of return merely relying on IT system. The FBR has agreed to issue e-reminders to the non-filers for filing of return. Through these e-reminders the FBR will inform the taxpayers about their legal obligation to file returns/statements. In case of non-compliance, the FBR will issue the notice of imposition of penalty on the taxpayers. The FBR has the authority to do ex parte assessment of the taxpayers following no response of notices of the tax department.
Under the current tax system, the FBR can issue e-reminders to only those taxpayers who are filing their returns electronically. These include companies and some other categories of taxpayers bound to file returns through the electronic system of the FBR. Contrary to this, the FBR is not in a position to issue e-reminders to the non-complaint taxpayers who are filing returns manually. In such cases, the FBR has to feed the data in the electronic system and only then the Board can issue e-reminders to the persons manually filing returns.
Sources said that legally automatic penalty could not be imposed on the taxpayers as the penal provisions are separate from the assessment provisions of the income tax law. It is the basic right of the taxpayer to have an opportunity to submit his viewpoint under the relevant penal provisions of the law. Once the tax department hears the viewpoint of the taxpayers, the FBR can further proceed for imposition of penalty and fine.
FBR officials agreed that officials of Inland Revenue should not have discretion to issue notices of penalty. It has been observed that the Commissioners of Inland Revenue use their discretionary powers to issue notices of penalty/fine to registered persons. The FBR would ensure that all non-compliant taxpayers including non-filers of returns should be timely issued notices of penalty/fines before initiation of proceedings against them. Sometimes notices have not been served to the persons liable to file returns and pay due amount of tax. Thus, an enforcement mechanism needs to be developed to ensure timely issuance of notices to the non-filers for recovery of taxes and imposition of penalty fines as admissible under the tax laws.