Advance tax, refunds & compensation

Huzaima Bukhari & Dr. Ikramul Haq

A cursory look at the annual year books published by the Federal Board of Revenue (FBR) after the promulgation of Income Tax Ordinance, 2001 [made effective from tax year 2003, hereinafter “the Ordinance”] confirms heavy reliance on indirect taxes, on advance tax (it includes all withholding tax provisions, most of which in substance are indirect taxes) under the income tax head. Resultantly, the burden is shifted on the withholding agents or the taxpayers to pay advance tax under section 147 of the Ordinance. It is pertinent to mention that out of total collection of income tax of Rs. 1523 billion in fiscal year 2019-2020 (35% of total collection), the contribution of 10 types of withholding taxes was Rs. 943.6 billion while remaining 56 was Rs. 147.9 billion (total Rs. 1091.5 billion). Advance tax paid was Rs. 351 billion and with returns Rs. 61 billion. FBR collected only Rs. 61 billion (arrears of Rs. 14 billion and out of current demand Rs. 47 billion), which is only 4% of total collection.  

The major contributors of withholding tax in fiscal year 2019-20 are: Contracts (Rs. 237.4), Imports (Rs 199.6 billion), Salaries (Rs. 129.4 billion), Bank interest & securities (Rs. 128.1 billion), Dividend (Rs. 55 billion), Telephone (Rs 54.6 billion), Electricity (Rs. 45.4 billion), Technical Fee (40.1 billion), Exports (Rs. 38.4 billion) and Cash withdrawal (Rs. 15.1 billion)—Table 10, Page 15 of Year Book for 2019-20. It is pertinent to mention that no bifurcation is given for remaining over 50 withholding tax provisions prevalent during the relevant fiscal year, out of which only six were removed in the Finance Act, 2020 (XIX of 2020) that received the assent of President on June 30, 2020.

The FBR in  Year Book for 2019-20 claimed exceeding the third-time revised target of Rs. 3908 billion by Rs. 88.7 billion, collecting net amount of Rs. 3997 billion—direct taxes (1523 billion), sales tax (Rs. 1597 billion), Federal Excise (250 billion) and Customs: 626 billion). The refunds paid were: direct taxes (68.6 billion), sales tax (92.6 billion), federal excise (nil) and customs (12.2 billion). FBR officials on September 2, 2020, before the National Assembly Standing Committee on Finance confessed that actual liability of income tax and sales tax refunds as on June 30, 2020 was Rs. 710 billion (sales tax Rs. 142 billion and income tax Rs. 568 billion). If the admitted refunds payable as on June 30, 2020 are deducted from FBR’s total tax collection, the net figure comes to Rs. 3287 billion (7.7% of GDP). In the first six months of the current fiscal year, according to a Press release FBR paid refunds of Rs.102 billion (53 billion for the same period last year) but did not disclose the total quantum of refunds payable from as on December 31, 2020.

After the Second World War, the provision of advance income tax was provided in the then prevalent Income Tax Act, 1922 for the first time by inserting section 18A vide section 5 of the Indian Income Tax (Amendment) Act, 1944. Pakistan inherited this law on independence and retained it till 1979 when General Muhammad Zia-ul-Haq repealed it, replacing with Income Tax Ordinance, 1979. It survived till 2001 when another military ruler, General Pervez Musharraf, on the dictates of International Monetary Fund (IMF) replaced it with Income Tax Ordinance, 2001. In the repealed Income Tax Ordinance, 1979, advance tax was charged under section 53 that was retained with a number of amendments as section 147 of the Ordinance. It is a matter of great national shame that after independence, our successive governments retained a provision introduced by the colonial masters as a measure to combat inflation squeezing unprecedented money in circulation in British India.  

