For quite some time, the need for simplifying tax return system for corporate tax payers along with removing alleged vagueness in the tax ordinance of the National Board of Revenue (NBR) is being raised by the stakeholders as an issue of urgent attention. However, there was no worthwhile move to bring necessary reforms, and businesses, too, were short of suggesting concrete measures to that effect. Lately, in a review report submitted to the NBR by the Review Committee on the upcoming Income Tax Law-2022, a number of simplification steps and reforms have been suggested that, among others, include slashing requirements of excessive documents while submitting tax returns.
A FE report published on the Review Committee's report says suggestions have been made to render tax payment business-friendly as well as bring long-awaited reforms to the country's taxation system. One area that, according to the Review Report, is too burdensome to comply with is submitting return on Source Tax. Currently, corporate houses have to submit 29 returns for 'at-source tax' in a year, which involves volumes of cumbersome paperwork and extra money. The number of at-source tax returns, says the Review Committee, could be brought down to 12 in order to make it business-friendly. In the report, the review panel has recommended scrapping of the provision of harsh penal actions like rigorous imprisonment for failing to submit tax returns. The 20-member review panel comprising public and private sector representatives has commented that the proposed punitive measures in the draft law may discourage a large number of taxpayers from coming into the tax net, resulting in huge tax evasion.
As regards removing alleged vagueness as well as ambiguities, the panel has suggested defining 'stock' in clear terns in the new law, and not including shares under the purview of 'asset'. It recommends non-inclusion of reinvestment unit or cumulative investment-plan unit as dividend if it is issued by open-end mutual fund or exchange-traded fund (ETF). The panel has also proposed inclusion of demerger in the new law along with existing merger/amalgamation provision. Due to absence of demerger from the income tax ordinance, taxpayers have to seek help of the High Court to resolve the relevant issues, which is time-consuming and complex, the report says. Additionally, the review committee recommended incorporating the changes to the Finance Act 2020, 2021 and 2022 in the new law, cutting existing source-tax rates, expanding the list of allowable expenses in the law, and defining double taxation in clear terms. It also proposed for simplification of the existing tax-refund system--- a clumsy and time-consuming process that often tends to be a serious irritant, and curb on discretionary powers of the field-level officials to a reasonable limit.
The draft income tax law is set to be placed before the Cabinet by December 31. NBR published the draft in October 2021 eliciting public opinion. Concerned quarters are hopeful that the recommendations and suggestions of the Review Committee would shed light on some of the longstanding and unresolved issues and help align the new law with international best practices. It is expected that the recommendations would receive due consideration.