SHAHID MUSHTAQ VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2016 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1066 (2016)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 181 & 147---Finance Act (VII of 2015), S. 5(38)---S.R.O. No. 1076(I)/2015 dated 02.11.2015---S.R.O. 791(I)/2015 dated 10.08.2015---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3) & 10(1)---Maladministration---Registration of taxpayers---Filing of tax returns---Taxpayers identifier---Computerized National Identity Card (CNIC)---National Tax Number (NTN)---Scope---Contention of the complainant was that consequent to amendments in the Income Tax Ordinance, 2001 vide Finance Act, 2015; tax returns by individuals could be filed on basis of the CNIC without obtaining an NTN number by entering the same into the registration process and that NTNs are being forcibly allotted through the registration process, contrary to the provisions of the law---Validity---Amendments brought about by the Finance Act, 2015 required the 13 digit CNIC to replace the 7 digit NTN by virtue of which the CNIC became the taxpayers' identifier instead of the NTN; however, the requirement of registration of taxpayers had not been done away with by the Legislature and consequently all individuals salaried or otherwise, were obliged to get registered with the Department in terms of S. 181 of the Income Tax Ordinance, 2001---Taxpayers' registration process introduced by Department after said amendments went beyond mandate of law and subsequently S.R.O. No. 1076(I)/2015 dated 02.11.2015 was issued which introduced changes and helped harmonize operational procedures and requirements with the relevant changes in law---Complainant's concern was that the registration could be obtained on basis of incorrect information as there was no automatic check in the operating software and such checking would necessitate linkages with databases of all relevant sources of Federal, Provincial and Local Governments and other entities and such proposition was of vital importance which the Department could undertake as a policy objective---Federal Tax Ombudsman recommended the Department to remove deficiencies in its operating system and ensure smooth payment of tax and filing of returns in accordance with the amended provisions of law---Complaint was disposed of, accordingly.

Afzal Nau Bahar Kayani for Dealing Officer.

Waheed Shehzad Butt for Authorized Representative.

Raana Ahmed, Member IT FBR, Vishno Raja Qavi, Chief Tax Policy and Dr. Naveed Khalid, Secretary IT Policy for Departmental Representatives.

FINDINGS/RECOMMENDATIONS

ABDUR RAUF CHAUDHRY (FEDERAL TAX OMBUDSMAN).---The complaint is filed under section 10(1) of the FTO Ordinance, 2000 against the failure of the Federal Board of Revenue to implement the changes brought in income tax law through Finance Act, 2015 whereby the Computerized National Identity Card (CNIC) was made to replace National Tax Number (NTN). The complaint has a wider perspective impacting the public at large.

2.Basic issue raised in the complaint relates to the mandatory filing of income tax return by the salaried individuals after the amendment introduced in subsection (4) of section 181 of the Income Tax Ordinance, 2001 (the Ordinance) requiring the CNIC to be used as NTN for tax year 2015 onwards. The individuals deriving income from salary are obliged in terms of S.R.O. 791(I)/2015 dated 10.08.2015 to file income tax return electronically whereas the individuals earning income from sources other than salary could file the returns electronically or manually. The Complainant's view is that consequent to the amendment in law, returns by individuals could be filed on the basis of CNIC without obtaining NTN by entering into registration process and this process is contrary to the amended provisions of law as NTNs are being forcibly allotted through the registration process which is against the spirit of amendment in law.

3.On reference to the Secretary, Revenue Division in terms of section 10(4) of the FTO Ordinance, written comments have been received under FBR's letter dated 15.09.2015. The allegations have been refuted contending that the registration was a mandatory requirement for filing of return and the taxpayer was obliged to apply for registration as governed by the relevant income tax rules notified in this behalf. Further, the replacement of NTN with CNIC number was intended to create a single identifier for multiple transactions which the citizens make and the FBR's database had already been based on CNIC. The IRIS, a recently introduced operating system through which taxpayers would log-in using their CNIC as their registration number and NTN was not required for registration by the individuals. It is an online automated registration process based on CNIC through IRIS to facilitate the taxpayers.

