Transcript Slide 1

Tax Reform Era --Role of Professionals
BY
Younus Rizwani Sheikh
President APTBA
at
Asia Pacific Tax Conference 2006
I would like to take this opportunity to thank the organizers of
the seminar for inviting me to express my views on the Tax
Reforms Era – Role of professionals. From the time Income
Tax Act, 1922 was promulgated in undivided India,
Professionals have always played a major role in the
implementation of the tax laws. When Pakistan achieved
independence in 1947 the tax machinery of Pakistan was in
its teething state and was looking to eminent tax practitioners
who had practicing tax before pre-partition days for
assistance in the collection of the taxes by the new
Government. At his juncture, these tax practitioners
motivated the business community to pay their due share of
taxes so that a strong foundation can be laid. The Income
Tax Bar Association, Karachi was established in 1956 by a
group of eminent tax professionals a numbers of whom like
Mr. Iqbal Naeem Pasha, Mr. Masood Ahmed Abbasi, Mr. H.
Shaban are still present in our midst and are playing their
role in the tax development in Pakistan.
From the time ITBAK was formed the bar took itself the task
of apprising the government in power with the needs and
the difficulties being faced by the tax payers and the
members of the Bar, and every year proposals were sent to
the government for amendments in the I.T.Act /ordinance
and critical evaluation was made and sent to the
Government authority in respect of the amendments to be
made in the I.T statutes.
The role of professionals was not only appreciated in
Pakistan but also in India where huge crowds used to
gather to listen to the comments of that great tax
practitioner Pakiwala’s comment on provisions of the
Finance Acts. In both these countries the governments had
also recognized the potential of the tax professionals and
were inducting them in various committees & task forces
formed to initiate and evaluate various tax reforms.
In Pakistan, stalwarts like Mr. Iqbal Naeem Pasha, Mr.
Rehan Hassan Naqvi, Mr. E.U.Khawaja, Mr. Siraj-ul-Haq
Memon, (Late) Mr. Z.H.Jafri were inducted into various
committees and now no committee formed by the
government on tax legislation is considered to be
complete unless it includes my fellow panelist Syed
Shabbar Zaidi. All these professionals had voluntarily
and without any honorarium devoted considerable time
and input for the effective completion of the assignments
entrusted to these committees.
Legislation of tax laws though is a major part of taxation
but the development of the tax laws can not be complete
without its effective interpretation by the courts, and a
number of professionals have played a major role in
assisting the courts in the implementation of the tax laws.
The decades of 60 & 70 were dominated by tax wizards
such as Late (Justice) Noor-ul-Arfeen, Late (Justice)
S.S.Nusrat and Mr. Ali Ather. In 80s & 90s the trio of Mr.
Iqbal Naeem Pasha, Mr.Rehan Hassan Naqvi, who can
also be called as Baba-e-Writ and Mr. Siraj-ul-Haq Memon
have played a major role in the development of tax laws. I
will be failing in my duty if I fail to give credit to that
Honorable Judge who during his tenure of judgeship in
High Court & Supreme Court authored approx 150 trend
setting judgments in which most of the thorny issues of
taxes were settled. He is none other then my lord Justice
Saleem Akhtar who has recently retired as a Federal Tax
Ombudsman.
Presently my lords Justice Nasim Sikandar of the Lahore
High Court & Mr. Justice Mujibullah Siddiqui of Karachi
High Court are laying new precedent in the field of taxation
The concept of taxes in Pakistan underwent a drastic
change when the mantle Finance Ministry was adorned
our Prime Minister Mr. Shaukat Aziz. His tenure is now
regarded as a tax reform Era and these tax reforms
began to be efficiently implemented when the present
incumbent of the post of Chairman CBR Mr. Abdullah
Yousuf took over his office.
The Income Tax Ordinance, 2001 is based on the concept
of voluntary compliance backed by strong audit.
The provisions of this Ordinance and the amendments
made by Finance Act, 2004 have come as a very
pleasant surprise and have strengthened the faith in the
credibility of the Government and its intention to the
taxpayers to carryon a taxpayer friendly policy.
