Nowadays, CBR is moving in the right direction of improving its image before the taxpayers. Member Human Resource (HRM) of CBR has taken some concrete steps in curbing the discretionary powers of taxation officers, but has not yet addressed the problem at its root cause. The member HRM is still quiet about the real fact, that is, the pressure of collecting assigned targets. When it is necessary to start by doing the necessary, then the possible and then the sudden, CBR will always start doing the impossible. This article is an endeavor to analyse this root cause and causa causins of the problem, apart from the suggestive solution related thereto.
Facets of Problem
The problems relating to assessments, obtain refunds and/or their adjustment is not new to taxpayers. The taxpayers are paying huge cost to get back refund. They have to engage in legal battles (thus to pay fees to attorneys) or gratification to the department to obtain what is their lawful right. The infant baby, Income TaxOrdinance, 2001 [hereinafter referred to as ITO 2001] is also following the footsteps of his father, Income TaxOrdinance, 1979, [hereinafter referred to as ITO 1979] which is construed from the attitude of Grandfather, Income Tax Act, 1922 [hereinafter referred to as ITA 1922] in respect of refunds and adjustments.
In order to understand the problem we must first go through section 170 & 171 of Income Tax Ordinance, 2001. Section 170 and 171 are read as follows.
170. Refunds.-
(1) A taxpayer who has paid tax in excess of the amount, which the taxpayer is properly chargeable under this Ordinance, may apply to the Commissioner for a refund of the excess.
(1A) Where any advance or loan, to which sub-clause (e) of clause (19) of section 2 applies, is repaid by a taxpayer, he shall be entitled to a refund of the tax, if any, paid by him as a result of such advance or loan having been treated as dividend under the aforesaid provision.
(2) An application for a refund under sub-section (1) shall be –
(a) made in the prescribed form;
(b) verified in the prescribed manner; and
(c) made within two years of the later of -
(i) the date on which the Commissioner has issued the assessment order to the taxpayer for the tax year to which the refund application relates; or
(ii) the date on which the tax was paid.
(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall -
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;
(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and
(c) refund the remainder, if any, to the taxpayer.
(4) The Commissioner shall, within forty five days of 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.
(5) A person aggrieved by-
(a) an order passed under sub-section (4); or
(b) the failure of the Commissioner to pass an order under sub-section (4) within the time specified in that sub-section, may prefer an appeal under Part III of this Chapter.
171. Additional payment for delayed refunds. –
(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 fifteen per cent per annum of the amount of the refund computed for the period commencing at the end of the three month period and ending on the date on which it was paid.
(2) For the purposes of this section, a refund shall be treated as having become due –
(a) in the case of a refund required to be made in consequence of an order on an appeal to the Commissioner (Appeals), an appeal to the Appellate Tribunal, a reference to the High Court or an appeal to the Supreme Court, on the date of receipt of such order by the Commissioner; [or]
(b) in the case of a refund required to be made as a consequence of a revision order under section [122A], on the date the order is made by the Commissioner; or
(c) in any other case, on the date the refund order is made.
In the light of above referred legal provisions, a taxpayer can claim refund in following two cases. Firstly, when the tax deducted or paid is in excess of taxpayer’s tax liability. Secondly, on the repayment of loan or advance, which was treated as dividend and tax, has been collected there from. In the above-referred two cases, the taxpayer shall file a refund application under rule 71 read with Part VI of the first schedule of Income Tax Rules, 2002. The tax payment challans need to be verified from the Data Processing Centre (DPC) of Department – a duty of the department to be done by the taxpayer in order to take the refund ASAP and avoid any delays. The applicationfor the refund must be made within two years of the date of payment of tax or from the date of order of commissioner, which ever is later.
The commissioner shall pass an order after firstly adjusting the excess tax against any tax due under this ordinance from the taxpayer and secondly against other taxes due from the taxpayer – The official delaying tactic incorporated in Income Tax Ordinance, 2001. Hence, from now on the Commissioner is authorized to check whether there is any excise, custom or sales tax liability over the taxpayer, although there is no such corresponding provision exist under the relevant statutes related to such taxes.
Apart from this blatant mistake, where the taxpayer is aggrieved either from the commissioner’s order or where the commissioner has failed to pass such order within the prescribed time limit, he/she/it shall prefer to file an appeal. It is worthwhile here to note that taxpayer is entitled for compensation @15% where no refund has been given within three months, that is, from the first days of fourth month till the date of payment. Hence, where any delaying tactic is used, the taxpayer can either file an appeal or accrue compensation in the book of accounts.
PROBLEM
The problem relating to tax refund and adjustment can easily be understood through the following example.
The tax data relating to VAK Limited (an imaginary company) is as follows.
