FTO Proposes Massive Changes in Tax Policy/Laws

ISLAMABAD: The Federal Tax Ombudsman (FTO) has proposed massive changes in tax policy/laws through Finance Bill 2024 to facilitate exporters/real estate sector/startup companies, encourage voluntary compliance, speedy payments of refunds, simple tax return for small businesses, control fake/flying invoices, 100 percent input tax adjustment and enhance income tax threshold to provide relief to the salaried class.

The Federal Board of Revenue (FBR) has received a set of budget proposals including tax policy changes from the FTO for consideration in the federal budget (2024-25).

The FTO has categorically declared that negative taxation like section 7E (tax on deemed income) and 15% capital gain tax, high stamped duty, and high advance taxes on buyers and sellers of immovable property are the main hurdles in development of the real estate sector.

Read more: PM Shehbaz rejects FBR’s tax proposals for Budget 2024-25

Some major proposed amendments in tax laws aims at reducing litigation, simplify appeal process, revised withholding tax regime and remove complications created through newly passed Tax Laws Amendment Act 2024.

“The time limit for giving appeal effect order is currently two years from the end of the financial year in which the order under reference was served upon the Commissioner IR which is irrationally long. Therefore, it is proposed that the time limit for giving effect to an order may be reduced to 120 days to end unnecessary litigation,” FTO proposed.

Recently, fees for filing of appeal have been drastically increased putting extra burden on the taxpayers. Necessary amendment may be made in the Income Tax Ordinance, 2001 to rationalize fee structure.

The FTO has made some policy recommendations to change outdated assessment procedures used to harass and blackmail taxpayers. “The assessments and reassessments take a long time to conclude which in certain cases may take more than two years. In remand back cases, an un-ending cycle of proceedings starts with no end in sight. This long process of assessments consumes time, energy and resources of businesses and increases cost of doing business manifold. Prescribing reasonable time limits for completion of assessments and audits would go a long way in providing relief. Therefore, time limitation for various assessments and audit should be prescribed,” FTO recommended.

To tackle issue of delay in income tax refund payments, the FTO has proposed that the time limit of 30 days from issuance of refund order be inserted in section 170A for electronically transferring the refund amount to taxpayer’s notified bank account.

The taxpayers having meagre amount of refund are facing difficulties in processing of their refund. They have to suffer long delays after filing of returns of income and claim of refund. There is need to develop automated system on analogy of CITRO which should enable system to automatically process refund to the extent of Rs50,000/- through IRIS system within 30 days of filing of return, FTO budget proposal revealed.

The FTO has proposed that section 8B of the Sales Tax Act, 1990 may be omitted. The adjustment of Input Tax is basic right of a registered person as long as it is used in taxable activities. However, section 8B of the Act puts bar on the claim of Input tax in excess of 90% of output tax. The application of this section does not involve any revenue enhancement but only procedural and creating huge refund pendency. The FTO has proposed a simplified and separate return should be prescribed for small companies/AOPs and business individuals. It was also suggested that five Export Oriented Sectors were designed years ago and it is high time that few other sectors should also be included in that list, exports in respect of which actually surpass 2-3 sectors included in the overall five sectors.

In wake of high inflation, the salaried class is being most adversely affected among others. Income tax is withheld at source from gross salary exceeding Rs600,000 per annum. The rising cost of utilities and travelling has put extra burden on them. A significant number of employees are so adversely affected by increase in travelling cost and utility cost that they even do not have money for going to office. Therefore, it is proposed that some rebate against utilities expenses and increasing cost of living should be given the Salaries class. It is proposed that income not chargeable to tax may be enhanced to Rs1,200,000/- to provide relief to the salaried class.

Startup companies have been provided 100% tax credit for the first three years, however, their income for the later years is taxable @29% which is discouraging for a startup. Small companies are already enjoying a reduced rate of 20%, therefore, there is a need to provide a reduced rate for a startup company, FTO office added.