Keep the receipt: Proposal put forward for stricter checks on tax returns

November 25, 2013 11:19 PM

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Govern­ment consid­ers change­s in Univer­sal Tax Assess­ment Scheme.

The federal government is considering major changes to a policy of asking no questions from taxpayers about their annual income tax returns, a move, if approved by legislatures, will expose those who declare nominal increases or decreases in their incomes to scrutiny.

The Federal Board of Revenue (FBR) has proposed changes in the existing ‘Universal Self Assessment Scheme’ (USAS), a policy structured on the notion that the taxpayer is an honest person, and whatever he declares in his income tax returns cannot be questioned.

A presentation on the proposal has already been given to Prime Minister Mian Nawaz Sharif, after being cleared by the Finance Minister, according to sources privy to the development. Both presentations were made last week, they added.

If the government decides to implement the proposal, it will either have to introduce an ordinance to make changes in the existing tax laws or bring it in the shape of a bill in the parliament, according to officials.

The USAS was introduced by former president General retired Pervez Musharraf. Under the policy, the FBR accepts all the income tax returns – a document carrying the details of income, expenditures and assets of the taxpayer – without questioning the income or loss declared in the forms.

As a result, taxpayers were found understating their assets and incomes in an attempt to cheat the FBR and causing losses to the exchequer. Consequently, the country’s ratio of taxes to gross domestic production remained less than 10%.

One of the main reasons behind the failure of the USAS was that the FBR did not link the USAS with any form of audit.

According to the new proposal, if a taxpayer declares a 25% drop in income, he will be subject to scrutiny and their returns will automatically be picked up for an audit.

“The proposal has not yet been finalised and we are just contemplating it as one of many options to enhance tax compliance and increase the revenues”, said FBR Chairman Tariq Bajwa, while talking to The Express Tribune.

However, the underlining risk to the proposal is the business friendly reputation that the PML-N government has earned so far due to the withdrawal of many tax measures, which were hurting the industrialists and traders. It has even reduced the penalties on late filing of the returns, allegedly under pressure from the Lahore-based traders.

It is an encouraging proposal that will increase the FBR’s revenues from income tax by at least 30%, said Ashfaq Tola, a Karachi-based chartered accountant and an eminent tax expert. He said that the FBR has the capacity to scrutinise each and every income tax return filed by the taxpayer.

The deadline for filing the income tax returns for the last financial year, ended on June 30, is November 30 and, so far, the FBR has electronically received about 97,000 returns by the taxpayers, according to FBR officials. The figure is exclusive the income tax returns, filed manually in the field offices.

The 97,000 figure seems discouraging as the last date is only a week away. The FBR has extended the date thrice, primarily due to its failure to develop a form and also because of resistance offered by affluent individuals who were not ready to submit wealth statement along with income tax returns. The government eventually agreed to exempt those with moveable assets assets worth less than Rs1 million from filing wealth statement.


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