ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION

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Taxation Management FIN 623

MODULE 16

LESSON 16.42

ADVANCE TAX

COLLECTION & RECOVERY OF TAX

PENALTIES & PROSECUTION

Collection and recovery of tax gorgeous

Due date for payment of taxes (Sec. 137)

Tax shall be due:

On due date for furnishing the return for that tax year

Within thirty days of service of notice, in case of an assessment order passed by the commissioner.

Recovery of tax out of Property and through arrest of Tax-Payer (Sec. 138)

Attachment and sale of any movable or immovable property of tax payer

Appointment of receiver for the management of movable or immovable property of the taxpayer

Arrest of taxpayer and his detention in prison not exceeding six months

Recovery of Tax by District Officer (Revenue) (Sec. 138A)

On a Certificate from Commissioner specified property of taxpayer and amount of tax due.

Collection of tax in the case of private companies and Association of Persons:

If amount of tax due cannot be recovered from the company then it can be recovered from every person

who was at any time in that tax year:

A director of the company, other than employed director

Share holder owning at least ten percent of paid up capital of the company shall be jointly and

severally responsible.

· In case of AOP, if tax due from member in respect of member's share of income of the association for

any tax year cannot be recovered from the member, the association shall be liable for the tax due by the

member.

Recovery of Tax from persons holding money due on behalf of a taxpayer (Sec. 140)

· For the purpose of recovering any tax due by a taxpayer, the commissioner may, by notice, in writing,

require any person

· Owing or who may owe money to the taxpayer; or

· Holding or who may hold money for or on account of the taxpayer;

· Holding or who may hold money on account of some other person for payment to the taxpayer; or

· Having authority of some other person to pay money to the taxpayer

Liquidators (Sec. 141):

Following are referred to as liquidator:

A liquidator of a company

A receiver appointed by a Court or appointed out of court

A trustee for a bankrupt

A mortgagee in possession

· Liquidators shall, within fourteen days of being appointed or taking possession of an asset in Pakistan,

whichever occurs first, give written notice thereof to the commissioner.

· Commissioner shall within three months of being notified to provide the information regarding tax

payable by the person, whose assets are in the possession of liquidators.

· A liquidator shall not, without leave of commissioner, part with any asset held as liquidator until

liquidator has been notified by the commissioner.

· A liquidator:

Shall set aside, out of the proceeds of sale of any asset by the liquidator, the amount notified by the

Commissioner under sub-section 2, or such lesser amount as is subsequently agreed to by the

Commissioner;

Shall be liable to the extent of the amount set aside for the tax of the person who owned the asset;

and

May pay any debt that has priority over the tax referred to in this section notwithstanding any

provision of this section

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Recovery of tax due by non-resident member of an Association of Persons Sec. 142

Non resident ship owner or chatterer (Sec.143)

Non resident aircraft owner or chatterer (Sec. 144)

Assessment of Person about to Leave Pakistan (Sec. 145)

Notify to CIT about probable date of departure not less than fifteen days from said date if he has to leave

country with no intention to return to Pakistan.

· CIT shall give notice to furnish return of taxable income for tax year for which tax payer is required to

file return. Taxable income shall be charged to tax.

· Recovery of tax from Persons assessed in AJK

Penalty

Penalty for failure to furnish a return or statement Sec. 182

Liable for penalty equal to one-tenth of one percent of the tax payable for each day of default subject to a

minimum penalty of Rupees five hundred and maximum penalty of twenty five percent of tax payable in

respect of that tax year.

Penalty for non-payment of tax Sec 183:

Liable for penalty equal to:

a) In the case of first default, five percent of the amount of tax in default

b) In case of the second default, an additional penalty of twenty five percent of the amount of tax in

default;

c) In the case of third default, an additional penalty of twenty five percent of the amount of tax in

default

d) In the case of a fourth and subsequent default, an additional penalty of up-to fifty percent of the

amount of tax in default and determined by the commissioner, but the total penalty in respect of the

amount of tax in default shall not exceed, one hundred percent of such amount of tax.

Penalty for failure to maintain records Sec. 185

in case of first failure, two thousand rupees

b) in the case of second failure, five thousand rupees.

in the case of third and subsequent failure, ten thousand rupees.