A number of proposals, which the various associations
were craving for a number of years have been
incorporated in the new Finance Act. For a change instead
of nullifying the judgements of the Superior Courts an
amendment has been made to give effect to the judgement
of the Lahore High Court Rawalpindi Bench. The rate of
Sales Tax, additional tax and penalties under the Sales Tax
Act, 1990 which to start were very high and arbitrary have
been rationalized. The process of Sales Tax Registration
has been simplified, anomalies have been removed from
section 73 and other controversial sections. The Custom
Tariff has also been rationalized.
The Post Finance Act 2004 era has also been full of
surprises. Refunds, which were deemed to be unrecoverable are being received by the taxpayers through
mail.
Communication between the taxpayers and the tax
collectors are restricted to correspondence only and no
direct communication is being made. Tax Education and
Tax Facilitation are at their incredible best and for the
first time the taxpayers are being given their due
respect. This is a clear indicator of the Government’s
efforts to make tax payer friendly reforms.
There are definite positive vibes emanating from the
Government’s action and I hope the taxpayers will
respond to the positive vibes emanating from the action
of the Government and start fulfilling their national
obligation in true national spirit.
At this point, I am reminded of the following couplet of
Khumar Barabankvi:
SUNA HAI QAYAMAT QARIB AAH RAHI HAI
KHUMAR AB MASJID KO JANAY LAGAY HAIN
And note that Khumar has started going to Masjid it is
the bounden duty of us, professionals to play our role to
ensure that Khumar i.e. CBR continues on its reform
agenda which is only possible if the visit to Masjid results
in acceptance of his prayers i.e. enhanced collection of
revenue.
The government has laid a great trust on the tax payer and
under the provision of section 120 of this Ordinance, the
return filed by a taxpayer unconditionally is converted into an
assessment order and the only tools available with the
department are either amendment of the assessment under
the provision of sub-section (5) & (5A) of section 122 or
selection of case for audit under the provisions of section
177. Despite the fact, that the procedure of finalization of the
assessment has been simplified but due to complex form of
return more than 75% of the tax payers still prefer to get
their returns prepared and filed through tax professionals.
The preparation and filing of the return casts a very heavy
responsibility on the professionals preparing the return.
Since, the department is committed to unconditionally
accepting the return filed by the taxpayer and converted
automatically into an assessment order it becomes the
sacred duty of the tax professionals to assume their role of a
tax assessor in addition to his role as a tax advisor and
motivate his client to file a true and correct return of
income as under the new law there is no possibility that a
correct return will be rejected and arbitrary assessment will
be made, which acted as a deterrent in the pre-reform era
for the taxpayer to reveal their true state of affairs. I
therefore, feel that in this post reform era the role of the tax
professional has not been minimized but has been
enhanced to a large extent.
In the pre-reform era, the avowed intention of the revenue
was to eliminate the professionals whom they insultingly
referred to as the middleman and establish direct contact
with the taxpayer. However, the amendments made in the
Ordinance and the measure introduced by various Finance
Ordinances to practically implement the government
reform policies, a number of roles have been provided to
the professionals for the implementation of the tax laws.
Vide Finance Ordinance, 2004 the concept of Alternate
Dispute Resolution (which is now invoked in all over the
world for settlement of legal disputes) was introduced in
the Income Tax Law by incorporation of section 134A
similar amendments were also made in the Sales Tax Act,
1990, the Customs Act, the Federal Excise Act and the
repealed Wealth Tax Act, 1963.
As pointed out above, this concept has been incorporated
in all the revenue acts and the revenue authorities are
encouraging the taxpayers to resolve their disputes and
hardships through mediation through the alternate dispute
resolution committee. Great importance has been
attached to the professionals and in almost every ADR
committee consisting of maximum three numbers. One to
two members are almost always from the selected panel
of professionals like chartered accountants, advocates
and tax practitioners.
In this way, the professionals have been saddled with the
very important responsibility of mediating the disputes
between the revenue and the taxpayer and submitting
their recommendations to the Central Board of Revenue
for resolving the dispute and hardship. Despite the fact,
that under the law, CBR is not bound to accept the
recommendations of the alternate dispute resolution
committee but practically it has been seen that in more
than 80% of the cases, the recommendations made by the
ADRC have been accepted by the CBR and appropriate
orders on the basis of these recommendations have been
passed, which have been implemented by the
department. Therefore, the role of the professionals is no
longer limited to tax planners and advisors but has been
extended that of adjudicator and therefore, now he is
required to look at both sides of the problems and sort it
out in accordance with his conscience and provide even
handed justice.