4.According to the AR:--

1)the registration process was not required before filing of return for the salaried individuals and their returns could be accepted simply on the basis of CNIC without prior registration:

2)the registration process is vulnerable to manipulation as the applicant could file wrong or incorrect particulars. (A practical demonstration was given by the AR during the investigation to justify his stance) The operating software does not provide for any auto check mechanism to cross verify the information submitted by new taxpayers during the registration; and

3)new taxpayers intending to file income tax returns are unable to generate the Payment Slip Information Document (PSID) on the basis of CNIC without the backend NTN and deposit of income tax through National Bank or State Bank, thus creating bottleneck in filing of returns.

5.Explaining the process of registration the D.Rs. claimed that the new system has eliminated delays previously faced by the taxpayers in getting registered. They argued that the allegations made were due to the lack of understanding. They also conveyed Deptt's. reservations about the untoward language used in the complaint.

6.Both sides heard and relevant facts considered. The amendment in law through Finance Act, 2015 requires the CNIC (13 digits) to replace the NTN (7 digits) by virtue of which the CNIC becomes the taxpayer's identifier, instead of previous NTN. However the requirement of registration as a taxpayer has not been done away by the legislature and consequently all individuals, salaried or others are obliged to get registered with the FBR in terms of section 181 of the Ordinance. As deposed by the Department, a return submitted by new individuals without having been registered would not be valid and such individuals would not be treated as filers to get consequential benefits under the law.

7.Evidently the taxpayers' registration process introduced after the amendment in law through Finance Act, 2015 prescribing conditions is beyond the mandate of relevant law and contrary to Income Tax Rules, 2002 (the Rules). The Secretary Revenue Division was specifically confronted on 18.09.2015 whereupon the deficiencies in the operating system and registration process were acknowledged by the FBR during the hearing on 27.10.2015. Consequently, the FBR undertook to bring conformity in the relevant rules and issued S.R.O. No. 1076(I)/2015 dated 02.11.2015 introducing a whole set of changes in the Rules with regard to registration, e-enrolment, requirement of e-enrollment. decision on application for registration or a-enrollment and modification or cancellation of registration through Rules 80, 80A, 80B, 81 and 82 respectively. This complaint has clearly borne fruit as it helped in harmonizing the operational procedures/requirements with the relevant changes in law introduced through the Finance Act, 2015.

8.The automated registration of the taxpayers is intended to eliminate physical contact and minimize the registration time which used to be quite lengthy prior to current changes in law. The IRIS statedly aims at meeting the immediate needs which include inter-alia the filing of return and tax payments. The registration is now granted on the basis of given information and submission of correct information is the responsibility of the taxpayer. The Commissioner is empowered to cross check the given information and take appropriate action under the law, if not satisfied to cancel registration. The Complainant's concern is that the registration could be obtained on the basis of incorrect information as there is no auto check in the operating software. The auto checking would necessitate linkages with data bases of all relevant sources of the Federal Provincial and Local governments, besides semi- governments and corporate entities etc. It is a proposition of vital importance and the Deptt. can undertake it as a policy objective.

9.According to the DRs the IRIS is a newly introduced system built around the CNIC but other operating systems like Customs. Weboc and federal and provincial authorities are still based on NTN. Therefore, in order to create an operational compatibility, the IRIS generates a dummy NTN at backend when approached by an unregistered person for registration without creating any hurdle for the taxpayer. Yet, the reference/access by the unregistered person inherently remains. CNIC which is the sole identifier in accordance with the amended law. As regards the difficulty in generating the Payment Slip Information Document (PSID) on the basis of CNIC and depositing due income tax through National Bank or State Bank the DRs assured that a recheck of the tax payment procedure would be carried out to remove the bottlenecks in order to facilitate tax payments on the basis of CNIC and filing of returns.

Recommendations:

10.FBR to--

(i)remove deficiencies in its operating system and ensure smooth payment of tax and filing of returns in accordance with the amended provisions of laws and

(ii)report compliance within 45 days.

KMZ/13/FTOOrder accordingly.