It has been repeatedly mentioned in these columns about the negative impact on growth because of numerous withholding tax provisions in the Ordinance [interestingly, mostly placed under CHAPTER XII: TRANSITIONAL ADVANCE TAX PROVISIONS]. The purpose of this Chapter, as its title suggests, was to retain some advance tax provisions temporarily, but on the contrary at least 30 more were added! This is how our Revenuecracy hoodwink legislators who hardly understand tax codes, but readily pass whatever comes to them as Money Bill making illogical changes to tax codes. The advance collection of income tax through various withholding tax provisions and under 147 of the Ordinance give rise to accumulation of refunds that are not paid along with additional amount according to section 171 of the Ordinance that after amended from time to time, reads as under:

171. Additional payment for delayed refunds.– (1) Where a refund due to a taxpayer is not paid within three months of the date on which it becomes due, the Commissioner shall pay to the taxpayer a further amount by way of compensation at the rate of KIBOR plus 0.5 per cent per annum of the amount of the refund computed for the period commencing at the end of the three month period and ending on the date on which it was paid:

            Provided that where there is reason to believe that a person has claimed the refund which is not admissible to him, the provision regarding the payment of such additional amount shall not apply till the investigation of the claim is completed and the claim is either accepted or rejected.

            (2) For the purposes of this section, a refund shall be treated as having become due–

• in the case of a refund required to be made in consequence of an order on an appeal to the Commissioner (Appeals), an appeal to the Appellate Tribunal, a reference to the High Court or an appeal to the Supreme Court, on the date of receipt of such order by the Commissioner; or
• in the case of a refund required to be made as a consequence of a revision order under section 122A, on the date the order is made by the Commissioner; or
• in any other case, on the date the refund order is made.

                           Explanation.– For the removal of doubt, it is clarified that where a refund order is made on an application under sub­section (1) of section 170, for the purpose of compensation, the refund becomes due from the date refund order is made and not from the date the assessment of income treated to have been made by the Commissioner under section 120.

The Supreme Court of Pakistan in a recent case Hamid Ashraf (late) through his legal heirs v Commissioner Inland Revenue, Lahore [(2020) 122 TAX 265 (S.C. Pak.)] held that “scheme of refund provided under the Income Tax Ordinance, 2001 overrides the deeming provision of section 120. Deemed assessment under section 120 is therefore not a substitute for a refund order. It appears, as if the return of tax or refund by the Exchequer to a taxpayer requires scrutiny by the Commissioner and cannot be deemed to be an amount outstanding in favour of the taxpayer. The taxpayer is free to apply for refund under section 170, immediately after filing of tax return or deemed assessment order. Section 170 provides a fast track mechanism for refund as it specifies time for the passing of a refund order and the remedy of appeal in case of failure to pass any such order”….In the present case, the applications for refund filed by the petitioner under section 170 were taken up by Assistant Commissioner Inland Revenue in the year 2010 and initially rejected. After remand of the matter by CIR (Appeals), DCIT passed refund order on 22.03.2013. The matter remained under litigation between the department and the taxpayer, and refund order was passed on 23.03.2013, rather than 15.02.2011, when the CIR (Appeals) simply remanded the matter to the DCIT to decide the same afresh. Therefore, the date of refund order passed by DCIT i.e. 22.03.2013 will be the date when the refund becomes due as per section 171(2)(c) [instead of section 171(2)(a)] as correctly noted by the High Court”.

[underlined by us for emphasis]

Section 171(2)(a) simply says that “for the purposes of this section [171], a refund shall be treated as having become due in the case of a refund required to be made in consequence of an order on an appeal to the Commissioner (Appeals), an appeal to the Appellate Tribunal, a reference to the High Court or an appeal to the Supreme Court, on the date of receipt of such order by the Commissioner”.

