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FBR disposes of cases without audit

ISLAMABAD: After its inability to settle about 310,000 tax audit cases through proper scrutiny, the Federal Board of Revenue (FBR) has started disposing of the cases that has remained pending for up to six years in haste, which could cause losses to the exchequer.

The FBR’s field formations remained open on Saturday and Sunday to dispose of those audit cases which the government had decided to close in April this year to clear the backlog, according to the FBR’s internal correspondence and sources in the tax machinery.

About 310,000 audit cases had remained pending for the last three to six years due to lack of human resources capacity. In order to clear this backlog, the FBR decided to close all the cases on the basis of certain parameters instead of conducting a comprehensive audit.

Sources said the tax audit cases of some high-profile people and their companies were also closed at the weekend under the now defunct Section 214D of the Income Tax Ordinance 2001.

The FBR’s official version was awaited on whether all the laid-down procedures were followed while closing the high-profile cases, particularly in Karachi. “The FBR has decided not to close about 17,500 cases where it has some information about the taxpayers,” said a member of the FBR.

In April this year, the Pakistan Tehreek-e-Insaf (PTI) government had decided to close over 310,000 tax audit cases that had been automatically selected from 2014 to 2017 due to the failure of taxpayers to timely file tax returns and pay due taxes.

The FBR had a chance to get these people netted but it opted to close the cases. For tax year 2020, the FBR has so far received less than 1.1 million income tax returns, which are 36% less than the comparative period of previous year. These are also 63% less than the 2.94 million returns filed in tax year 2019.

The extended deadline to file the returns is December 8, which the FBR has said would not be extended further.

Individuals, associations of persons, and companies are beneficiaries of the FBR’s decision to close the audit cases that is rooted in its incapacity to go after hundreds of thousands of people.

An April 2020 notification stated, “If all values in the parameters, as per the system, are matched with the declaration in income tax returns and/or wealth statement or otherwise, their values are returned nil and the field office does not have any third-party information that audit may be concluded by accepting the declared version.”

These audit cases had automatically been selected under Section 214D of the Income Tax Ordinance 2001. In 2015, the Pakistan Muslim League-Nawaz (PML-N) government had introduced Section 214D in the ordinance to automatically select those persons and companies for audit that did not file income tax returns within due or extended dates or did not pay taxes.

However, the then government did not build the FBR’s capacity, resulting in hundreds of thousands of pending cases.

Subsequently, the government abolished Section 214D through the Finance Act 2018.

Only those cases are supposed to be closed where there are no withholding tax transactions, no purchase of properties, vehicles, utility expenses, rent expenses, and no bank information is available.

But the FBR’s field formations could not make progress on the 310,000 cases and as of end-October roughly 270,000 cases remained unattended, according to the sources.

Sources said that the unusual haste in closing the cases at the weekend could result in loss of revenue where there were disparities in data and withholding tax transactions had also been carried out.

But a senior FBR official said that the FBR could still reopen the closed cases by invoking Section 122(5), if it found any evidence.

Some of the taxpayers had challenged the FBR’s decision to conduct their audit under Section 214D in the Lahore High Court. The petitioners questioned the FBR’s decision to send them audit notices after deletion of Section 214D of the law.

The LHC single-judge bench, in its November 13 judgement, wrote that “no notices subsequent to the date of repeal of Section 214D of the Ordinance 2001 could have been issued to the petitioner since no such power vested in the officer who has issued the notices”.

More importantly, the FBR’s lawyer did not contest this in the court, which was evident from the court judgement.

“This preposition has not been rebutted by the counsel for the respondents as undoubtedly through the Finance Act 2018 Section 214D was omitted and hence the power was not available to be exercised by the officers subsequent to the omission,” said the court order.

In addition to 270,000 outstanding audit cases under Section 214D, the FBR is also conducting audit of about 41,000 cases selected either through computer balloting or by the commissioners inland revenue on the basis of information.

Under Section 214C, the FBR has the legal mandate to select cases for audit of income tax affairs through computer and random balloting. But the FBR keeps the parameters confidential.

 

 

State Bank expands loan limits for small borrowers

KARACHI: The State Bank of Pakistan (SBP) on Monday allowed microfinance banks to increase the limits of housing finance and loans after vetting their capacity to manage higher loan sizes.

The limits for housing finance and microenterprise loans were increased up to Rs3 million from the existing limit of Rs1 million for borrowings from the microfinance banks. Likewise, the maximum size of general loans has been enhanced from Rs150,000 to Rs350,000.