| Income year | Assessment year | Tax paid/deducted | Refund/(Payable) |
| 1993-1994 | 1994-1995 | 5, 000, 000.00 | 2, 000, 000.00 |
| 1994-1995 | 1995-1996 | 6, 000, 000.00 | 1, 000, 000.00 |
| 1995-1996 | 1996-1997 | 7, 000, 000.00 | 2, 000, 000.00 |
| 1996-1997 | 1997-1998 | 8, 000, 000.00 | (3, 000, 000.00) |
| 1997-1998 | 1998-1999 | 9, 000, 000.00 | 3, 000, 000.00 |
| 1998-1999 | 1999-2000 | 5, 000, 000.00 | 1, 000, 000.00 |
| 1999-2000 | 2000-2001 | 8, 000, 000.00 | (2, 000, 000.00) |
| 2000-2001 | 2001-2002 | 5, 000, 000.00 | 2, 000, 000.00 |
| 2001-2002 | 2002-2003 | 9, 000, 000.00 | (2, 000, 000.00) |
| Tax year | Tax paid/deducted | Refund/(Payable) |
| 2003 | 14, 000, 000.00 | 3, 000, 000.00 |
| 2004 | 20, 000, 000.00 | 1, 000, 000.00 |
| Assessment year | Tax paid/deducted | Refund/(Payable) | Balance |
| 1994-1995 | 5, 000, 000.00 | 2, 000, 000.00 | 2, 000, 000.00 DR |
| 1995-1996 | 6, 000, 000.00 | 1, 000, 000.00 | 3, 000, 000.00 DR |
| 1996-1997 | 7, 000, 000.00 | 2, 000, 000.00 | 5, 000, 000.00 DR |
| 1997-1998 | 8, 000, 000.00 | (3, 000, 000.00) | 2, 000, 000.00 DR |
| 1998-1999 | 9, 000, 000.00 | 3, 000, 000.00 | 5, 000, 000.00 DR |
| 1999-2000 | 5, 000, 000.00 | 1, 000, 000.00 | 6, 000, 000.00 DR |
| 2000-2001 | 8, 000, 000.00 | (2, 000, 000.00) | 4, 000, 000.00 DR |
| 2001-2002 | 5, 000, 000.00 | 2, 000, 000.00 | 6, 000, 000.00 DR |
| 2002-2003 | 9, 000, 000.00 | (2, 000, 000.00) | 4, 000, 000.00 DR |
| Tax year | Tax paid/deducted | Refund/(Payable) | Balance |
| 2003 | 14, 000, 000.00 | 3, 000, 000.00 | 7, 000, 000.00 DR |
| 2004 | 20, 000, 000.00 | 1, 000, 000.00 | 8, 000, 000.00 DR |
1. When was the DPC created?
2. Which tax payment challans are not adjusted during the process of assessment during the relevant year?
3. For how long the companies are required to retain the records under the Companies' Ordinance, 1984?
The Commissioner used to overlook these three basic questions in case of companies and put the taxpayer – the company – in real trouble. The commissioner should consider the following facts before putting the taxpayer into astray.
1. DPC department is created around three to four years back
2. Assessing officer used to adjust the lump sum advance tax and used not to adjust each individual amounts/tax payment challans against the given demand.
3. Companies are required to retain the record for 10 years’ only and Income Tax Ordinance, 2001 cannot override the basic law, that is, Companies' Ordinance, 1984.
The rechecking of tax payment challan for refund purpose is highly illogical because the assessing officer has already checked the same during the process of assessment. Could Central Board of Revenue high ups provide any justification in respect of such rechecking of advance tax challans on submission of refund application – just for the sake of delaying the refund? In my opinion, VAK limited should submit the tax challans along with refund application and let the commissioner do the rest. The obligation lies over the taxpayer is in respect of submission of tax challans photocopies till tax year 2004 but not relating to assessment year 1994-1995.
SUGGESTED SOLUTION
It seems that the sea of change in Central Board of Revenue does not have any roots in basic organizational structure of income tax. The root level personnel are busy in meeting their targets by way of hook and crook without recognizing the fact that this will create an adverse impression over the taxpayers about Central Board of Revenue. Such attitude will falsify or deteriorate all the efforts of Central Board of Revenue and will compel the tax payer to think about the fact that appearance of goodwill gestures from Central Board of Revenue in the newspapers is just for portraying purposes and the high ups are instructing the opposite to their sub-ordinates.
The most effective solution of this problem is a running statement of tax account of a taxpayer. The running statement can be similar to a bank statement in respect of appearance but should be based on a knowledge-based program. For this very basic reason, Central Board of Revenue should adopt a double entry system of accounting. The point of time for the revenue recognition is the point of intimation from the taxpayer. The statement should highlight the sections of taxes due, for instance, section 147 etc, as the revenue cannot be determined in advance, except in some cases.
In furtherance, Central Board of Revenue should prepare a standard checklist of normal sections applications while framing an assessment and judge the efficiency of a commissioner in case the CIT (A) or ITAT upholds the order.
CONCLUSION
The thoroughly corrupt tax machinery has delayed the assessment of assessment year 2002-2003 of some taxpayers. As the tax law was an infant baby, hence, they have stopped the assessment of some taxpayers in the hope of getting huge bribes during this uncertainty phase. Central Board of Revenue needs to sort out the detail of all such pending cases. In furtherance, DPC should be instructed to prepare a report in running statement of account form of taxpayers to immediately identify the tax recovery positions under different sections of the Income Tax Ordinance, 2001 and that need to be reconciled with the advance tax challans claimed by the recipient, where applicable. In furtherance, clause (b) of sub-section (3) of section 170 needs to be deleted. Apart from this, Member HRM must assess the performance of assessing officer on basis of orders upheld by the different appellate forums. Central Board of Revenue must present what it wants to appear before the taxpayers – the present image portrayed by its greedy and hawkish tax officials is not what any government would like to have of its revenue authority.
Efficient and people-friendly tax revenue machinery is the need of the hour, which can only be created by bringing a qualitative change in human fibre of CBR. It is not possible till the hawkish elements sitting in the CBR are removed. They misbehave with taxpayers and the officers alike. They consider them above law, portray them as honest, but in reality are the most corrupt, both intellectually and financially. They extend unprecedented benefits to their masters at the nation’s cost and deny the taxpayers their rights. They have only one agenda to please their foreign masters and make the life of the common people of Pakistan as miserable as possible and destroy the local industry and business.
The present elected government should appoint the top management of CBR through a parliamentary process that is by interviewing the able people through a special committee of both the houses. These officials should be accountable before the people of Pakistan through the parliamentary committees. At present the top slot of CBR is filled through a process of favouritism and the ruling clique wants those who can show just higher figures of collection even if in the process it destroys the very economic and social structure of society.
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