To recall, the National Budget for the fiscal year 2017-2018 got dramatically passed in Parliament with the decision of stay for introducing the VAT Act 2012. VAT Act 2012, which was supposed to be introduced from July 01, 2017 has been stayed for next two years because of some arbitrary and illogical laws included in the proposed VAT Act 2012. The business community was very much vocal not to accept the VAT Act 2012, until it is amended further in keeping with the interest of the businesses and consumers.
Ultimately the Prime Minister, sensing trouble, had come forward to declare stay of VAT Act 2012 for the next two years and further scrutiny of the VAT Act by an independent committee to be formed so that all arbitrary and inconsistent laws could be avoided. But the proposed fiscal estimates remained unchanged. So, the budget estimates of Tk 4.02 trillion is yet to be reconsidered and revised in the light of the suspension of the VAT Act 2012 and relevant amendments in the finance Act 2017-2018, as may be required.
While going through the Finance Act, 2017 we find that this year also as many as 45 sections are either revised or amended or replaced. Some sections are found very lengthy and critically presented; it is very difficult to understand the content of some laws. Some sections are found to be duplication of other sections. There are sections which found to be the repetition of other sections. The contents of some laws have been made clumsy and ambiguous.
FINANCE ACT 2017: We now discuss a few sections of the Finance Act 2017 which may give some impressions about the amended laws.
Amendments have been made in clause 62A, of section 2 fixing the date of submission of Tax Return by the assessee company only. The language inserted after the word, "Income Year" followed by the words "or the fifteenth day of September following the end of the income year where the said fifteenth day falls before the fifteenth day of September". The law is intended to mean, tax return should be submitted within 15th September following the end of income year. In case income years fall before the 15th day of September, the submission of Return should be filed on 15th September. This law is applicable in case of assessee-company only. We do not find any justified reasons for presenting this in such a complicated language. Possibly the National Board of Revenue (NBR) was in a dilemma in fixing the date for submission of tax return in case of an assessee company. It should have been as under:
(1) Company whose "income year" ends on 30th June, the Tax return be filed by 15th January of the next year.
(2) Company whose "income year" ends on 31st December, Tax return be filed on 15th September of the next year.
Amendments have been made in sub-section 28 of section 19 of the Income-tax Ordinance (ITO) 1984. Here, a new proviso is attached under sub-section (28) which says nothing of this sub-section shall be applicable to a loan or gift from spouse or parents if any banking channel or formal channel is used in the process of such a loan or gift. It is not understood as to why other classes of people are denied of this benefit.
Amendment is also necessary in sub-sections (1), (21) of section 19. Our view is that when the identity of the Debtors/Creditors are established and banking channels used are disclosed by the recipient of loan, the process of such loan or gift may also be accepted. Amendment should also be brought in other sub-section of section 19 to remove all sorts of ambiguity in law.
A replaced sub-section 31 of section 19 has been inserted: Where an assessee files revised return or an amended return u/s 78, 82 BB or 93 and shows any income which is subject to tax exemption or a reduced tax rate, such income exceeding the amount shown in original return shall be deemed to be the income of the assessee for that income year classifiable under the head" Income from other source". But exempted income is an inherent right of an assessee on which charging of tax is undesirable.
This point could be discussed in the relevant section 78, 82 BB and 93. There is no need for duplication of the law to confuse the assessee.
A new clause (aaaa) under section 30 has been introduced under which any payment made after tax day, when the employee is required to file his return income but fails to file the return before tax day, or fails to obtain time extension as the case may be, shall not be admissible under tax law. This is very harsh for the assessee as there is a provision to charge fine for delayed submission of Return with payment of Tax.
The previous "Proviso" of section 52 has been withdrawn and a new "Proviso" has been inserted. Under this:
(a) The rate of Tax shall be 50 per cent higher if the payee does not have twelve digits tax payers identification number at the time of making payment.
(b) Tax shall not be deducted from supply of goods in respect of purchase of direct materials that constitute cost of sales or cost of goods sold of a Trading Company or a manufacturing company as the case may be. Then who is to determine cost of sales or cost of goods of a manufacturing company-- in case of purchase of direct materials from local market?