[underlined by us for emphasis]

The words used by the Legislature in section 171(2) are “treated as having become due” that means a legal fiction is created. It says the moment order of appeal is received by the Commissioner, without passing of order refund will become due for the purpose of calculating delayed payment under section 171(1) of the Ordinance. The actual date of passing the order is irrelevant. If appellate order gives rise to refund (in above case it was mere remand) the relevant date is the day order of Commissioner (Appeals) is received by the Commissioner of Inland Revenue who passed the order personally or by delegation of powers to any officer as envisaged in section 210(1) of the Ordinance. All such orders passed by any authority under delegated powers by the Commissioner in terms of section 211(1) of the Ordinance are treated to be passed by him. This provision reads as under:

“Where, by virtue of an order under section 210, an Officer of Inland Revenue or by a special audit panel appointed under subsection (11) of section 177 exercises a power or performs a function of the Commissioner, such power or function shall be treated as having been exercised or performed by the Commissioner”.

[underlined by us for emphasis]

In section 211(1) again a legal fiction is created by Legislature that all orders passed under delegated authority would be construed to be passed by the Commissioner.

Even after the insertion of Explanation in section 171 of the Ordinance by Finance Act 2013 (Act No. XIII of 2013) with retrospective effect, plain reading of it vis-à-vis other related provisions provides as under:

1. Section 171(2)(a) of the Ordinance provides a legal fiction and does not override the term “when it becomes due” in section 171(1). The Explanation added with retrospective effect deals with section 171(1) and not with section 171(2). Section 170(1) says: “A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess”. This should not be read in isolation. It is to be read in conjunction with section 170 as a whole, especially section 17(3).  It is cardinal principle of interpretation that a deeming provision has to be strictly construed for the purpose it is enacted. The deeming provision requires strict interpretation, and cannot be spilled over to other provisions in statute. It has to be interpreted strictly within the four corners of its object for which it is enacted—Elahi Cotton Mills Ltd v Federation of Pakistan (1997) 76 Tax 5 (S.C.Pak).
2. In terms of section 170(3) read with section 120(1) there is no need for making a refund order and therefore section 171(2)(c) of the Ordinance shall not apply. The opening part of subsection (2) of section 171 says that “For the purpose of this section, a refund shall be treated as having become due”. It does not limit the expression “refund due” as used in subsection (1) of section 171 but only provides certain situations where, by legal fiction in respect of time, the date for “refund due” has been determined different from the actual date of passing the order to safeguard the right of taxpayers.
3. Where refund is created as a result of an order under section 120 or where it is due in terms of section 147(10) or in terms of section 170(3), it is the legal obligation of Commissioner to issue refund suo motu. In case, he fails to do so within 90 days of refund becoming due then section 171 will come into play.
4. Provisions of section 170(4) of the Ordinance apply where taxpayer files an application for refund e.g. in cases of a commercial importer prior to tax year 2020, where statement under section 115(4) was filed and there were deductions other than those made under section 148. He was to file a refund application because there was nothing on record to make it obligatory for the Commissioner to take suo motu action under section 170(3). In such like cases, when an application for refund is filed then Commissioner must pass an order within 45 days and if he fails to do so, the taxpayer can file an appeal as provided in section 170(5)(b).
5. Where refund is created as a result of an order under section 120(1)(a) & (b) or becomes due in terms of section 147(10) then  in terms of section 170(3), which is independent of section 170(1) and 170(4), it is the legal obligation of Commissioner to adjust the amount against any tax payable and if there is no outstanding liability then under section 170(3)(c) issue refund suo motu and there is no legal obligation for a taxpayer to file refund application as the plain language of section 170(3) reproduced below confirms:  

“Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall–

• apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;
  • apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and
  • refund the remainder, if any, to the taxpayer.

Explanation added with retrospective effect through Finance Act 2013 is mentioning only section 170(1) and not 170(3). This point has not been agitated and adjudicated by the Supreme Court in Hamid Ashraf (late) through his legal heirs v Commissioner Inland Revenue, Lahore [(2020) 122 TAX 265 (S.C. Pak.)].   

