ISLAMABAD:
The government on Wednesday made it mandatory for tax officials to consult at least two representatives of the business community before initiating investigations that could lead to arrests in tax fraud cases, watering down any real chances of detaining accused individuals.
In line with the understanding reached between the business community and the government, the Federal Board of Revenue (FBR) has issued a Sales Tax General Order outlining a lengthy procedure before traders or any businesspersons involved in alleged sales tax frauds can be arrested.
The order states that, after concluding an inquiry in tax fraud cases, the commissioner inland revenue of the FBR “shall not give approval to initiate investigation unless he has obtained approval from the member (inland revenue operations) of the board.”
However, the caveat is that the FBR commissioner cannot seek the member’s approval until he convinces the business community that fraud has indeed occurred and that there are sufficient grounds to justify an arrest.
“Before seeking approval of the member inland revenue operations, it is binding upon the commissioner to consult with two representatives of the business community from among such representatives as notified by the board.”
A cursory look at the general order indicates that it will now be next to impossible for the FBR to arrest anyone, given the cumbersome process outlined. The government had obtained arrest powers for the FBR through the budget, a move that had sparked nationwide criticism.
The Pakistan Peoples’ Party (PPP) had equated the FBR’s arrest powers with those of the National Accountability Bureau (NAB) and initially refused to support them. However, PPP later reached a compromise after the government inserted several safeguards into the law to address the concerns of its key coalition partner in the National Assembly.
The government had vowed to raise Rs389 billion through enforcement measures during the current fiscal year. The FBR had been granted powers to prohibit major purchases like cars and homes, penalise cash expenses over Rs200,000, and arrest tax defaulters. However, through three different notifications issued this week, the government has diluted these punitive powers, effectively taking FBR back to square one vis-à-vis traders.
This continued leniency towards traders has put the salaried class at a disadvantage. Salaried individuals paid a record Rs555 billion in taxes, whereas there are no independently verified or credible figures for income tax paid by traders during the last fiscal year.
According to the new general order, the FBR “shall not initiate an inquiry unless approval from the commissioner has been obtained.” Even after completing an inquiry, the commissioner cannot proceed further unless he has satisfied the business community and has obtained the necessary approval from the member inland revenue operations.
The order states that various trade bodies will nominate their representatives, from which the FBR will pick two representatives for each region. Each trade body listed must nominate two individuals who “should be compliant and reasonably significant taxpayers.”
The member inland revenue operations will nominate two persons for each region for consultation from among those nominated by the trade organisations, based on their income tax payments for the latest tax year, export contributions, and compliance history, according to the order.
The member inland revenue operations may not select more than one person from any single nominating trade organisation within a region.
The FBR has listed the Pakistan Business Council, Lahore Chamber of Commerce and Industry, Federation of Pakistan Chambers of Commerce and Industry, Sialkot and Gujranwala Chambers, All Pakistan Textile Mills Association, Faisalabad Chamber of Commerce and Industry, Multan Chamber of Commerce and Industry, Islamabad Chamber of Commerce and Industry, Rawalpindi Chamber of Commerce and Industry, Overseas Investors Chamber of Commerce and Industry, Karachi Chamber of Commerce and Industry, Quetta Chamber of Commerce and Industry, Hyderabad Chamber of Commerce and Industry, and Sarhad Chamber of Commerce and Industry.
Based on geographical location, the FBR will notify a two-member trader representative committee for each separate region.
This week, tax authorities informed Prime Minister Shehbaz Sharif that the FBR suffered a setback due to compromises made with the business community, according to sources. After initially claiming to go after wealthy, under-taxed individuals by banning their major purchases and disallowing the treatment of large cash deposits as banking transactions, the government has now reversed course.
The FBR has also amended its position on cash expenses, stating that “when a person, whether a national tax number holder or otherwise, deposits the cash against invoices in the bank account of the seller, the payment shall be treated as having taken place through banking channel and no disallowance of the expenditure will be made in this regard under this clause.”
The government has also decided not to immediately ban the purchase of cars, homes, plots, and investments in stocks by ineligible persons. Officials have acknowledged that this decision is a significant setback and effectively negates recent enforcement efforts, taking both the FBR and the government back to square one in their dealings with the trader community.
