Recent Tax Measures to Combat

TAX EVASION

Among many reasons of low tax-to-GDP ratio, tax evasion at corporate and non-corporate levels is the principal one. Tax-registered persons are much fewer than the persons who are liable for registration under tax laws. Even the registered persons try to evade taxes by under-reporting their taxable incomes. A large number of registered taxpayers file below-taxable income tax returns. Moreover, size of withholding tax regime is quite large but tax evasion in this regime, too, cannot be overruled.

In order to control tax evasion, a number of measures have been announced in the recent past and this article discusses those briefly.

Compulsory online integration of services sectors

In order to determine their income and income tax liability, the Federal Board of Revenue (FBR) has made it compulsory for various services sectors and retailers to integrate online with its computer system to facilitate online sharing of transactions. For this purpose, the FBR has issued SRO779(I)/2020 on 26 August 2020 to amend the Income Tax Rules, 2002, to provide new rules for online integration of businesses.

Under the new rules, services sector, including restaurants, hotels, clubs, travel services, courier and/or cargo services, beauty parlours and/or clinics, medical practitioners and/or consultants, laboratories, hospitals, health clubs and/or gyms, photographers, accountants and retailers are required to install electronic fiscal devices and software, as approved by the FBR, for the documentation of all their sales or services transactions. These businesses will be required to ensure the integration of all their establishments within one month after the FBR puts into operation a system of accredited secure devices and real-time communication of bills and other data. These businesses have to notify the FBR of all the establishments from which they are carrying on business, and register each point of sale with the computer system. Taxpayers, who are found to have tampered with the system or those who have issued invoices or bills otherwise than through the approved electronic devices, shall be liable to penalty or punishment.

Rules regarding real-time electronic access for audit and survey

On 21 September 2020, the FBR inserted new Chapter VIAB (Real-time Electronic Access for Audit and Survey) into the Sales Tax Rules, 2006, (Rules) through SRO 888(I)/2020 of 21 September 2020, for the purpose of real-time electronic access to the premises, stocks, accounts and record of the registered person or survey of person liable to be registered. The registered person is obliged to provide continuous and full real-time electronic access to the premises, stocks, record, accounts and data required by an officer authorized by the FBR or the Commissioner Inland Revenue (authorized officer) as provided under section 38 of the Sales Tax Act, 1990. The Rules empower the authorized officer to have real-time electronic access to:

• the operation of any computer system which stores, generates or receives data related to taxable activity;
• supporting documentation (including file structures), operational and technical manuals, audit trail, controls, safe keeping and information on how the accounting system is organized; and
• any premises or place specified where any stocks, business records or documents required are kept or maintained.

A registered person is obliged to provide data on SAF-T files on XML format as approved by the FBR. The SAF-T files shall, inter alia, include account books, including journals and ledgers, bank details and bank statements, inventory record, record of sales of goods, record of purchases, including exempt purchases against which no input tax claimed and detailed record of invoices, including sale invoices, purchase invoices, invoices for advance sale and debit/credit notes. A registered person is also obliged under the Rules as and when required to provide full and continuous access through video link to the business or manufacturing premises, registered office or any other place where any stocks, business records or documents required are kept or maintained.

Video analytics rules for electronic monitoring of production of specified goods

The FBR has amended the Sales Tax Rules, 2006, by inserting new Chapter XIV-BA (Video analytical rules for electronic monitoring of production of specified goods) through SRO 889(I)/2020 of 21 September 2020, to empower tax authorities regarding electronic monitoring of production of goods specified in the Third Schedule appended to the Sales Tax Act 1990 or goods notified by the FBR through specific order (specified goods).

Production of specified goods will be monitored through intelligent video surveillance and video analytics by installation of approved equipments such as video cameras, sensors, etc. at production lines, for:

• real-time collection of data that shows production through object-detection and object-counting;
• transmission of data to central room at the FBR on real-time basis, storage and archiving of data;
• detection of unexpected stops;
• quantitative analyses of production; and
• data analytics for required legal action.

The date for commencement of electronic monitoring of production of specified goods through video surveillance and video analytics will be notified by the FBR through a specific order.

Increase in punishment for tax crimes as predicate offences

The Anti-Money Laundering (Second Amendment) Act, 2020 (Act), was published in the Official Gazette of 24 September 2020. Besides introducing several amendments to the Anti-Money Laundering Act, 2010 (AMLA), the Act has enhanced punishment for the offence of money laundering, including tax crimes as predicate offences to be investigated and prosecuted under the AMLA, as follows:

A person other than a legal person but including any director, officer or employee of a legal person who is also found guilty will be liable for:

• rigorous imprisonment for minimum one year and maximum 10 years;
• a monetary fine up to PKR 25 million besides forfeiture of property involved in money laundering.

A legal person (companies, associations, foundations, partnerships, societies and any other legal person as may be defined in any other law) who is found guilty will be liable for:

• rigorous imprisonment for minimum one year and maximum 10 years;
• a monetary fine up to PKR 100 million besides forfeiture of property involved in money laundering.

 

The writer serves as Additional Director Intelligence and Investigation (IR), Federal Board of Revenue.