6. Section 147(10) clearly says: “A tax credit or part of a tax credit allowed under this section for a tax year that is not able to be credited under sub-section (3) of section 4 for the year shall be refunded to the taxpayer in accordance with section 170”. Here the reference of section 170 and not 170(1) alone. In other words section 170(3) is also covered.
7. In cases of section 147(10), the Commissioner creates the refund after perusing all the record available to him and the law nowhere requires the taxpayers to apply for refund but casts legal obligation on the Commissioner to pay it if no demand against the taxpayers is outstanding. In case, he fails to do so within 90 days of refund becoming due then section 171(1) will come into play.
8. In section 171(2)(c) of the Ordinance, it is provided that “in any other case, on the date the refund order is made“. Obviously it applies where there is legal requirement for making a refund order on the application of the taxpayer. For example, a taxpayer had no taxable income but tax was deducted at source or income was exempt but the withholding tax agent deducted or collected the amount, as the case may be, and paid it to FBR as law requires. Under the scheme of Ordinance, refund becoming due on filing of return after passing all the requirements/test of section 120 cannot be denied by the Commissioner on the pretext that refund application under section 170(4) is not filed electronically. Section 170(3) is self-executory and not to be read as mandatory condition, even if it is posed by FBR through rules made by in contravention of the law. It is cardinal principle that any rule made in violation or absence of power to make in the main statute is repugnant. “The rule-making authority cannot clothe itself with power which is not given to it under the statute and thus the rules made under a statute, neither enlarge the scope of the Act nor can go beyond the Act and must not be in conflict with the provisions of statute or repugnant to any other law in force”—Pakistan through Secretary Finance, Islamabad & 5 others v. Aryan Petro Chemical Industries (Pvt.) Ltd. Peshawar & others 2003 PTD 505 (S.C.Pak.)=2003 SCMR 370.
9. Section 170(1) says: “A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess”. The word “may” here cannot be read as “should”, as Legislature in 170(3), as discussed above, imposed a condition on the Commissioner to adjust refund against any demand and in case nothing is payable then refund the amount. Power of FBR to make rules under 170(6) is to ensure “expeditious processing and automatic payment of refunds through centralized processing system” and not to override section 170(3)(c).      
10. Additional payment for delayed refund as provided under section 171 of the Ordinance is not payable immediately unless 90 days limitation expires. Obviously, legislature has given sufficient time of 90 days to the Commissioner to make inquires and verify bona fide of refunds to avoid compensation for a determined refund. It is also pertinent to mention that in the repealed Income Tax Ordinance, 1979, it was made incumbent upon the Assessing Officer to calculate refund, if any, along with the calculation of tax and mention the same on the IT-30 as well as on the demand notice along with assessment order which was to be sent to the assessee. The same situation is retained under the new Ordinance vide section 170(3) of the Ordinance.
11. The Income Tax Tribunal in its order [(2009) 100 TAX 178 (Trib.)] rightly held  as under:

“Cumulative reading of above shows that in terms of section 170(4) the Commissioner is duty bound to issue refund within 45 days of receipt of application, but under section 170(3)(c), even no refund application is required, for him to refund any amount “overpaid” after adjustment if any. In other words, the refund in this case was “due” for the purpose of section 171(1) on the date of order treated to have been made and after lapse of three months from the said date, compensation was due. Section 171(2) relied upon by the Department does not vitiate the right of compensation as elaborated above. The Department has failed to appreciate the fact that section 171(2) is creating a legal fiction for certain specific “refund due” in section 171(1) and a refund shall be treated as having become due [Section 171(2)] are not synonymous. The first deals with due on happening of an event, in this case the assessment order under section 120 creating refund comes into existence. In the second situation a refund shall be treated as having become due i.e. when it was not otherwise due. Had this not been the case, there was no need to provide legal fiction as elaborated in detail in earlier paragraphs”.

