' DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---This complaint has been filed by a practicing advocate in public interest with the request to the Hon'ble Federal Tax Ombudsman to take suo moto notice of a "highly controversial" amnesty announced through Notification No, S.R.O.
333(1)/2011 dated 2nd May, 2011, substituting clause 45A of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001 (the Ordinance) with the following:-- "(45A) (a) The rate of deduction of withholding tax under clauses (a) and (b) of subsection (i) of section 153 shall be one percent on local sales, supplies and services provided or rendered to the following categories of sales tax zero-rated taxpayers, namely:--
(i) textile and articles thereof;
(ii) carpets;
(iii) leather and articles thereof including artificial leather footwear;
(iv) surgical goods; and
(v) sports goods.
' Provided that withholding tax under clauses (a) and (b) of subsection (i) of section 153 shall not be deducted from sales, supplies and services made by traders of yarn to the above-mentioned categories of taxpayers. Such traders of yarn shall pay minimum tax 0.1% on their annual turnover on monthly basis on 30th day of each month and monthly withholding tax statement shall be e- filed under the provisions of section 165 of this Ordinance;
(b) provisions of clause (a) of subsection (i) of section 111 of this Ordinance shall not apply to the amounts credited in the books of account maintained for the period ending on the 30th June 2011, by the sellers suppliers, service providers to the categories of sales tax zero-rated taxpayers, as mentioned in sub-clause (a); and
(d) provisions of sub-clauses (a) and (b) shall be applicable only to the cases of sellers, suppliers, service providers of the above mentioned categories of sales tax zero-rated taxpayers, who are already registered and to those taxpayers who get themselves registered by the 30th June, 2011."
2. The complainant through his e-mail dated 10th May, 2011 sought certain clarifications from Member, Inland Revenue, F.B.R., by raising the following issues:- "(i) Whether under sub-clause (b) of newly inserted clause 45A, a blanket exemption from the provision of section 111(1)(a) of the Income Tax Ordinance, 2001 has been allowed to sellers, suppliers, service providers mentioned in the S.R.O.?
(iii) Whether the sellers, suppliers, service providers mentioned in the said. S.R.O. Are allowed to credit any amount in their books of accounts without paying any taxes, when neither any condition nor any limit has been prescribed under sub-clauses (a) and (b)?
(iii) Whether to claim the benefits under sub-clause (b) of clause (45A), a single transaction with the category of taxpayers of sales tax zero-rated shall be sufficient proof?
(iv) Whether the amount credited by such persons in their books of accounts up to June 30, 2011, shall be treated as income exempt from income tax in the hands of existing and new taxpayers fall under the category of sellers, suppliers, service providers mentioned in the said S.R.O.?
(v) Whether any amount credited by such persons in their books of account prior to issuance of S.R.O. 333(1)/2011 shall be exempt from, the provisions of section 111(1)(a) of the Income Tax Ordinance, 2001?"
3. 'As the complainant did not receive any response, he sought the indulgence of the Hon'ble FTO in the matter. On the intervention of the FTO Secretariat, the F.B.R. Issued Circular No, 6 of 2011 dated 18th June, 2011, clarifying the legal position with reference to Issues Nos.(ii), (iii) and (v) as reproduced in para 2 above. However, the complainant being dissatisfied with the clarification issued through Circular No,6 of 2011 sought further clarification through his e-mail letter dated 21-6- 2011 which was replied by Mr. Muhammad Imtiaz, Secretary, FBR, through e-mail dated 25th June, 2011, in the following terms:-- "(a) A single transaction with the five specified categories of Sales Tax Zero Rating Regime would make such exclusive sellers, suppliers or service providers eligible for the benefit available under S.R.O. 333(1)/2011 dated 18th May, 2011; and
(b) The provisions of section 111(1)(a) of the Income Tax Ordinance, 2001, shall not be applicable where such persons are already registered or will get themselves registered by 30th June 2011.
However this benefit is restricted to credit amounts appearing in books of account for the period ending 30th June 2011 only."
4. The complainant again approached the Hon'ble FTO with the following contentions against the officials of the F.B.R.:--
(i) The amnesty granted from the application of provisions of section 111(1)(a) of the Ordinance had been illegally and with ulterior motives extended to clauses (b) and (c) of the section 111(1) of the Ordinance without any approval from the Federal Government;
(ii) A bear reading of provisions of section 111 of the Ordinance proved that clauses (a), (b) and (c) were independent in nature and scope. Therefore a clarification issued through Circular No,6/2011 dated 18-6-2011 was not in accordance with the intention of the legislature communicated through S.R.O. 333(1) of 2011;
(iii) F.B.R. Was not legally empowered to check/audit the amount credited in the books of account of sellers, suppliers or service providers of five zero-rated sectors registered up to 30-6-2011 under the exemption/immunity from the provisions of section 111 of the Ordinance, as reported in the daily Business Recorder dated 23-6-2011;
(iv) The clarification by The F.B.R. That any person falling in the categories of five Sales Tax zero- rated sectors could claim any amount from income tax if he had maintained books of account and had made even a single entry therein was against the legitimate interests of the public exchequer.
5. Since the F.B.R. Failed to provide satisfactory clarification to the issues raised by the complainant, it was decided to hold a hearing on 12-7-2011. During the hearing, the complainant contended that the amnesty granted under S.R.O. 333(1)/2011 dated 2-5-2011 read with Circular No,6 of 2011 dated 18-6-2011 was discriminatory against the honest taxpayers who had regularly paid their taxes and the F.B:R. Was not legally competent to extend the scope of amnesty to the provisions of sections 111(1)(b) and (c).
6. The DR explained that the S.R.O. 333(1)/2011 dated 2-5-2011 granting the amnesty to sellers, suppliers and service providers to the five Sales Tax zero-rated sectors had been issued by the Federal Government as a conscious decision to expand the base/network of levy of Sales Tax. The DR also admitted that Circular No,6 of 2011 dated 18-6-2011 extended the scope of amnesty to the provisions of section 111(1)(b) and (c) which was never the intension of the Federal Government or F.B.R. He agreed that there was a need to issue another Circular to remove the ambiguities/omissions and to accommodate the legally correct point of view of the complainant.
The DR requested that the F.B.R. May be provided an opportunity to deliberate on the issue in detail and issue a new Circular to alleviate the doubts and apprehensions shown by the complainant.
The request of the DR was accepted and the hearing post-pond.
7. The F.B.R. After detailed discussion with the complainant issued a new Circular No,8 of 2011 dated 21-7-2011 addressing all the questions/observations made by the complainant.
8. The complainant after having carefully studied the above referred Circular and vide e-mail dated 4-8-2011 showed his satisfaction thereon. He appreciated the intervention of the Hon'ble Federal Tax Ombudsman in saving the F.B.R. And a large number of taxpayers from lengthy and costly litigations which would have emanated from the ambiguous and illegal clarification issued through the rescinded Circular No,6 of 2011 dated 18-6-2011.
Findings:
9. The issuance of Circular No,6 of 2011 dated 18-6-2011 and subsequent clarificatory letters by the F.B.R. Being contrary to law was tantamount to maladministration under section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.
Recommendations:
10. F.B.R. To-
(i) issue a letter of thanks to the complainant for saving the Federal Government/F.B.R. From a potentially lengthy/costly litigation process;
(ii) ensure that any Circular under section 206 of the Ordinance is not properly vetted from the Ministry of Law, before its issuance;
(iii) set up a committee of experts to provide feed-back that no Circular is amenable to routine misuse and mis-interpretation; and
(iv) report compliance within 30 days.