Budget proposals 2014-2015: taxpayer suggested not to claim deduction on loss of unrealized foreign exchange

KARACHI: The Large Taxpayers Unit (LTU) has proposed amendment to Income Tax Ordinance, 2001 that a taxpayer could not claim any deduction on account of unrealized foreign exchange loss due to fluctuations in exchange rates.
The amendment to the Section 71(1) of currency conversion has been proposed to check misuse of the provision because in current situation the section said, “Every amount taken into account under this ordinance shall be in rupees.”
It suggested the drafted amendment as: “(1) every amount taken into account under this ordinance shall be in rupees. Provided that nothing contained in this section shall authorize a taxpayer to claim deduction on account of unrealized foreign exchange loss due to fluctuation in exchange rates.”
The unit has proposed amendment to Section 133(1) of reference to high court in order to assist the court in determination of the issues which are arising out of the order.
The suggested amendment is: “(1) Within ninety days of the communication of the order of the appellate Tribunal under sub-Section (7) of section 132, 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: Provided that the Court may , after giving both the parties an opportunity of being heard, allow the applicant to correct, amend, or a revise the question or questions of law stated in the application at any time before the Court answers the question or questions of law , in order to b ring them in conformity the issues arising out of the order.”
LTU has proposed an amendment to Section 170 to enable the commissioner to withhold refund in genuine cases.
It suggested the drafted amendment as: “(4) The Commissioner shall, within ninety days receipt of a refund application under sub-section (1) serve on the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of being heard. Provided that the Commissioner may, if he is satisfied that the refund is not due to the appellant, or there is a likelihood that tax would payable by the taxpayer as a result of any pending proceedings, or for any other reasons to be recorded in writing, withhold the issuance of refund in a case for a period not exceeding three hundred and sixty five days. (4a) Notwithstanding anything anything contained in this Ordinance, after disposing of the refund claim, the Commissioner shall carry out post-sanction audit and scrutiny of the refund claim, which shall include, but shall not be confined to, verification of payment of tax and other related matters, and the provisions of section 177 shall apply to the audit carried out under this subsection for the purpose of conduct of audit: Provided that this subsection shall not apply where the amount of refund does not exceed rupees fifty thousand for a tax year. (4B) Notwithstanding anything contained in this Ordinance, the post-sanction audit shall be initiated within 120 days of the date of issuance of refund (hereinafter referred to as said date), and shall be completed within one year from the said date.”
The LTU has proposed an amendment to Section 171(1) of additional payment for delayed refunds to cater the fluctuation in the lending rates.
It suggested the drafted amendment as: “(1) Where a refund due to a taxpayer is not paid within three months of the date on which it becomes due, the Commissioner shall pay to the taxpayer a further amount by way of compensation at the rate of KIBOR during the period, on the amount of the refund, computed for the period commencing at the end of the three months period and ending on the date on which it was paid.”
The unit has proposed amendment to Section 177(1) of audit to preclude any litigation under Income Tax Ordinance, 2001.
The suggested amendment is: “(1) Notwithstanding anything contained in this Ordinance and any other law for the time being in force, the Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person: Provided that: (a) the Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer, and (b) the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer: Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate. Explanation: For the removal of dou8bt, it is clarified that nothing contained in section99, section 100 and section 100A shall preclude the Commissioner from conducting the audit of the income tax affairs of a person whose income is chargeable under the provisions of these sections.”
The unit proposed an amendment to Section 177A of tax audit under Income Tax Ordinance, 2001.
The suggested amendment is: “(1) It shall be obligatory for the following persons to get their accounts audited by a firm of Chartered Accountants as defined under the Chartered Accountants ordinance, 1961 (x of 1961) or a firm of Cost and Management Accountants as defined under the Cost and Management Accountant act ,1966 (xiv of 1966), or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act,1966 (xiv of 1966) for the tax year under this section: (a) Every Company, (b) Every person other than a company, if his total sales, turnover, or gross receipts, as the case may be , in business for the tax year or the immediat3ely preceding tax year exceed rupees one billion or whose total Income for the tax year or the immediately preceding tax year exceeds rupees five million. (2) After conducting audit under sub section (1), the firm of Chartered Accountants or the firm of Cost and Management Account ants or the firm of Cost and Management Accountants shall certify that the accounts are maintained by the taxpayer in accordance with provision s of the Ordinance, and give a true picture of the income of the taxpayer, as computed under the Ordinance. (3) The Firm of Chartered Accountants or the firm of Cost and Management Accountants shall submit its report in the form prescribed under the rules, and copy of such report shall form part of the return filed by the person under this ordinance. (4) Nothing contained in this section shall preclude the Commissioner from conducting the audit of the income tax affairs of the person under any other provision of this ordinance. (5) If the person fails to make compliance to the provisions of this section, his return shall be treated as invalid.”
LTU has proposed amendment to Section 205 of default surcharge with a rationale that in order to adapt the fluctuation in the borrowing rates.