12. Hopefully in the light of above, the order of Supreme Court [(2020) 122 TAX 265 (S.C. Pak.)] will be read in proper context. It is well-established law as decided by Supreme Court in BILZ (Pvt.) Ltd. v. D.C.I.T. Multan 2002 PTD 1 that all the provisions of law in a statute are to be read together unless a section is self-contained. Section 171(2)(c) has to be read in conjunction with other provisions relating to determination of refund and its issuance.

The real issue concerning unpaid refunds with or without additional amount under section 171 of the Ordinance and advance tax under section 147 or numerous withholding provisions is that over the period of time, the Inland Revenue Service (IRS) has started relying mainly on collecting income tax through withholding tax regime.

The law has thus become a tool for extorting money whether due or not. For example, majority of mobile users, subjected to 12.5% advance/adjustable income tax, is not earning any or below taxable income. The law requires them to file complicated income tax return, wealth statement and refund application electronically!  About 60% of our population comprising youth is yet not employed, but FBR is extorting income tax from 100 million unique mobile users (having more than one number and active users). The latest data available on the website of Pakistan Telecommunication Authority (PTA) shows the total cellular subscribers as on August 31, 2020, 169 million, out of which 85 million are 3G/4G subscribers, 3 million basic telephony users and 87 million broadband subscribers. In the presence of such confiscatory taxes, Parliament gives tax amnesties, immunities and waivers to the rich, tax evaders and looters of national wealth or Presidential Ordinances of extending tax benefits are issued for the mighty developers and constructors. This practice should end now when all the businesses, big or small, are struggling to survive the disastrous consequences of second deadly wave of coronavirus endemic. 

Revenuecracy [term coined by Dr. Pervez Tahir in Giving FBR a decent burial, The Express Tribune, November 8, 2019], keeps on maligning the citizens as tax dodgers. Unfortunately, the bandwagon is joined by the so-called “informed” analysts and all-knowing (sic) TV anchors calling Pakistanis “tax cheats”, whereas reality is quite the opposite—read details in e-book [Tax Reforms in Pakistan: Historic & Critical View] recently published by Pakistan Institute of Development Economic (PIDE) and available  free at its website [https://www.pide.org.pk/pdf/Books/Tax-Reforms-in-Pakistan-Historic-and-Critical-View.pdf].

Since 1996, by taking credit of advance tax relating to the next tax year(s), during the current tax year, FBR not only overstates collection figures, but does not also pay back the excess amount received as withheld or advance tax. What makes the situation more excruciating is the fact that the government pays no compensation to the taxpayers for using their funds received in advance and retained though prior to 1996 the same was paid at the time of assessment and 6% compensation was compulsory for advance tax paid under section 53 of the repealed Income Tax Ordinance, 1979.

It needs to be highlighted that since its inception and until assessment year 1995-1996, section 53 dealing with advance tax under the repealed Income Tax Ordinance, 1979, had the following three specific attributes:

1. Advance tax was paid by the taxpayer on the basis of latest declared/assessed/estimated income for that assessment year;
2. Credit for any advance tax collected for an assessment year was accounted for in the related year and not the year of collection; and
3. 6% mark-up on the amount retained as advance tax was paid to the taxpayer at the time of assessment thereby compensating his cost of funds or opportunity cost for the period his money (not yet due) remained with the government.

With increasing pressure on FBR for achieving assigned (inflated) targets (fixed with utter disregard to ground realities after deadly Covid-19 outbreak and frequent complete or partial lockdowns), panic-struck measures are adopted to display a high level of efficiency (artificially) destroying businesses and growth with the following features:

3. Credit for advance tax is being taken in the year of collection whereas it pertains to next year;
4. Basis for determining advance tax shifted from income to ‘turnover’ and many other aberrations; and
5. Compensation for utilising funds of taxpayers is no longer payable.

