ISLAMABAD: Tax experts have proposed setting up an independent body for monitoring the working of Federal Board of Revenue (FBR) to check corruption and ensure transparency.
The experts said that the element of corruption should be eliminated or minimized by taking strong action and making a few examples through strong accountability.
The internal control processes of FBR should be re-evaluated and its operation and effectiveness should be ensured by the establishment of a monitoring board comprising of professionals and business executives to oversee the transparency in FBR, tax experts of multinational companies proposed for the budget 2014/2015.
The performance of the tax collectors should not be judged solely on the basis of tax collected, but their efforts on documentation and broadening side should be appreciated.
Income tax department should have one online system. Every tax officer should be provided with login ID and password. All notices and communications with tax payers should be made through that system. Initially for a period of one year, both online and documented system should function.
Every document generated from the system should be pre-numbered and dated, which could not be modified once it is sent to the tax payer. Each case should be assigned a unique number by the system and all proceedings should be recorded under that system; even if the proceedings of the case are finalized in the Supreme Court.
The use of an effective information system can easily identify the performance of the tax officers, and reduce collusion of tax officers with the taxpayers. Further, there should be a monitoring body within the tax department to review internal records of assessments, whereby tax officers are called to explain any discrepancies in the proceedings.
It is proposed that the duty & tax structure should be reviewed in order to rationalize its impact on legal imports. The import tariff prices should be revised in consultation with brands owners.
Furthermore, the enforcement arm of customs should be strengthened with appropriate legal powers to stop the sale of unauthorized imported products at least in the settled/ established markets e.g. Karachi, Lahore etc. The vigilance and anti-smuggling wings of FBR should robustly monitor the purchases made by wholesalers on a substantive sample basis.
As per the Income Tax Ordinance, 2001, the Commissioner may, in respect of any transaction between persons who are associates, distribute, apportion or allocate income, deductions or tax credits between the persons, as is necessary, to reflect the income that the persons would have realized in an arm’s length transaction. In making any such adjustment, the Commissioner may determine the source of income and the nature of any payment or loss as revenue, capital or otherwise.
However, the authority does not take into account the value determined by the custom under section 25 of the Custom Act, 1969. This results in more than one valuation for the same imported goods – one at the customs stage and another at the time of income tax assessment – resulting in different bases for calculation of various government levies.
The value determined under the Customs Act, 1969 should be used as the basis for valuing imported goods by the Commissioner of Income tax.
Unlike other developing countries (e.g. India), Pakistan does not offer any substantial protection to its manufacturing/ industrial sector, specially the industry which deals in international brands.
Unauthorized imports of counterfeit products should be effectively checked through registration of brands with the custom authorities in coordination with the original brand owner/ registered in Pakistan.
This will increase import duties on one hand and stop import of counterfeit products. it may be noted that these sectors do not contribute anything towards direct tax except for advance income tax at imports.
The tax experts suggested data exchange between customs agencies.The declared value should be confirmed from the port of origin i.e. from where the goods are shipped. Furthermore, access should be given to all interested parties to the custom record. Penalties for under-invoicing to be made more stringent, as under-invoicing by traders remains a big concern for all manufacturers.
In the past the Pakistan Custom Services has made arrangement to share information with Chinese Customs Authority. The objective was to ensure that goods imported from China into Pakistan should be valued on the basis of information available with Chinese Customs Officials.