Deadlock persists between Tax experts and the authorities over streamlining of penalties

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The dispute between tax experts and the tax authorities regarding streamlining on the imposition of penalties on taxpayers for violation of income tax persists. The government formed Tax Reforms Implementation Committee (TRIC) had put forward proposals for major reductions in penalties from the financial year 2017-18.

Various members of TRIC expressed reservations regarding the complexity of tax laws and they stated is the actual reason for potential taxpayers to remain out of the net which makes them vulnerable to several types of penalties. Even last year the tax reform commission had put forth the suggestions of simplifying the tax laws, but they weren’t given any consideration.

Aside suggestions to revise and reform the tax law, TRIC also said it is necessary to reform and update the regulations too. The causes for poor tax administration have largely been attributed to poor enforcement of penalties. According to the report from TRIC “The efficiency of tax administration is constrained by insufficient staff with appropriate skills, lack of appropriate equipment, complex tax laws, poor enforcement of penalties for tax evasion and corruption, poor information collection and identification of taxpayers.”

TRIC has put forward suggestions for reducing the penalty on the payable tax on non-filing of income tax return to 10pc from its original of 50pc imposed by the Federal Bureau of Revenue (FBR) currently. The penalty on failure of banks to provide information charged by FBR is Rs 2,500 daily and minimum penalty is Rs 10,000. That has been suggested to be decreased to Rs200 daily and maximum of Rs5,000.

The committee has also called for the removal of Rs20,000 penalty on non-filers of wealth statement. Currently any individual who fails to pay the due tax is subjected to a penalty of 5pc to 50pc of the tax default and TRIC has proposed this should be reduced to a max of 10pc only.