These measures aimed at collecting advance tax are made absurd and burdensome by amending section 147 on numerous occasions through various Finance Acts and Finance Supplementary Acts. FBR’s performance in achieving collection targets is irrationally measured taking into account figures for the past closing year as well as of the future closing year or years as well. For example, banks having calendar year as tax year during 2021 are paying advance tax on monthly basis for tax year 2022! The credit of advance tax being paid for tax year 2021 every month till 31st December 2021 will be given credit when banks file returns on  September 30, 2022—due date under the law. But FBR will take this amount as collection for the current fiscal year ending on June 30, 2021.

The PTI Government without waiting for the next budget, through Presidential Order or Finance Supplementary Bill 2021, must make amendment in law requiring FBR to:

1. Account for advance tax under section 147 of Ordinance as collection of the year to which it actually relates. This procedural change will not have any adverse effect on revenue of FBR, except that the advance tax will be accounted for as collection at the time of assessment under section 120 of the Ordinance that is the tax year to which it actually pertains, rather than taking its credit during the ongoing tax year to which it does not pertain though collected in anticipation. Ideally, the government should abolish it once tax base is widened and people start paying taxes with returns. The money they have to part away in advance can be utilised for business growth and expansion that will ultimately yield more revenue for the State and creation of much-needed jobs. 

• The existing nearly 60 withholding tax provisions in Ordinance, except for salaried class, earners of interest income, dividend and rent, are destroying the already sluggish economy due to Covid-19 endemic as well as resulting into heavy refunds which FBR is incapable of paying as old stock is still as high as Rs. 650 billion. The number of withholding provisions should be drastically reduced and confined to salary, incomes taxed as separate blocks and on taxable payments to non-residents. Till the time, economy recovers from Covid-19 endemic, rates of all withholding taxes should be reduced to 5% or even less. The minimum tax regime should be abolished as it is against the Constitution. The Supreme Court in Elahi Cotton Mills & others v Federation of Pakistan & others [PLD 1997 Supreme Court 582] held that the National Assembly can impose taxes on income under Entry 47, Part I, Fourth Schedule to the Constitution or impose the same under Entry 52 on the basis of capacity to earn, but “it cannot adopt both the methods in respect of one particular tax”.
• The withholding tax provisions in the Sales Tax Act, 1990 and all provincial sales tax on services should be suspended, rather withdrawn as nowhere in the world these kinds of erratic withholding tax rules exist in value-added tax or simple general sales tax enactments.  

The concept of advance tax clearly envisages a pre-assessment situation in the case of a taxpayer. Thus, if at the time of filing a return under section 120 of the Ordinance (resulting in automatic assessment under the universal self-assessment scheme if complete), the law specifically provides for taking credit for all taxes paid until the date of filing the return. This implies that if any outstanding balance of tax remains, it should be either refunded or adjusted in the subsequent installments of advance tax for the next tax year. However, FBR has always misinterpreted this law. Para 4 of Circular No. 2 of 2004 dated 25.5.2004 reads as under:

“4. It is also clarified that in case of taxpayers having special *income year, the credit for payment of advance tax, shall be allowed in respect of the quarters falling within such income year e.g. in case of a company closing its accounts on December 31, 2004, the credit for advance tax shall be allowed for tax year 2005 in respect of advance tax paid for the quarters, ending March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004.”                                           

            *Should have been ‘tax year’

These instructions are issued in total disregard of the law. In the first place concept of, ‘income year’ no longer exists in the new law, and secondly, there is clear indication of straining the law to the extent of distorting the very basis of giving credit for advance tax payments. Why should a company allow credit to be taken (of the three quarters falling in any calendar year) for a tax year that is yet to come? This proves that:

• the term ‘tax year’ is a definition subject to the whims of FBR;
• in reality, the Department failed to grasp its meaning as laid down in the statute;
• the taxpayer will have to adjust his accounts according to the defective language of the FBR’s Circular No. 2 of 2004 and there will always be overlapping of two or more tax years; and
• there is no relevance of tax year as it will be the Department deciding for which tax year, credit may be taken.