Annual income eligibility for general loans and housing loans has been increased up to Rs1.2 million and Rs1.5 million, respectively, to commensurate with enhanced loan sizes. Moreover, the limit for lending against gold collateral to meet borrowers’ immediate domestic or emergency needs has also been enhanced.

The SBP said the decision to increase the limit of housing finance loans has been made in view of the fact that the existing loan limit was insufficient to promote low cost housing finance through microfinance banks.

“Similarly, limits for lending to microenterprises needed to be enhanced considering the large unmet demand from micro and small enterprise,” the SBP said in a statement. “These initiatives would further support the micro borrowers and enterprises and an early revival of economic activities in the current challenging times.”

However, the enhanced loans sizes for housing and microenterprises would be allowed to those microfinance banks (MFBs), which are on sound footing and have the capacity to successfully cater the higher loan sizes in order to ensure sustainability.

SBP relief package for microfinance banks, which included deferment of principal and restructuring of microfinance loans to deal with the adverse implications of the ongoing Covid-19 pandemic, have now been expanded with three measures.

First, the relief measures that were earlier available from February 15, 2020 have now been allowed to borrowers who were regular on December 31, 2019.

“This would allow more borrowers to avail the regulatory relief who were previously not eligible,” said the SBP. “Second, to facilitate MFBs during these testing times, the provisioning requirements have been extended by 2-months and third client’s consent through recorded lines has been allowed to facilitate the customers to avail the relief package.”

Since mid-March the SBP delivered a cumulative reduction of 650 basis points in the benchmark interest rate to 7 percent with the last cut was announced in late June without preannouncing the schedule as per the standard procedures.

Considering the economic impacts of coronavirus crisis, the State Bank shunned its usual practice of holding monetary policy committee meeting every two months. Last month, it had decided not to hold the meeting before September. The SBP announced a score of other measures to support the financially-stressed segments amid the five-month apocalyptic shutdown of economic activities due to the COVID-19.

 

Imran Unveils Construction Iindustry Package

ISLAMABAD: Prime Min­ister Imran Khan on Fri­day announced a big incentive package for the const­ruction industry that inclu­des a subsidy of Rs30 billion for the Naya Pakistan Hou­sing Project (NPHP) so that people could build their dream house at an affordable cost.

He said that due to the adverse impact of the coronavirus on the country’s economy, the government had obtained a recess in international obligation till Dec 31 this year and people investing in the construction industry would not be asked about their sources of income.

This facility would last only till Dec 31, 2020 and everyone should avail it, the prime minister said while addressing the nation after chairing the first meeting of the National Coordination Committee on Housing, Con­s­truction and Development.

Incentive includes Rs30bn subsidy for Naya Pakistan Housing Project; banks asked to set aside 5pc of their portfolios for house financing

“The government has also spoken to the State Bank of Pakistan (SBP) and all other banks and asked them to set aside five per cent of their portfolios for house financing. This comes to about Rs330 billion,” he added.

“We are offering these incentives because we have spoken to the international community and have relayed that our economy is primarily undocumented […] so we have until December 31,” he said.

PM Khan asked the construction industry and inv­estors to “take advantage of the opportunity”, as the government tried to mitigate the economic impact of the Covid-19 outbreak. He said that on the construction of each house the government would provide a subsidy of Rs300,000. “This means a subsidy of Rs0.3 million each will be given on the first 100,000 houses constructed,” he added.

“Further, those people who borrow from banks to construct their homes will be given a subsidised interest rate. The interest rate for a five-marla house will be five per cent and for a 10-marla house it will be seven per cent,” he said.

Prime Minister Khan said that after consulting the provinces, the government had decided to reduce the number of NOCs [no objection certificates] and made a one-window operation in all the provinces. “There will also be a time limit within which approvals would have to be granted by the relevant authority,” he added.

He said taxes had also been reduced in the provinces and now investors should take advantage of this short window of opportunity.

Earlier, the prime minister said the main objective of the NPHP was to provide housing to the common man. “Initially, we faced many obstacles in our journey,” he said, citing a lack of foreclosure laws.

He said that in India house financing by banks was 10pc and in Europe almost 90pc, but in Pakistan it was 0.2pc, adding that the first step was to address this issue.

The prime minister said the purpose of the National Coordination Committee on Housing, Construction and Development was to remove obstacles in the way of the construction industry and for this purpose the provinces were also taken on board.

The premier will himself preside over the committee’s meeting every week.

“Covid-19 pandemic had caused a recession across the world, leaving countries scrambling to keep the economic wheel turning. [Therefore] we have decided to keep the economy running through the housing and construction sector,” he said, adding that it would also create job opportunities.

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