Problems in legalising untaxed income: Ambiguities in SRO should be removed
Sunday, 30 September 2007
S K Basak FCA
For legalising / whitening of untaxed income, the Government issued SRO No. 98-Law/2007 dt 4-6-07 and subsequently a Circular No.NBR/Tax-7/AA:AA: B/04/2007 dt 7-8-07 and also another Circular No.NBR/Tax-7/AA:AA: B/04/2007 dt 18-9-07 as the second clarification. Despite clear-cut directives in the original S.R.O and subsequent clarifications, as aforesaid, there still remains certain ambiguities to the general tax payers. Whereas the time-limit set in the relevant order/clarifications is soon going to be over. Hence, it is urgently necessary that the National Board of Revenue should further extend this time-limit and also give more clarification to remove the ambiguities created in the mind of general tax payers. Some of the problems are cited below:
In order to avail of the benefit given in the SRO No.98, in the case of any suit remaining pending adjudication before the appellate authorities at different stages, the undeclared income as determined by the immediately former appellate authority will have to be added to total income and Return will have to be submitted accordingly.
The question now arises that if any tax payer accepts the total income thus determined by the appellate authority and accordingly adds the undeclared income in his revised return now being submitted, his right diminishes in the appeal to be filed to the higher appellate authority. On the other hand, it is essential for the government to realise tax on the previously untaxed income.
At the same time it is also not desirable to impose unjustified conditions and thereby to complicate the process of tax realisation. Vide Sec "KA" in the original SRO, although there is a provision for voluntary payment of tax through declaration of untaxed income/investment, necessary directive has been given in Sec "GA" of the aforesaid first clarification to assess tax after adding undeclared income with the income duly reflected in the I.T. Return. Complication has now arisen due to referring to appeal cases in the aforesaid second clarification which appears to be unfair and unethical, and perhaps will fail the test of any legal challenge. It is essential for the government to get tax on undeclared income. And for realisation of such tax, due preference should be given to the benefit of the concerned tax payers. As an alternative, it will be easier to collect tax through directives and at the same time to collect tax on untaxed income/investment at the highest rate, i.e. @25% in the case of individual tax payers and at the maximum rate in the case of the company assessees, thus keeping the disputed claims under appeal out of the ambit of revised return under the SRO. In this respect, a kind consideration of the concerned authority is solicited urgently.
The original SRO was issued after taking consideration of the assessment year of 2006-2007, because as on 4th June, 2007 (the date when the SRO was issued), the current assessment year was indicating of that assessment year. Due to subsequent requirement for further clarification, the year of 2007-2008 was also considered/included as the current assessment year. Before extension of the first term, many existing/old tax payers considered the assessment year of 2001-2002 as the first assessment year in the relevant 5-year term and accordingly they submitted their Returns within 31-7-2007. As the 2007-2008 assessment year has now been included in accordance with the said clarification, its mis-interpretation has already started. However, the cautionary provision in the 4th para of the second clarification will prevail a good sense to the concerned tax payers and to their advisers as well.
An opportunity has now arisen on the part of the tax-payers for finalisation of accounts/for making self-assessment and payment of tax after bringing pending tax assessment suits relating to the year of 2006-2007 within the purview of the aforesaid SRO/clarifications. The tax payers will now be able to pay tax without any penalty, which seems to be more fair. However, bringing of 2007-2008 assessment year within the purview of the SRO No. 98 may lead to erode the confidence of the tax payers on the NBR.
Previously in the process of legalising/whitening of untaxed income/investment, no question of the source of settled income tax was raised. This resulted in the payment of tax spontaneously and also upto the expectation. This time the tax payers will again be required to pay tax on the sources of tax paid under the SRO. It will be less penalising if the respected tax payers get a renunciation of this type of the de facto Tax on Tax. In the assessment year of 2008-2009 the assessees are to be subject to punishment for untaxed income detected by the tax authorities. Traditionally in the case of a general amnesty the tax payment procedure is made very simple and also a lower tax rate is imposed. But the present general amnesty under SRO 98 is subject to complicated procedures and a high rate of tax. So if no explanation is asked as to how the tax is being paid under the SRO 98, the tax payers will be attracted more to avail benefit under the SRO 98.
Since SRO No. 98 allows adjustment of tax deducted at source/advance tax against the undisclosed income now declared, a good many tax payers will endeavour to avail themselves of this opportunity. But this SRO prevailing for 117 days may outlive its utility before getting full applicability. Therefore, its term should be further extended due to obvious reasons. No doubt there are departmental complications to providing credit for tax deducted at source, it is advisable not to miss this opportunity of increasing the white income base/wealth of an individual or a company by availing the benefit under the SRO and the tax already paid as deduction at source. Considering the volume of black money we have in our economy, any extension of the deadline for availing of such benefit and duly addressing the issues mentioned above will be highly beneficial for the economy at large in the long run.