Penalty for non-compliance with notice: Sec 186

a) in case of first failure, two thousand rupees

b) in the case of second failure, five thousand rupees.

c) in the case of third and subsequent failure, ten thousand rupees.

Penalty for making false or misleading statements Sec 187:

· Where the statement or omission are made knowingly or recklessly, two hundred percent of the tax

short fall; or

· In any other case, twenty five percent of tax short fall

Penalty for failure to give notice Sec 188

· The commissioner may impose a penalty on the person not exceeding the amount of tax payable by the

person for the tax year in which business was discontinued.

· Where a person fails to give notice of the person's appointment as liquidator as required under section

141, the commissioner may impose a penalty on the person not exceeding ten thousand rupees.

Penalty for obstruction Sec 189

Commissioner may impose a penalty not exceeding ten thousand rupees.

Imposition of penalty Sec 190

No penalty may be imposed on any person unless the person is given a reasonable opportunity of being

heard.

Offences & Prosecutions

Prosecution for non-compliance with certain statutory obligations (Sec. 191)

Non-compliance of notice

Non-payment of advance tax u/s 147

Non-collection/deduction of tax

· A person who fails to comply with the provisions of this section shall commit an offence punishable

on conviction with a fine or imprisonment for a term not exceeding one year or both.

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Prosecution for false statement in verification (Sec. 192)

The person shall commit an offence punishable on conviction with a fine or imprisonment for a term

not exceeding three years, or both.

Prosecution for failure to maintain records (Sec.193)

· Where the failure was deliberate, a fine or imprisonment for a term not exceeding two years, or

both; or

· In any other case, a fine shall be imposed.

Prosecution for improper use of National Tax Number card (Sec. 194)

The person shall commit an offence punishable on conviction with a fine or imprisonment for a term not

exceeding two years, or both.

Prosecution for making false or misleading statements (Sec. 195)

-The person shall commit an offence punishable on conviction:

· Where the statement or conviction was made knowingly or recklessly, with a fine or imprisonment

for a term not exceeding two years, or both; or

· In any other case, with a fine

Prosecution for obstructing an income tax authority (Sec.196)

The person shall commit an offence punishable on conviction with a fine or imprisonment for a term not

exceeding one year, or both.

Prosecution for disposal of property to prevent attachment (Sec. 197)

The person shall commit an offence punishable on conviction with a fine or imprisonment for a term not

exceeding three years, or both.

Prosecution for unauthorized disclosure of information by a public servant (Sec. 198)

The person shall commit an offence punishable on conviction with a fine or imprisonment for a term not

exceeding six months, or both.

Prosecution for abetment (Sec. 199)

- The person shall commit an offence punishable on conviction with a fine or imprisonment for a term

not exceeding three years, or both.

Offences by companies and associations of persons (Sec. 200)

In case of company, every person who at the time, offence was committed, was:

Principal Officer, Director, General Manager, Company secretary or any other similar officer of the

company; or

Acting or purporting to act in that capacity shall be guilty of the offence

Power to compound offences (Sec. 202)

CIT may compound with tax payer/person and order that such person to pay the amount for which

offence may be compounded.

147. Advance tax paid by the taxpayer.

(1) Subject to sub-section (2), every taxpayer whose income was charged to tax for the latest tax year

under this ordinance or latest assessment year under the repealed ordinance other than

(a) Income chargeable to tax under the head "Capital Gains";

(b) Income chargeable to tax under sections 5, 6 and 7;

(ba) Income chargeable to tax under section 15;

(ca) Income chargeable to tax under section 233 and clauses (a) and (b) of sub-section (1)

of section 233A.

(d) Income from which tax has been collected under Division II or deducted under

Division III and for which no tax credit is allowed as a result of sub-section (3) of

section 168, shall be liable to pay advance tax for the year in accordance with this

section.

(2) This section does not apply to an individual or association of persons where the individual's or

association of persons latest assessed taxable income excluding income referred to in clauses (a), (b),

(ba), (c) and (d) of sub-section (1) is less than one hundred and fifty thousand rupees.

