Extending incentives: FBR seeks to waive penalties on illegal tax refund

Move will enable tax body to recover principal, boost revenues.

ISLAMABAD:

As revenues fall behind targets, the tax authorities have sought the government’s permission to waive penalties and withdraw cases registered against individuals who obtained illegal sales tax refund provided they return the money estimated at Rs42 billion.

The move came after the FBR missed collection targets for two consecutive months.

The Federal Board of Revenue (FBR) has sent a note to Finance Minister Dr Abdul Hafeez Shaikh, seeking his permission to recover only the principal amount by waiving penalties and withdrawing cases, said a senior FBR official.

“At present, outstanding liabilities stand at Rs81 billion and if we manage to recover even half of it the annual target will be surpassed comfortably,” said FBR Chairman Mumtaz Haider Rizvi while talking to The Express Tribune. The disputed tax liabilities were in addition to the above Rs81 billion.

Last year too, the government had tried to launch a similar move, but it did not sail through.

Last week, the tax officials sprang a surprise, claiming that the annual tax collection target of Rs1,952 billion included an amount of Rs23 billion that the Sindh Revenue Board would collect on account of provincial services. Excluding this, the FBR’s target would be Rs1,929 billion for financial year 2011-12.

From July to April, the FBR bagged Rs1,424 billion in taxes. In April, it collected Rs158 billion, staying short of the target by Rs30 billion, for the second consecutive month.

In March, tax collection stood at Rs156 billion, which was Rs32 billion short of the target. The shortfall was added to April’s target but this month too it could not be met.

The FBR official said Pakistan International Airlines had collected Rs5.4 billion on account of federal excise duty on air travel but it was yet to deposit the amount in the national kitty.

Income tax and sales tax laws allow prescribed persons to withhold tax at the time of payments on account of salary, contracts, interest, dividend, services rendered, payments to non-residents, commission, telephone bills, utility bills and property rent.

The tax deducted is to be deposited in the State Bank of Pakistan and National Bank of Pakistan. However, a large number of such persons and withholding agents do not fully comply with the provisions relating to withholding tax leading to delay in depositing the deducted tax.

Withholding tax constitutes a major source of revenue. The FBR has warned the defaulters that it would take punitive action against those withholding agents who failed to meet their obligations. However, so far, it has not taken any drastic steps against the defaulting agents.

The FBR chairman said he has stopped tax refunds against PVC pipes as the claimants have obtained Rs1.5 billion in refunds in two cases on account of sprinkles and steel sheets that seemed to be illegal. An investigation has been ordered into the matter.

However, he stressed that the FBR would not stop legitimate refunds to meet the annual tax collection target. “I would prefer to miss the target rather than achieving it by blocking refunds, which is not my money but that of taxpayers,” he added.

Published in The Express Tribune, May 6^th, 2012.