(The writer is the partner, Shafiq Basak & Co., Chartered Accountants.)
For legalising / whitening of untaxed income, the Government issued SRO No. 98-Law/2007 dt 4-6-07 and subsequently a Circular No.NBR/Tax-7/AA:AA: B/04/2007 dt 7-8-07 and also another Circular No.NBR/Tax-7/AA:AA: B/04/2007 dt 18-9-07 as the second clarification. Despite clear-cut directives in the original S.R.O and subsequent clarifications, as aforesaid, there still remains certain ambiguities to the general tax payers. Whereas the time-limit set in the relevant order/clarifications is soon going to be over. Hence, it is urgently necessary that the National Board of Revenue should further extend this time-limit and also give more clarification to remove the ambiguities created in the mind of general tax payers. Some of the problems are cited below:
In order to avail of the benefit given in the SRO No.98, in the case of any suit remaining pending adjudication before the appellate authorities at different stages, the undeclared income as determined by the immediately former appellate authority will have to be added to total income and Return will have to be submitted accordingly.
The question now arises that if any tax payer accepts the total income thus determined by the appellate authority and accordingly adds the undeclared income in his revised return now being submitted, his right diminishes in the appeal to be filed to the higher appellate authority. On the other hand, it is essential for the government to realise tax on the previously untaxed income.
At the same time it is also not desirable to impose unjustified conditions and thereby to complicate the process of tax realisation. Vide Sec "KA" in the original SRO, although there is a provision for voluntary payment of tax through declaration of untaxed income/investment, necessary directive has been given in Sec "GA" of the aforesaid first clarification to assess tax after adding undeclared income with the income duly reflected in the I.T. Return. Complication has now arisen due to referring to appeal cases in the aforesaid second clarification which appears to be unfair and unethical, and perhaps will fail the test of any legal challenge. It is essential for the government to get tax on undeclared income. And for realisation of such tax, due preference should be given to the benefit of the concerned tax payers. As an alternative, it will be easier to collect tax through directives and at the same time to collect tax on untaxed income/investment at the highest rate, i.e. @25% in the case of individual tax payers and at the maximum rate in the case of the company assessees, thus keeping the disputed claims under appeal out of the ambit of revised return under the SRO. In this respect, a kind consideration of the concerned authority is solicited urgently.
The original SRO was issued after taking consideration of the assessment year of 2006-2007, because as on 4th June, 2007 (the date when the SRO was issued), the current assessment year was indicating of that assessment year. Due to subsequent requirement for further clarification, the year of 2007-2008 was also considered/included as the current assessment year. Before extension of the first term, many existing/old tax payers considered the assessment year of 2001-2002 as the first assessment year in the relevant 5-year term and accordingly they submitted their Returns within 31-7-2007. As the 2007-2008 assessment year has now been included in accordance with the said clarification, its mis-interpretation has already started. However, the cautionary provision in the 4th para of the second clarification will prevail a good sense to the concerned tax payers and to their advisers as well.
An opportunity has now arisen on the part of the tax-payers for finalisation of accounts/for making self-assessment and payment of tax after bringing pending tax assessment suits relating to the year of 2006-2007 within the purview of the aforesaid SRO/clarifications. The tax payers will now be able to pay tax without any penalty, which seems to be more fair. However, bringing of 2007-2008 assessment year within the purview of the SRO No. 98 may lead to erode the confidence of the tax payers on the NBR.
Previously in the process of legalising/whitening of untaxed income/investment, no question of the source of settled income tax was raised. This resulted in the payment of tax spontaneously and also upto the expectation. This time the tax payers will again be required to pay tax on the sources of tax paid under the SRO. It will be less penalising if the respected tax payers get a renunciation of this type of the de facto Tax on Tax. In the assessment year of 2008-2009 the assessees are to be subject to punishment for untaxed income detected by the tax authorities. Traditionally in the case of a general amnesty the tax payment procedure is made very simple and also a lower tax rate is imposed. But the present general amnesty under SRO 98 is subject to complicated procedures and a high rate of tax. So if no explanation is asked as to how the tax is being paid under the SRO 98, the tax payers will be attracted more to avail benefit under the SRO 98.
Since SRO No. 98 allows adjustment of tax deducted at source/advance tax against the undisclosed income now declared, a good many tax payers will endeavour to avail themselves of this opportunity. But this SRO prevailing for 117 days may outlive its utility before getting full applicability. Therefore, its term should be further extended due to obvious reasons. No doubt there are departmental complications to providing credit for tax deducted at source, it is advisable not to miss this opportunity of increasing the white income base/wealth of an individual or a company by availing the benefit under the SRO and the tax already paid as deduction at source. Considering the volume of black money we have in our economy, any extension of the deadline for availing of such benefit and duly addressing the issues mentioned above will be highly beneficial for the economy at large in the long run.
(The writer is the partner, Shafiq Basak & Co., Chartered Accountants.)