I am sure that my fellow professionals will handle their
assignments as members of the ADRC impeccably and
within a few years more than 90% of the disputes and
hardships will be mediated and disposed-of by the
ADRC.
In almost all the revenue laws including the Income Tax
Ordinance and the Sales Tax Act the revenue
authorities have been authorized to appoint a firm of
Chartered Accountants or Cost and Management
Accountants to conduct special Income Tax audits and
Sales Tax audit. . This audit is different from a normal
audit of the accounts as in this audit, the auditor is also
expected to point out the discrepancies in the accounts
as far as they relate to the infringement of the
provisions of Income tax Ordinance and Sales Tax Act
and also recommend to the tax authorities the action to
be taken to retrieve the loss of revenue, if any.
I am of the view that while conducting these audits, the
professionals enjoy immense power to conduct all sorts
of enquiries and inspection and examination required to
arrive at the correct state of affairs. I would advice my
colleagues to conduct these audits in a judicious
manner without fear or favour and finalize the
recommendations on the basis after carefully
considering the provisions of the act / ordinance under
which they have been assigned this audit.
However, at this juncture had been frankly concede that
the tax reforms initiated by the government may result
in complete elimination of those professionals whose
main assignment consisted of preparation and filing of
return and finalization of assessment on routine and
mechanical basis.
Let me warn my fellow professionals that in the post
reform era when less and less documents are required to
be filed the process of assessment has been minimized to
negligible extent. Only those professionals would survive
who are well versed in the taxation and revenue laws and
are capable of advising and opinions on various
provisions of tax laws and conducting cases before the
department where returns are selected for audit or where
amendment is sought to be made u/s 122. I apprehend
that the profession of the Income Tax practitioner will
become a seasonal profession like in other countries
specially USA, where tax professionals are engaged by
companies during the season of preparation and filing of
returns. To protect the interest of my fellow professionals, I
recommend that it should be made complusory that every
return filed should be certified by an Advocate or
chartered accountant or income tax practitioner. By
making this recommendation, I expect that my fellow
fellow professional will respect this trust if it is imposed
on them by government and only certify the return only
after examining and ascertaining its authenticity. I would
also request the government to make a law like the one
in the legal practitioners and bar council act that every
tax payer declaring an income of above certain limit must
compulsorily appoint a tax retainer.
As pointed out by me in earlier part of this paper, the
association of tax practitioners have a major role to play
even in this post tax reform era these associations have
initially to play the role of a watch dog which means that
these associations should be monitoring the
implementation of the tax policy of the Federal
Government and ensure that the Federal government
does not back out of its commitments.
We should however, not hold brief for the tax evaders
and the dodgers and should never recommend any
proposal which may need to ramped tax evasion.
Another important area in which these associations
should function is to act as a lion between the tax
payers and the tax collectors. We should bring the
genuine difficulties and problems faced by the
taxpayers to the notice of the tax collectors and
recommend measure by which these difficulties
problems can be dissolved. We must also propagate
any policy of the government, which according to us
the continuation of the reform process and will be
mutually beneficial and lead to the economical
development of the country and motivate the tax
payers to say LAB-BAIK and assist him in
implementation of that.
In return, we must also be continue our old job of
presenting proposals for positive amendment in the
revenue laws and critically review the amendments
made in the revenue laws by the government. We
should also be advising the government on how to
attract foreign investment and want incentive offer to
foreign investors, which may result in economic
development of the country. In return, we expect that
the doors of the revenue authorities would always open
for us and our proposals are thoroughly examine before
their acceptance or rejection and any criticism made by
us on the government policies may be taken in correct
spirit. I would also recommend that professionals
should be more in the efforts to promote foreign
investment and should be a part of all the delegations
and committees, which are interested with the task of
soliciting foreign investment.
I would like to ensure the federal government if the
recommendations made by me through this august forum
are implemented in later and spirit and the role of
professionals is broadened it may lead to a substantial
broadening of a tax base, which I regret to say is one
target the CBR has failed to achieve in last 59 years
despite all the resources at their command.
I would urge all the stakeholders, the revenue
department, the professionals and the taxpayers to unite
so that we may achieve what should be the ultimate goal
of all of us un-presented economic growth of our beloved
country. I would once again thank the organizers of Asia
Pacific Tax Conference for inviting me to make this
presentation and would like to admit that it gives me
immense pleasure to communicate with such a elite
audience .