Just imagine one morning you receive a call from your bank informing an amount was deducted or fully withdrawn by the tax authorities. You will be totally ignorant of the situation and rush to the relevant tax office to know the reason for money withdrawal. A big surprise will be welcomed when you know that you were a defaulter and despite repeated notices you had failed to pay the due amount. You will make an argument with the tax officials that you had not received any notice but they will show you that the notices are available on your IRIS account, which you hardly open during a year except for filing an income tax return.
On October 11, 2021, the Federal Board of Revenue (FBR) reverted its decision and empowered the officials of Inland Revenue to make recovery through freezing bank accounts of the taxpayers without any prior notice.
The decision has been reversed after about two-and-a-half years. Previously, Syed Shabbar Zaidi, a non-bureaucrat FBR chairman, on the day of assumption the charge of the apex tax agency issued these instructions.
“No bank accounts attachment unless the taxpayer’s CEO/principal officer/owner is informed at least 24 hours prior to attachment and the FBR chairman’s approval is obtained.”
After the reversal of the instructions, now the IR officers after completing legal formalities can reach to a bank branch and ask the branch manager to transfer the defaulted money to the national kitty. Under the law, the branch managers are bound to obey the instructions of the FBR officials.
The move is quite surprising for the taxpayers and other stakeholders. Syed Shabbar Zaidi, who is a chartered accountant and remained the FBR chairman for a short time, had taken the decision after taking Prime Minister Imran Khan in confidence to provide relief to the taxpayers and boost trust on the tax agency.
The latest reversal of the decision coupled with another important instruction related to service of notice are giving an impression that the revenue body has aggressive intentions to generate sizeable tax collection to meet the current year’s target.
In a similar move on February 3, 2021, the revenue board had withdrawn its three-year old clarification related to service of notices through electronic means. On February 22, 2018, the revenue board issued a clarification, saying that the notices served through the electronic means would be treated as an additional means of service for facilitation of the taxpayers and may not be treated as a legal mode of service. While withdrawing, the FBR said the clarification was in contradiction to various provisions of the Income Tax Ordinance, 2001.
The modes of service a notice has been explained in Section 218 of the Income Tax Ordinance, 2001 as: personally served on the individual or, in the case of an individual under a legal disability or a non-resident individual, the representative of the individual; sent by the registered post or courier service to the place specified or to the individual’s usual or last known address in Pakistan; or served on the individual in the manner prescribed for service of a summons under the Code of Civil Procedure, 1908 (V of 1908); or served on the individual electronically in the prescribed manner.
The provision of service of notices was made part of the main statute through the Finance Act, 2018. The electronic mode of service is not expressly provided in Section 218. The electronic service is provided as the substituted services in Rule 20, Order V of the First Schedule to the Code of Civil Procedure, 1908. After withdrawal of the clarification the service through electronic mode became the legal mode of service.
Prior to the withdrawal of the notification, the Federal Board of Revenue had already shown its intention to take harsh action for the recovery through freezing of bank accounts and through other means.
In a statement issued on January 30, 2021, the apex tax body said it had issued notices to nearly 1.4 million taxpayers, who were supposed to file returns, or filed nil returns, or mis-declared their assets to comply with their legal obligations.
The withdrawal of the previous notification had paved the way for the tax authorities to recover the amount directly from the bank accounts and through other means of the recovery. However, the prior approval for making recovery through freezing of bank accounts remained a hurdle for the tax authorities. This hurdle was removed through the instructions of the FBR issued on October 11, 2021.
In early 2021, the tax offices issued system generated notices of assessment, audit, late filing, non-filing, penalty, etc. The notices to late filers and non-filers were sent directly to the taxpayers’ IRIS accounts. The taxpayers were given statutory time as available under the tax laws for compliance. However, a large number of taxpayers had failed in compliance, after which the tax authorities had invoked relevant provisions for the recovery of tax amounts.
Individual taxpayers usually open their IRIS account after a year for filing their annual income tax returns. In case of business individuals and other corporate taxpayers are also not regular visitors of their IRIS accounts. Therefore, in such a scenario, making recovery from personal bank accounts or through other available means would create a gulf between the people and the tax machinery.
Previously, when the tax offices initiated action on system generated notice a massive reaction was seen from the taxpayers; after which, the FBR had withdrawn a large number of notices.
The latest instructions were issued just four days ahead of the last date of filing of income tax returns for the tax year 2021. After expiry of the date for filing tax returns, the FBR would launch action against non-filers. The tax offices will make assessment on the available information and will send notices electronically and after statutory time they will make recovery.
Interestingly on October 12, 2021, the revenue board issued another official memo to the field offices to ensure all legal formalities before taking any coercive action.
“It is; therefore, essential to avoid entering into protracted litigation by exercising prudence and ascertaining the potential of a case to pass the test of appeal, so as not to divert resources from other potential cases involving substantial revenue.”
“It has been observed that in certain cases, the officers tend to initiate recovery proceedings without giving statutorily available time of 30 days to the taxpayer by resorting to attachment of bank accounts. Subsequently, [the] taxpayers being aggrieved of recovery proceedings before expiry of [the] grace period, obtain stay orders from higher courts, resulting in ‘vicious circle’ of litigation at multiple fora.”
