Misuse of tax laws: FTO directs FBR to re-evaluate 103 tax credit cases

ISLAMABAD: The Federal Tax Ombudsman has directed the Federal Board of Revenue to re-evaluate the record of 103 tax credit cases from 2014 to 2021 after the Tax Ombudsman detected systematic maladministration and gross misuse of tax credit regime. An investigation initiated by the FTO revealed glaring misuse and manipulation of tax credit regime as the authorities allowed undue tax credit to taxpayer companies formed as new industrial undertakings without laying down any standard operating procedures for such credit allowance. As per section 65D of the Income Tax Ordinance, tax credit is admissible equal to 100pc of the income tax payable on income arising from new industrial undertaking for a period of five years. However, it was observed that the income returns filed by the taxpayer companies turned into assessment orders under Section 120(1)(b) of the ordinance.

During the investigation, the FTO discovered that the Income Tax department paid no heed to the verification process required for determining validity of the claim of tax credit.

The ombudsman observed the blatant misuse of law in the absence of foolproof preventive mechanism and added that a comprehensive IT based solution should be developed to prevent manipulation.

It was also pointed out that 281 cases of tax credit claims were pending unduly with the Income Tax department. The FTO observed that the inordinate delay and negligence in timely disposal of tax credits on part of the Income Tax department is tantamount to maladministration.