Harmonising income tax, sales tax collection system: FBR plans to introduce bill in National Assembly
RECORDER REPORT
ISLAMABAD (September 18 2009): The Federal Board of Revenue (FBR) is planning to introduce a Bill in the National Assembly to harmonise the system for collection of both the income tax and sales tax to facilitate the working of the functionally structured tax administration. Sources told Business Recorder on Thursday that the FBR is finalising the new Bill on the harmonisation of taxes to be presented before the Parliament for approval.

In this regard, the FBR is examining different options for amendments in Income Tax Ordinance 2001 and Sales Tax Act, 1990. When contacted, a tax expert said that it is being examined whether it would be appropriate to give assessment and passing order powers to separate income tax officials. Under this option, the income tax official should not be considered as a judge of his own assessment.

On the other hand, the experts proposed that the FBR should change the adjudication procedure for sales tax registered persons, which should empower the same official to conduct audit and adjudicate the sales tax case. One of the changes under consideration is to revise the adjudication procedure for the sales tax officials to harmonise sales tax laws in line with the income tax law, sources said.

On the income tax side, Income Tax Ordinance 2001 empowers the same official to conduct income tax assessment and pass the necessary order. Whereas, different stages are involved in sales tax audit, adjudication and appeal process for sales tax registered persons. The sales tax audit report is being prepared by a different person and it is handed over to the adjudication authorities. The audit and adjudication are being done by separate officials on the sales tax side.

The FBR should examine this proposal to amend the Sales Tax Act through proposed Bill to empower the same sales tax official to conduct audit and adjudicate the case. This might bring sales tax law in line with the income tax laws under harmonisation process. The taxpayers would be facilitated by eliminating one stage during audit/adjudication process under the proposed law.

If the proposal is being incorporated in the Bill, both the income tax and sales tax laws would be harmonised for audit/adjudication purposes. The concept of separate adjudication procedure on the sales tax side might be ended under the proposed Bill, expert added.

It is worth mentioning that according to the IMF Second Review and Request for the Augmentation of Access under the Stand-By Arrangement, Pakistan has agreed to submit to Parliament by end-September 2009 legislative amendments to harmonise the sales tax, income tax, and the federal excise tax laws with a view to facilitate the work of the functionally structured tax administration (structural benchmark).

This harmonisation will also include the elimination of the option for retailers with a turnover over Rs 10 million to choose the presumptive tax regime. The structural performance criterion on the submission to parliament of legislative amendments to harmonise the income tax and GST laws, for tax administration purposes, and reduce exemptions for both taxes was not observed.

Pakistani authorities will submit to parliament by end-September 2009 legislative amendments to harmonise the sales tax, income tax, and federal excise tax laws with a view to facilitating tax administration (structural benchmark). However, meaningful progress in reducing tax exemptions will be achieved only with the introduction of the new broad-based VAT regime, which is scheduled to become effective on July 1, 2010

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