LAHORE - Around 1,200 so-called foreign companies, which entered into joint ventures with Pakistani firms and their owners became ‘resident persons’, are found to be evading tax, rather claiming refunds as their proprietors are portraying themselves as ‘non-resident persons’, inflicting about Rs300 billion annual loss to national exchequer.
Official sources in the FBR told The Nation that the foreign entrepreneurs, which are called ‘non-resident persons’ in technical language, are exempted from paying tax under the law. However, in some cases, their companies are bound to register themselves and enter into joint ventures (JV) with Pakistani companies or individuals, for which they have to get licence from Pakistan Engineering Council (PEC).
When the Non-Resident Persons enter into JV with locals, as per Income Tax Ordinance (ITO) section 84, their status changes to Resident Persons and they are bound to pay tax under section 153 (I) (c) of the ITO 2001. Official sources in the FBR said such foreigners or their companies, then, can neither claim any kind of refund nor can avail any exemptions and they are bound to pay full taxes on all kinds of contractual transactions.
Official sources said that the FBR Union in a letter, simultaneously sent to PPP chief whip in the national assembly, finance minister, all FBR members, all inland revenue chief commissioners and inspection and intelligence director general, etc., tried to unveil the scandal of Rs300 billion per annum loss to national kitty which some FBR high-ups were trying to cover up. In that detailed letter, backed by concrete calculations and strong ‘evidence’, the union has made out that over 1,200 such resident companies are not paying taxes despite that some of them have lost cases in the court of Federal Tax Ombudsman (FTO). Following the FTO decisions in favour the department, the FBR, instead of issuing a circular to collect taxes, is favouring them by keeping silent, sources said.
A letter from the information processing division commissioner of the Peshawar RTO (regional tax office) inland revenue, bearing No.43 and dated 18-5-2012, revealed that the high-ups of the FBR got transferred assessment record in various cases (frontally elevated as ‘non-resident’) from Peshawar RTO to Islamabad just to favour certain companies. It was Peshawar RTO Inland Revenue Chief Commissioner Qaiser Alias, who was first to dug out a case of such tax evasion and availing of exemptions.
The commissioner, in the case of a Chinese company (M/s China International Water & Electric Corporation, Malakand), observed that: “On the basis of law i.e. sections 84, 153(6), 169(1)(b) and 169(3) of the Income Tax Ordinance (ITO), 2001 and quoted facts, it was concluded that neither any refund could be created nor issued. Hence, tax deducted is final tax and it comes under the ambit of Presumptive Tax Regime for tax year 2010 that’s why the refund claim for tax year 2010 amounting to Rs400,294,216 has already been rejected under section 170(4) of the ITO, 2001 on 19-2-2011.” “He said that in accordance with the provisions of sections 153(6), 169(1)(b) and 169(3) of the ITO, 2001, the tax deducted from this Association of Persons will be final tax irrespective of their filing of return of income/statement. According to the said provisions of law, neither any refund can be created nor issued as well. Under section 54 of the Income Tax Ordinance, 2001 no provisions in any other law shall have legal effect unless also provided in this Ordinance. The control and management of the Association is situated in Pakistan.
Here in this case when Permanent Establishment of the non-resident company wholly or partly or at any time in the year constitutes an Association of Persons, it will be a resident Association of Persons u/s 84 and tax deducted will be final tax and no refund is payable. Section 169(3) clearly speaks that whether the return of income or statement (of contractors showing deduction of tax) has been submitted or not, the tax deducted will be final tax.” As per FBR official sources, the commissioner observed that the non-resident company had concealed the facts and not declared itself as an Association of Persons or had not filed return of Association of Persons. Even then according to the provisions of section 169(3), the tax deducted from the AOP was final tax and no refund was due.
According to the sources, earlier, this company applied for refund, which was rejected by the then commissioner (enforcement). The non-resident taxpayer also filed complaint before the FTO, Islamabad and alleged that commissioner’s rejection of their refund claim was malafide and he must be punished for it. But the FTO rejected that complaint.
However, the FTO directed FBR to formulate a uniform policy in these cases. As per FTO Ordinance, in case of disagreement with the verdict of the FTO, the complainant may file representation before the President of Pakistan but in this case, the complainant didn’t avail it. Thus verdict of the FTO attained finality.
Official sources said that Muhammad Younas Khan, the predecessor of the present Peshawar RTO inland revenue chief commissioner, has already passed two orders u/s 122B of the ITO, 2001, cancelling thereby the exemptions granted by the then commissioner in view of the board’s SRO No.586 (1)/91 dated 30-6-1991 in the subject cases.
Mian Abdul Qayyum, central president of the Federal Revenue Alliance Employees Union CBA, told The Nation that the department union, in a letter to the FBR high-ups, has made it clear that such type of other AOPs indulged in the business of contract which covered by the dictation of law under Presumptive Tax Regime and tax thereon constitutes full and final tax liability therefore, grant of exemptions and issuance of refund in such cases is totally illegal causing a loss of revenue in bulk to the government exchequer.
Hence, it is advised in the interest of revenue impact to reject the exemption certificates forthwith and retrieve refunds issued in such cases, he added. He also proposed that the said cases may be re-opened under section 122 for the last five years and also retrieve the loss of revenue in trillions caused in those years.
He, quoting the experts, said that keeping in view the provisions of section 84, 92, 153 and 169 of the ITO, 2001 read with Pakistan Engineering Council Bye-Laws, 1987, all non-residents have constituted AOPs for all projects in Pakistan which can be verified by obtaining copies of contracts from Pakistan Engineering Council, Islamabad, therefore, tax deducted from Joint Ventures or Association of Persons is a final tax. Hence, neither exemption certificate nor refund in these cases may be issued.
He said it is expected that FBR can retrieve the loss of revenue approximately in 1200 cases of alike nature of non-residents. Mian Abdul Qayyum, observed that the Federal Revenue alliance Employees’ Union (FRAEU) would keep on its strenuous efforts in the best interest of revenue accountable to government exchequer along having observance of common interests of the Federal Board Revenue.
He said that the budget of FBR now being fixed on the basis of 40pc of the declared income, still the 60pc income is escaped income, which can effortlessly be enhanced to an extent of at least 80pc of declared income. The institution has absolutely a fit to achieve the budgetary targets fixed for the year but also meet with the entire budgetary targets of Pakistan.