The question will remain the same: how a taxpayer will know about the notice to avail the opportunity to contest the assessment orders, when he/she is not aware that the notice is directly sent to the IRIS account.
In case the FBR invokes such provisions of the law to access the bank accounts for making recovery it will have repercussions on the banking system, as well.
Last year, the government took major decisions to withdraw withholding provisions on cash withdrawal and other than cash transactions. These steps encourage the people to make transactions freely and contribute towards the economy.
If the FBR makes recovery through freezing of bank accounts in some cases, then it will discourage the people from keeping money in their bank accounts. Instead, there may be large withdrawals from the banking system.
In this situation the authorities should take measures to boost the confidence and trust of the taxpayers, especially for ease of doing business and for the economy, which is reviving after major shocks, including the coronavirus pandemic.
FBR’s former chairman Syed Shabbar Zaidi said: “My first instructions as the Federal Board of Revenue (FBR) chairman in 2019 was against freezing of bank accounts, which I withdrew. It was totally legal. The commissioner’s rights were not snatched. Decency and trust requires confidence between the taxpayers and the tax collectors.”
He said: “The FBR is not a police force. If you require policemen’s attitude, then taxes should be collected in police stations,” adding: “People ask me why I left FBR. Withdrawal of clarification issued by me on raids and freezing of bank accounts is an example. When I was working in an organisation where 99.99 per cent staff was interested in power, then one man can only be effective when the stakeholders support. It was not so.”
“The stakeholders are chambers, lawyer bodies, tax bars, professional bodies. Let us see how they react now. IK [Imran Khan] was fully supportive but the society was not. No one can bring a change unless the society supports,” Zaidi said.
“I am personally sorry to hear the withdrawal of the first instruction issued by me when I was the FBR chairman. Freezing of bank accounts without intimation and approval from the FBR chairman is unacceptable. Due to this decision, there was a major relief to the taxpayers. I urge the prime minister, finance minister and the FBR chairman to reinstate the earlier decision.”
FPCCI president Mian Nasser Hyatt Maggo said that the attachment of bank accounts with the tax laws is creating hurdles in the ease of doing business, as envisioned by Prime Minister [Imran Khan].
It is the prime minister’s vision that unless the taxpayers are at ease to do their business without any fear of the tax officials, it is not possible to boost revenue collection.
However, it seems that the tax authorities are bent upon disturbing the cordial atmosphere after the FBR’s letter dated October 11, 2021; wherein, it ordered the attachment of bank accounts with the tax authorities for recovery of the tax amount without informing the taxpayers.
The trade and industry is already facing a lot of problems due to the escalation in the rupee/dollar parity and the latest decision will prove to be another draconian step against the taxpayers.
This is totally against the recent instructions to bar the tax machinery from taking money without prior intimation to the accountholders and the fresh instructions would be a dent on the finance minister’s pro-taxpayer posture.
It is also not out of place to mention that the former chairman of the Federal Board of Revenue (FBR) is also against such steps of the board to collect taxes forcefully and taken practical steps to stop such practices.
The tax machinery is almost at a failure to dig out new taxpayers, instead it is bent upon hand twisting methods against the existing taxpayers to collect the ‘so-called’ revenue.
If such practices are enforced, it will pile up the litigation between the tax collectors and the taxpayers and the courts are already burdened due to such litigations.
In recent months, the taxpayers have been complaining about the ‘highhandedness’ by the FBR. The matter had also landed in the Senate Standing Committee on Finance that recommended the government to sack taxmen who made exaggerated tax demands and then rejected appeals of the taxpayers under pressure from the FBR headquarters.
KCCI president Muhammad Idrees said that it is unfortunate that the Federal Board of Revenue revoked the clause that made it mandatory to warn defaulters 24 hours before freezing of their bank accounts. This will open up a floodgate of corruption, as it will provide yet another tool to the tax authorities’ officials to harass the business community.
“We, the business community of Karachi, rejects the FBR’s decision with an appeal to Prime Minister Imran Khan and Finance Minister Shaukat Tarin to refrain FBR from taking this anti-business measure, as it is going to prove counterproductive to all the efforts being made by the government in ease of doing business.”
At a time when business confidence just started to revive, the FBR backtracked all the measures taken towards creating a conducive business environment. The business and industrial community strongly condemns this move based on the fact that this notification was issued after a very detailed deliberation with the then FBR chairman Shabbar Zaidi.
The FBR has a long history of misuse of powers, corruption and harassment. Revoking the clause will be detrimental to the economy, as the business transactions will suddenly get stuck without the businessman knowing the reason. Any interruption in the flow of funds will also create distrust among the foreign buyers, which will ruin the integrity and reputation of the Pakistani businessmen.
It will have severely negative repercussions and irreversible loss to the economy and business. It will also dent the drive of broadening the tax base, which is also against the national interest. The present times require added confidence of entrepreneurs and investors but due to this step, the confidence level will go down in a very crucial era when we need investment and we need to create employment and exports.
On the one hand, the lawmakers are assuring facilitation to the business community and simplifying taxation laws, but on the other, those discretionary powers, which the businessmen had always opposed, are again being returned at the commissioner Inland Revenue level.