(4) Where the taxpayer is a company, the amount of advance tax due for a quarter shall be computed

according to the following formula, namely:

(A/4) B

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Where:

A is the tax assessed to the taxpayer for the latest tax year or latest assessment year under the repealed

ordinance; and

B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax

deducted under section 149 or 155

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MODULE 17

LESSON 17.42

APPEALS AND REFERENCES

FEDERAL TAX OMBUDSMAN

Appeals

Appeal to the Commissioner (Appeals) (Sec.127)

Provided:

Amount of tax due under section 137 has been paid and

Appeal shall be filed:

i) In prescribed form

ii) Verification

iii) Grounds of appeal

iv) Prescribed fee

v) Within 30 days of the date of service of the order against which appeal is filed

Prescribed Fee--In case of appeal against assessment order / notice

Lesser of Rs.1000 or

10% of tax assessed

In any other case:

Companies to pay rupees one thousand

Others rupees two hundred only

Procedure in appeal (Sec.128)

CIT shall give notice of hearing to the appellant and to the commissioner.

CIT, if satisfied may allow an appellant to file any new ground of appeal.

CIT (Appeal) shall not admit any documentary material or evidence which was not produced before

he commissioner unless the commissioner (Appeal) is satisfied that appellant was prevented by

sufficient cause from producing such material or evidence before the commissioner.

Decision in Appeal (Sec.129)

Commissioner of appeal may:

Confirm, modify or annul assessment order.

Order to be passed within three month of date of filing appeal, otherwise the relief sought by the

appellant in the appeal shall be treated as having been given.

Appointment of the Appellate Tribunal (Sec. 130)

· Appellant tribunal shall consist of a chair person, judicial members and accountant members as are

appointed by the Federal Government.

· Qualification of a judicial member:

a) The person who has exercised the powers of a District Judge and is qualified to be a Judge of a

High Court; or

b) Is or has been an advocate of a High Court and is qualified to be a Judge of a High Court.

· Qualification of an accountant member:

a) The person who is an officer of an income tax group equivalent in rank to that of a regional

commissioner

Appeal to Appellate Tribunal (Sec. 131)

Appeal shall be:

In the prescribed form;

Verified in the prescribed manner

Accompanied by prescribed fee

The prescribed fee shall be in case of appeal in relation to an assessment order lesser of:

Two thousand five hundred rupees or 10% of the tax accessed or

In any other case-

· If appellant is an company, two thousand rupees; or

· Where appellant is not a company, five hundred rupees

Appeal to be filed within sixty days of the order of the commissioner (Appeals)

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Maximum period for staying recovery of tax not beyond six months

The appellate tribunal shall decide appeal within 6 months of its filing.

The appellate tribunal shall communicate its order to the tax payer and the commissioner.

Reference to the High Court (Sec. 133) on a Question of Law

· Reference to High Court may be filed within 90 days of the communication of the order of appellate

tribunal.

· The aggrieved person or the commissioner may prefer an application, in the prescribed form along with

a statement of the case, to the high court, stating any question of law arising out of such order.

· Division Bench of High Court to hear reference application.

· High court to deliver the judgment and copy is sent to Tribunal for giving effect to its judgment.

· Fee of rupees one hundred shall be paid by a person other than the commissioner.

Burden of proof in appeals (sec. 136) on Tax Payers:

· In case of assessment order on the tax Payer, to the extent to which order does not correctly reflect tax

payer's liability for the tax year; or

· In the case of any other decision that the decision is erroneous

Alternate Dispute Resolution

· An aggrieved person may apply to CBR for the appointment of a committee for the resolution of

any hardship or dispute in connection with any matter pending before an appellate authority

· CBR shall appoint a committee for resolution of a dispute consisting of the following:

o An officer of an income tax

o Two persons from a panel comprising of Chartered accountants or cost accountants,

Advocates, income tax practitioners, or reputable tax payers.

· The committee after conducting inquiry and

· Seeking expert opinion shall make recommendations in respect of the dispute, as it may deem fit.

· CBR may on recommendations of the committee, pass such order as it may deem appropriate.

· The order passed by CBR in the light of recommendation of the committee shall be submitted

before that authority, tribunal or the court where the matter is subjudic for consideration and

orders as deemed appropriate.

· If tax payer is not satisfied with the said order he may continue to pursue his remedy before the

relevant Authority, Tribunal, or Court.

Federal Tax Ombudsman

This office was established by the "Establishment of the Office of the Federal Tax Ombudsman,

Ordinance, 2000", promulgated by the president on 11/08/2000.