(c) Where any imported goods on which tax has been paid at source under section 53 is supplied, the TDS on the said supply shall be B-A where,
A=the amount of Tax paid u/s 53
B=the amount of Tax applicable under this section if no Tax was paid u/s 53.
New clause (o) after clause (n) of section 30 has been brought under which any payment made to a person under section 184 (xxviii), (xxix) and (xxx) shall require submitting a twelve digit TIN number and if failed to submit, shall not be acceptable to the tax authority. Sub-section 3 of section 184(A) had already contained the above conditions; there is no need to repeat this section again for section 30(o) of ITO 1984.
Existing Section: 53E is fully withdrawn and a new section 53 E has been inserted in the Finance Act 2017. This section is related to deduction, collection of tax from commission, discounts, fees, incentive for the distribution or marketing of the goods.
(1) Tenancy Deposit Scheme (TDS) rate is 10 per cent on the payments of discounts, commission, etc. or benefits allowed
(2) Any company making payment in relation to promotion of the company or its goods to any person is entitled to discount or commission. Such discounts, commission is subject to tax @1.5 per cent on the payment.
(3) Any company other than an oil company, which sells goods to at a price lower than retailed price fixed by such company, shall collect tax @5 per cent from
(a) any distributor, or
(b) any other person under a contract in the following manner.
On the amount equal to B*C where
B= The selling price of the company to the distributor or the other person
C= 5 per cent
Cigarette Company shall collect tax @3 per cent or the difference between sale price and retailed price payable to distributor or any other person and the retail price fixed by such company.
(4) This sub-section is also includes,
(a) "Payment" includes a transfer, credit or adjustment of payment.
(b) Contract includes all agreements whether written or not
This section has restricted the free operation of business by creating some arbitrary and contradictory law in order to collect tax.
This sort of collection is detrimental to business.
An "Explanation" is attached under the Section 73. Amendment includes the words "Regular Assessment" includes acceptance of revised return or the assessment made as a result of the audit under section 82 BB (7) is placed additionally in the section 73.
The question of audit is related to section 82BB only. Application of effect of audit may not be fit to be included in section 73. This is an arbitrary law and not maintainable. This point may be included in section 82BB only.
The existing section 73 A is amended to withdraw clause (i) and in its place a new clause (i) is inserted. It says, a return when assessed under section 82BB, and if tax under any other section, of section 82BB is found higher than the sub-section (ii) of that section, the higher tax will be applicable.
Higher Tax rate under 82BB cannot be basis for the section 73A. This amendment should be made lawfully & clearly.
The previous Section 82BB has been thoroughly revised again in the Finance Act, 2017. This section has been revised several times in the past including the preceding year 2016-2017. Every time for the acceptance of the Return of the asseessee, some sort of conditions and restrictions were brought into clauses of sections by the tax authority. For this the law had become complicated and critical to comply with by the assessee. This time, the section has expanded like anything and covered, under 9 (nine) pages of the Finance Act 2017. This is amusing when more sections are available for assessment of income in the Tax Act. An assessee will not be interested to file Return u/s 82 BB.
The earlier Section 82C has been thoroughly revised. That word, "Minimum Tax" on income has been spelt out in clause (b) of sub-section (2) of section 82C. It is also mentioned in the law that in certain cases, tax collected or deducted shall not be treated as "Minimum Tax" but Maximum of Higher Tax (Refer Section 52), such as:
(a) Contractor of an oil company
(b) Oil marketing company
(c) Any company engaged in oil referring
(d) Any company engaged in gas transmission or gas distribution
(e) Tax collected u/s 52
(f) Tax collected u/s 53
(g) Tax collection u/s 53 F
Section 82 C also includes a clause (d) of sub-section (2) under which calculation of minimum tax shall be made at the rate indicated in each section/under chapter VII. At the same time, calculation may also be made by using regular rates on such income. If tax so calculated is higher, the higher amount shall be payable. This is also likely to be an unfair proposition.
Existing Section 93 has been reconstructed to include several new terms and conditions. The new section contains as many as 9 sub-sections together with many clauses, sub-clauses, paragraph and sub-paragraphs.
This section is applicable to an assessee when the DCT has reason to believe that any sum payable by assessee under this ordinance had escaped payment of tax in any assessment year.