It suggested the drafted amendment as: “(1) A person who fails to pay:- (a) any tax, excluding the advance tax under section 147 and default surcharge under this section; (b) Any penalty: or (c) any amount referred to in section 140 or 141, on or before the due date for payment shall be liable for default surcharge at a rate equal to KIBOR plus three per cent per annum on the tax, penalty or other amount unpaid computed for the period commencing on the date on which the tax, penalty or there amount was due and ending on the date on which it was paid: Provided that if the person opts to pay the tax due on the basis of an order under section 129 on or before the due date given in the notice under sub-section (2) of section 137 issued in consequence of the said order, and does not file an appeal under section 131, he shall not be liable to pay default surcharge for the period beginning from the due date of payment in consequence of an order appealed against to the date of payment in consequence of notice under sub-section (2) of section 137. (1a) A person who fails to pay advance tax under section 147 shall be liable for default surcharge at a rate equal to KIBOR plus three per cent per annum on the amount of tax unpaid computed for the period commencing on the date on which it was due and ending on the date on which it was paid or date on which the return of income for the relevant tax year was due, whichever is earlier. (1B) Where , in respect of any tax year, any taxpayer fails to pay tax under sub-section (4A) , or (6) of section 147 or the tax so paid is less than ninety per cent of the tax chargeable for the relevant tax year, he shall be liable to pay default surcharge at the rate of KIBOR plus three percent per annum on the amount of tax so chargeable or the amount by which the tax paid by him falls short of the ninety percent, as the case may be, and such default surcharge shall be calculated from the first day of April in that year to the date on which assessment is made or the thirtieth day of June of the financial year next following; whichever is the earlier. (2) Any default surcharge paid by a person under sub-section (1) shall be refunded to the extent that that tax, penalty or other amount to which it relates is held not to be payable. (3) A person who fails to collect tax, as required under Division II of part V of this Chapter or Chapter XII or deduct tax as required under Division III of Part V of this Chapter or Chapter XII or fails to pay an amount of tax collected or deducted as required under section 160 on or before the due date for payment shall be liable for default surcharge at a rate equal to KIBOR plus three percent per annum on the amount unpaid computed for the period commencing on the date the amount was required to b e collected or deducted and ending on the date on which it was paid to the commissioner. Provided that if the person opts to pay the tax due on the basis of an order under section 129 on or before the due date given in the notice under sub-section (2) of section 137 issued in consequence of the said order and does not file an appeal under section 131, he shall not be liable to pay default surcharge for the period beginning from the date of order under section 161 to the date of payment (5) The Commissioner shall make an assessment of any default surcharge imposed under this Part in accordance with the provisions of Part II of this Chapter as if the default surcharge were tax. (6) The provisions of parts III and IV apply to an assessment of default surcharge as if it were an assessment of tax.”
The LTU has suggested a new Section 230A of Directorate General (survey and registration), Inland Revenue in Income Tax Ordinance, 2001 to regulate the functions of collection and monitoring with the purpose of checking tax evasion and broadening the tax base.
It said that the Directorate General of Intelligence and Investigation are emphasized to focus more on investigation work.
IT suggested the drafted amendment as: “(1) The Directorate General (Survey and Registration), Inland Revenue shall consist of a Director (General and as many Directors, Additional Directors, Deputy Directors and Assistant Directors and such other officers as the Board, may by notification in the official Gazette, appoint. (2) The Directorate General shall, inter alia, perform the functions of: (a) Collection of information relevant to the assessment of income and collection n of tax under this Ordinance. (b) Matching of the information with the available record. (c) Dissemination of information to the concerned Commissioners, and (d) monitoring the utilization of the said information. (3) The Board may, by notification in the official Gazette, make rules to regulate the functions and jurisdiction of the Directorate General and its officers; and confer the powers of authorities specified in section 207 upon the Directorate General and its officers.”
The LTU has proposed amendment to Section 233 of brokerage and commission for clarifying the law with relation to the payments made by the way of prize, award, sales, incentives and other such payments, which are often alleged to fall outside the ambit of the section.
It suggested the drafted amendment as: “(1) Where any payment on account of brokerage or commission is made by the Federal Government, a Provincial Government, a Local Government, a company or an association of persons constituted by, or under any law (hereinafter called the “principal”), to a person (hereinafter called the “agent”), the principal shall deduct advance tax at the rate specified in Division II of Part IV of the First Schedule from such payment. Example: – For the removal of doubt it is declared that “commission” includes any payment, by whatever name it may be called, made by the principal to an agent, whether as a fixed percentage or otherwise, and whether paid at the time of transaction or otherwise, which is directly or indirectly related to the agency business or arrangement between the principal and agent, irrespective of whether the same is retained by the agent or passed on to the consumer. (2) If the agent retains Commission or brokerage from any amount remitted by him to the principal, he shall be deemed to have been paid the commission or brokerage by the principal and the principal shall collect advance tax from the agent, (3) Where any tax is required to be collected from a person under sub-section (1), such tax shall be the final tax on the income of such persons.”
Moreover, the LTU has proposed another amendment to Section 236B of advance tax on purchase of air ticket under ITO, 2001.
The suggested amendment is: “(1) there shall be collected advance tax at the rate of five hundred rupees per one way ticket, on the purchase of domestic air ticket and rupees One thousand per ticket on return or two way journey tickets. Provided that the advance tax shall be collected at the rate of s0069 hundred rupees per one way ticket, on the purchase of domestic air ticket and rupees one thousand two hundred per ticket on return or two way journey ticket for other than economy class. Provided further that the advance tax shall be charged at the time of uplifting of passengers. (2) The person preparing air ticket shall charge advance tax under sub-section (1) in the manner air ticket charges are charged. (3) The advance tax collected under sub-section (1) shall be adjustable. (4) The advance tax under this section shall not be collected in the case of – (a) the Federal Government or a Provincial Government: or (b) a person who produces a certificate from the Commissioner Inland Revenue that income of such person during the tax year is exempt.”