Object:

"To diagnose, investigate, redress and rectify any injustice done to a person through mal-administration by

functionaries administering tax laws".

The term "mal-administration" includes:

(i) A decision, process, recommendation, act of omission or commission which-

(a) is contrary to law, rules or regulations or is a departure from established practice or procedure,

unless it is bona fide and for valid reasons;

(b) is perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory;

(d) involves the exercise of powers, or the failure or refusal to do so, for corrupt or improper motives,

such as bribery, jobbery, favouritism, nepotism and administrative excesses;

(ii) neglect, inattention, delay, incompetence, inefficiency and ineptitude, in the administration or discharge

of duties and responsibilities;

(iii) repeated notices, unnecessary attendance or prolonged hearings while deciding cases involving-

(a) assessment of income or wealth;

(b) determination of liability of tax or duty;

(d) settlement of claims or refund, rebate or duty drawback; or

(e) determination of fiscal and tax concessions or exemptions.

(iv) wilful errors in the determination of refunds, rebates or duty drawbacks;

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(v) deliberate withholding or non-payment or refunds, rebates or drawbacks already determined by the

competent authority;

(vi) coercive methods of tax recovery in cases where default payment of tax or duty is not apparent from

record; and

(vii) avoidance of disciplinary action against an officer or official whose order of assessment or valuation is

held by a competent appellate authority to be vindictive, capricious, biased or patently illegal

Characteristics:

(i) Independent from executive

· All executive authorities throughout Pakistan shall act in aid of the Federal Tax Ombudsman.

(ii) Easy accessibility to the complainant

(iii) Impartiality and fairness

(iv) Credibility of review process

(v) Quick disposal

(vi) Implementation of recommendation, decision or order of Federal Tax Ombudsman mandatory duty of

Central Board of Revenue

Jurisdiction

The jurisdiction of the Federal Tax Ombudsman (FTO) extends to all Federal Taxes and the Revenue

Division being the administrative unit responsible for the conduct of the business of the Federal

Government, its Offices and agencies.

Exercise of jurisdiction

The jurisdiction can be exercised by the FTO:

(i) On a complaint by an aggrieved party

(ii) On a reference by the President

(iii) On a reference by the Senate

(iv) On reference by the National Assembly

(v) On a motion of the Supreme Court in a proceeding pending before it

(vi) On a motion of the High Court in a proceeding before it

(vii) On his own motion

The jurisdiction cannot be exercised into matters, which are

(g) Subjudic or

(h) relate to assessment of income, wealth, duty, tax liability, classification or valuation of goods,

interpretation of law rules and regulation in respect of which remedies of appeal reviews or

revision are available under the law and

(i) Service matter of the employees or Revenue Division

Procedure for approach:

· Any aggrieved person can send his application/letter duly attested on solemn affirmation, written

on a plain paper. Anonymous complaints are not entertained.

· Compliant should be filed not later than six months from the date complainant had notice of the

matter. In special circumstances time can be extended by FTO.

· After scrutiny of complaint notice is issued to Central Board of Revenue (CBR) for reply. On

receipt of reply hearing is fixed and mostly cases are disposed on in 60 days except those, which

require recording of evidence or involve deeper investigation. Federal Tax Ombudsman makes

Recommendation/Finding.

Implementation of Recommendation/Finding:

Unlike similar statutes, this Ordinance provides:

"It shall be the duty of the Revenue Division and Tax Employees to implement the findings made

under Sections 11 and 12 within thirty days of such decision being communicated to the concerned Tax

Employees".

If the CBR fails to comply with the Recommendation/Findings within the specified time or does not

give reason to the satisfaction of the Federal Tax Ombudsman it is treated as Defiance of

Recommendation.

If there is a defiance of Recommendation by a Tax Employee;

The Federal Tax Ombudsman may refer the matter to the President who may in his discretion direct

the Revenue Division to implement.

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A report by the Federal Tax ombudsman shall become part of personal file or character roll of the Tax

Employee, primarily responsible for defiance.

Such Tax Employee shall be liable for contempt.

The Federal Tax Ombudsman has the same powers as the Supreme Court has to punish any person for

its contempt.

Reference

Any person aggrieved by the finding/Recommendation of the Federal Tax Ombudsman can file

representation to the President.

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