Notice may be served by the Deputy Commissioner of Taxes (DCT) on the assessee with the prior approval of Inspecting Joint Commissioner of Taxes in the following cases when
(a ) No return is filed and no assessment is completed
(b) Within six years no return is filed from the end of the relevant assessment year, or no assessment is completed.
(c) Within five years from the end of the relevant assessment year in any other cases.
To compute the period of limitation, any proceedings stayed by court, tribunal and any other authority shall be excluded.
Certain situations can be considered by DCT to have "escaped income "in the law which appear to be arbitrary and unlawful when we find that
(a) The income has been understated
(b) Excessive loss deduction allowance or relief in the return has been claimed,
(c) Misreporting of any assets, expenditure
(d) Income chargeable to tax has been under assessed
(e) Income that is subject to tax has been made the subject of Tax exemption
(f) When excessive Relief or excise loss are allowed.
It is not fair to treat the above situations as "escape Assessment", rather DCT has the right to re-open the file to rectify the case u/s 173 of IT ordinance 1984.
The previous section 173 has been amended to insert sub-section (I)
& I (A).
The section is amended for authorising Appellate authority and DCT in case of errors committed under section 173 (1) & 173 (1A). Here, the DCT has been given power by the finance act, 2017 to rectify any claim if he finds the claim to be valid and correct. The claim of correctness arises when DCT failed to allow tax credit or inadvertently, if he fails to allow genuine claim of an assessee. This is rectifiable by the DCT on his own motion or he may reject the case for some reason or other. In that case, Appellate authority has the power to direct DCT to admit the rectification or reject the claim.
But power given to DCT, to determine the validness/correctnerss of claim appears to be detrimental to the interest of the assessee and may face harassment.
Paragraph 33 has been revised thoroughly in the Finance Act 2017, directing assessee to comply with the provisions of section 75 of the ITO 1984 by replacing the sub-section 75 (2) (C) of ITO 1984.Under sub-section (5) of section 44 (1) of ITO 1984, the benefit of tax free income is restricted for the assessment year 2016-2017.
Such direction was not found in the Act up to Assessment year 2015-2016, thus the law contained a legal lacuna in paragraph 33 and the law become a mischief for its compliance.
These points need to be resolved in the interest of the business communities of IT sector for the previous years whose appeals are unnecessarily being turned down by the appellate authority.
The assessing officers and appellate authority are unnecessarily adopting assumption and presumption to impose tax on the assessee unlawfully. This should be taken care of for the cause of justice and equity.
VAT RATES: In this connection, we would like to write a few lines about VAT. Fixation of reasonable VAT rate is the prime demand of the business community. Long five years have elapsed in resolving the issue by the Revenue authority. As far as we understand, VAT problem has been the creation of revenue authority. It has created several categories of VAT rates, i.e. flat rates at 15 per cent truncated rates varying from 4% to 10% or more. This has created discrimination in the rate of VAT among the VAT payers, without considering its overall effects in the society.
At the moment, according to VAT Act, VAT payers are producers, manufacturer, importers, suppliers and service providers. But the rates for collection of VAT from these categories of VAT payers are quite different. Some pay VAT and get back from next buyer, in addition to rebate, discount commission etc. While others are paying VAT but without any recovery, particularly in case of professional service providers.
The Prime Minister had rightly understood the situation and ordered for constitution of a committee to look into the issue to have a healthy and business-friendly Act for future.
In our view, the members to be picked up for committee should have enough knowledge and expertise in the field of VAT operation.
We recommend a team of professionals like Chartered Accountants for analysis of the VAT issue and frame policy for VAT collection, Cost Accountants for finding out acceptable rate of VAT and Base Value of VAT for charging VAT, Economists to look into the economic implications, ex-judges of the High Court to oversee the suitability of the new law, ex Members (Customs & VAT) to put their practical experience and knowledge of VAT application and finally the Bureaucrats from VAT related ministries to have a acceptable VAT Act. Here, the government may consult the procedures adopted by neighbouring countries for implementation of their VAT policies.
The writer is an FCA and ex-Chairman of Karma Sangsthan Bank, tax Adviser of Sonali Bank Ltd.
akhterzamil@yahoo.com