Glitch bars new resident taxpayers

IRIS portal does not allow returning Pakistanis to enter wealth balance in returns

ISLAMABAD:

With only a week left in the twice-extended deadline for filing income tax returns, the previously non-resident but now resident Pakistanis are facing a unique problem as they are barred from disclosing their wealth in this year's returns.

The restriction on stating the opening wealth position for the tax year seemed a technical glitch on the part of Pakistan Revenue Automation Limited in return documents for the last tax year. The deadline to submit returns with all benefits of being a filer is going to end next Saturday.

The Karachi Tax Bar Association has written to the member operations of the Federal Board of Revenue (FBR) to fix the glitch, which otherwise could create serious legal problems for people who have become resident Pakistanis.

The association stated that a specific restriction in the Wealth Reconciliation Statement was creating difficulties for individuals returning to Pakistan after a period of non-residence. Under the income tax law, if a Pakistani lives abroad for a certain number of days in a year, the person becomes a non-resident Pakistani for tax purposes.

The tax bar stated that the difficulty arose because the Inland Revenue Information System (IRIS) web portal automatically populated the opening wealth balance from the last filed Wealth Statement and did not allow that balance to be edited.

Where an individual resumes resident status after the intervening years of non-residence, the system therefore retains the wealth balance reported before that period, rather than allowing the appropriate opening balance for the relevant tax year to be entered.

"This has created a reconciliation difficulty where no wealth statements are required under Section 116(2) of the Income Tax Ordinance, 2001 during the intervening years," it added.

The individuals who have returned to Pakistan and become residents are now required to furnish the Wealth Statement and Wealth Reconciliation Statement for tax year 2026.

However, the IRIS automatically carries forward the wealth balance for the last period of being the resident Pakistani into the non-editable opening balance field. This prevents the individual from entering the appropriate opening wealth balance for tax year 2026 and reconciling the movement in wealth for that year, as contemplated by Section 116(2).

The Karachi tax bar stated that under the self-assessment and declaration framework of income tax laws, a taxpayer should have the liberty to declare the opening wealth balance on the basis of relevant information and records, subject to applicable provisions of the law.

It asked the FBR, that without prejudice to this broader position, to resolve the matter by modifying the relevant validation on IRIS to permit returning individuals to enter the appropriate opening wealth balance for the relevant tax year. This will enable them to reconcile the movement in wealth for that year without requiring a reconciliation spanning the intervening years of non-residence.

The FBR is currently undergoing a period of uncertainty after a proposal to either establish a new tax agency or outsource some of the functions was shot down by Prime Minister Shehbaz Sharif. The Inland Revenue Service officers had threatened to observe a pen-down strike against any such move.

The association had taken back the deadline following assurance from the FBR member operations that no adverse action would be taken. However, subsequently, the FBR suspended two officers and posted another seven in Khyber-Pakhtunkhwa and Balochistan on suspicion of being behind the pen-down strike move.

This has created uncertainty in the organisation and could also undermine its work, according to multiple taxmen who spoke to The Express Tribune on condition of anonymity.