ICAP taxation committee proposes changes to income tax law

Constitutional amendment to remove retrospective taxation demanded.

KARACHI: Members of the taxation committee of the Institute of Chartered Accountants of Pakistan (ICAP), ICAP members and representatives of the corporate sector agreed on Thursday to press the government for an early resolution of withholding agents’ problems, which they face while dealing with government-controlled organisations.

During an interactive session on anomalies in Pakistan’s income tax laws held at ICAP House, participants decided to convey their concerns about the present tax code to the government before the next federal budget.

It was decided that a new section in the income tax law would be recommended which, if approved, would result in the formation of a separate forum at the Federal Board of Revenue to ensure that government-controlled organisations didn’t resort to dillydallying vis-a-vis withholding tax while dealing with private businesses.

“These big organisations take advantage of the lack of clarity in withholding tax laws. They’re in a position to dictate their terms since they’re the dominating party in the transaction,” one participant said.

Many participants supported the proposal that a time limit be introduced in the law that bound the tax collection authority to solve any dispute over withholding tax. “The FBR should write letters to all the parties concerned, ascertaining as to when and how the tax should be paid,” another participant suggested.

The issue of the imposition of taxes in retrospect also came under discussion during the session. While the participants were unanimous in condemnation of such laws, they agreed that the legislature had the constitutional authority to impose such taxes. Saying that the taxes imposed retrospectively were unfair, ICAP taxation committee member Shabbar Zaidi said that the issue should be addressed through a constitutional amendment.

“A change in the income tax law won’t be enough, as there are so many other kinds of taxes. There can’t be amendments in each set of tax laws. Therefore, a constitutional amendment should be made to end the tax imposition in retrospect,” Zaidi said, adding courts had consistently ruled against such taxes. “But going to court every time a tax is imposed retrospectively is not the solution,” he added.

Some participants questioned the government’s discretionary power to audit a limited number of taxpayers every year.

The suggestion that the national tax number (NTN) be made mandatory while applying for a passport, as it implied that the person concerned was well-to-do, met with some resistance from the audience. “Poor people go abroad as labourers and send back remittances. Such measures will make the process of getting a passport cumbersome for those people,” one participant said.

Similarly, many people in the audience opposed the proposal, which was favoured by the ICAP taxation committee, that bank account holders who had more than a specific amount of money should be legally bound to file tax returns every year.

In response to the concerns that such a measure would discourage people from using banking services, Zaidi said there were over 20 million bank accounts in Pakistan while the number of NTNs was about 2.7 million. “The economy won’t collapse if we impose checks and balances in a fair manner,” he said.

Published in The Express Tribune, February 3^rd, 2012.