If this has been the position since 2004, then what is the sanctity of allowing a taxpayer to maintain so-called special tax years ending on dates other than 30th June because according to his understanding, his accounting period, both for maintaining accounts and assessment of income, will remain a period of twelve months distinct from the financial year. And above all, why should he let the department exploit his advance tax paid on, say 15.03.2021 and 15.06.2021 for a period of 18 and 15 months respectively? It is quite surprising that FBR, in total contravention of existing law has the audacity to suggest which quarters’ credit would be allowable despite the non-relativity of an advance payment with the tax year in question.

FBR’s interpretation is patently unlawful as it gives it an opportunity to retain the taxpayer’s money beyond twelve months’ period. The concept of advance tax in itself is tortuous as businessmen are out of money, hampering their cash flow and depriving them of circulating the amount to earn more profits. This has become even worse due to first and second waves of Covid-19. Adding insult to injury, FBR wants to utilise that money without paying any compensation. Before 1997, under the repealed Income Tax Ordinance, 197, FBR was bound to pay 6% compensation on deposit of advance tax. Not only has the 6% compensation been withdrawn but on top of that in case of a taxpayer maintaining calendar year as tax year, the last two installments of March and June would be retained for 18 and 15 months respectively till the return becomes due on 30 September next following. There cannot be a worst scenario than this that a person is deprived of his money in the name of advance tax for such long lengths of time and that too without any compensation. It is further burdensome for the banks as they are required to pay advance tax on monthly basis whereas others on quarterly basis! What would be the position of adjustment of tax liabilities against excessive payment of advance tax? Does it mean that there will be point-blank refusal to adjust such payments on the grounds that they are not related to the immediately succeeding year but a subsequent one? Suppose if a deduction of tax is made from payment of a future contract to be executed after two years, the taxpayer has no right to claim its credit after a lapse of two years and must take credit in the year in which the deduction is made? What would be the position if instead of income he incurs loss in a return filed two years later? How would he justify his entitlement to the refund?

FBR’s own (mis)understanding about the existing income tax law is complicating matters rather than simplifying them. There was nothing in the repealed Ordinance to give rise to such interpretation although even then, we had strongly agitated the amendment in law where credit for advance tax was taken by FBR in the year in which it was received rather than carrying it forward to the relevant assessment year. History is witness that a few high-ups in the bureaucracy serving their own self-interests have played havoc with the income tax law and procedure creating gaping lacunae and unleashing a reign of mismanagement just to show that they have proved ‘more than efficient’ in achieving given targets—or was it just to cover up their own incompetence?

Presently, FBR is depending heavily on indirect taxes, withholding taxes and advance tax. In the past, FBR used coercive measures forcing taxpayers to make payments of advance tax even when not due (for future years) and then withholding refunds. It was under the fugitive Ishaq Dar and his team to show “extraordinary (sic) collection by FBR and IMF was looking the other way by giving Ishaq Dar 13 waivers. According to a report: “Conceding a couple of slippages in the last quarter ending June 30, 2016, Mr. Dar termed as “highly satisfactory” the government performance throughout the programme that included a total of 13 waivers by the IMF since the programme was contracted in September 2013”. The $6.4 billion bailout programme ended in August 2016 with IMF failing or ignoring over-reporting of FBR’s collection by blocking bona fide refunds and taking advances of billions. It is heartening to know that the present team of FBR is not resorting to such tactics. However, it has no resources to pay past withheld refunds by Ishaq Dar et al.  If pre-1996 position of advance tax is restored by the PTI Government, the taxpayers will be relieved of paying huge amounts under section 147 or taxes under harsh withholding provisions. Even otherwise such unjustified and anti-growth impositions should be suspended till the time businesses and individuals liable to pay these recover from the economic toll of coronavirus.

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The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)