Either 214D or 214E
It all started on July 1st, 2014, when the Finance Act 2014 came into effect; which introduced the concept of filer.
By Anthony Williams
Men are masters of the Universe and Women rule the World. The only place which is gender neutral is the quantum space and this is the secret behind the universal popularity of computing devices including the reason for their world-wide adoption. So how do computers, smart phones and smart devices work? Any computing device works by “Making Electrons Dance”. How do we get the electrons to do the work of connecting us to our friends (FaceBook), searching for answers (Google), expressing ourselves (Twitter), solving our tax problems (TaxDosti) and much more? By “Transformations” through a highly creative process inside the device, you hold in your hand.
The levels of transformation start when you touch your favourite app on the screen (your command to the computing device), next the device converts your touch into an algorithm, which is a step-by-step procedure that is guaranteed to carry out your command with “definiteness” for all “effective computability” commands. The next step is to transform this algorithm into a computer program, which is a “mechanical language” invented by humans for use in specifying a sequence of instructions (commands) to your computing device. As we come near to making electrons dance to our commands, the next step is to make the computer program (a logic tool) move the hardware of your computing device through the “Instruction Set Architecture (ISA)”, which is the complete specification of the interface between programs that have been written and the underlying hardware that must carry out the work of these programs.
Which brings us to our final transformation, the microarchitecture of your computing device and the “Logic Circuits” which carry the electrons and conduct their dance according to the type of computing device, you have with you to use your favourite app(s). The purpose of this article is to explain the recent move by the Federal Board of Revenue (FBR) of sending One million and twenty two thousand (1,022,000) audit notices to about Six hundred thousand (600,000) Pakistani taxpayers for late filing their tax returns for the tax years 2015, 2016 and 2017 and why these six lacs Pakistani taxpayers are “Dancing in Anger”.
It all started on July 1st, 2014, when the Finance Act 2014 came into effect; which introduced the concept of filer, who is a person who files his/her annual income tax return in Pakistan and whose name appears on the “Active TaxPayers List (ATL)” and a non-filer who is not a filer (see previous article Tax non-filer in Pakistan). Being a filer gave you certain benefits like reduced rate of taxation on different transactions and being able to buy certain assets. Before the concept of filer in the Income Tax Ordinance 2001, the only persons required to file their tax returns (and so be filers for tax purpose) were clearly mentioned in Section 114 of the tax law. 114-Return of income.(1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:–[(a) every company;], [(ab) every person (other than a company) whose taxable income for the year exceeds four hundred thousand (400,000) for the year;[or], [(ac) any non-profit Organisation], [(ad) any approved welfare institution;], [(b) any person not covered by clause [(a), (ab), (ac) or (ad)] who, (i) has been charged to tax in respect of any of the two preceding tax years;
(ii) claims a loss carried forward under this Ordinance for a tax year; (iii)owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory1[;], [(iv) owns immoveable property with a land area of five hundred square yards or more located in a rating area;], [(v) owns a flat having covered area of two thousand square feet or more located in a rating area;], [(vi) owns a motor vehicle having engine capacity above 1000 CC; ], [(vii) has obtained National Tax Number[; or] ], [(viii) is the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees [five hundred thousand] [;], [(ix) is [a resident person] registered with any chamber of commerce and industry or any trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan. This list makes it mandatory for every person mentioned in it, to file their income tax return before the due date every year.
Now, after July 1st, 2014 the tax law put in a new demand, that the people not mentioned in this list, like non-resident Pakistanis, people who are not in Pakistan for more than 181 days in any tax year; like nil income Pakistanis, which include students, house wives, unemployed persons, special talents persons also file their annual tax returns even if they have no income to declare (according to the elaborate principles and rules given in the tax law), in order to become filer and avail the benefits of being one. Naturally many such persons filed their tax returns for 2015, 2016 & 2017 at dates which were after the official due dates of filing. Then came Section 214D on July 1st-2015, which gave the powers to FBR to select all persons automatically for audit, if these conditions were met. 214D. Automatic selection for audit.—(1) A person shall be automatically selected for audit of its income tax affairs for a tax year, if the return is not filed within the date it is required to be filed as specified in section 118, or, as the case may be, not filed within the time extended by the Board under section 214A or further extended for a period not exceeding thirty days by the Commissioner under section 119; or the tax payable under sub-section (1) of section 137 has not been paid. (2) Audit of income tax affairs of persons automatically selected under sub-section (1) shall be conducted as per procedure given in section 177 and all the provisions of this Ordinance shall apply accordingly. All-in-All, this power is the reason of the recent one million audit notices sent by FBR.
The PTI Government in its wisdom has recently introduced another Section 214E, which gives the power to the affected taxpayers to close their audits, which were opened through Section 214D & 177 of Income Tax Ordinance 2001 by paying a minimum of Rupees Twenty Thousand for each year, without providing any information, documents and Books of Accounts relating to his/her declared version in the income tax return. In conclusion, the question is not for the taxpayers to ask themselves “Either 214D or 214E”? but the question is for the honourable Finance Minister, Asad Umar to ask himself “Do the FBR Guys think I an Electron and can they make me dance at their command” or “Am I the most powerful Minister, who can transform the FBR into National Tax Authority? (as recommended by Dr. Ikram-ul-Haq)”.
Anthony Williams is CEO of Tax Dosti and Professional Accounting Affiliate of Institute of Chartered Accountants of Pakistan (ICAP). He can be reached at taxdosti.com.