In section 171(2)(c) of the Ordinance, it is provided that “in any other case, on the date the refund order is made”. Obviously it applies where there is legal requirement for making a refund order on the application of the taxpayer. For example, a taxpayer had no taxable income but tax was deducted at source or income was exempt but the withholding tax agent deducted or collected the amount, as the case may be, and paid it to FBR as law requires. Under the scheme of Ordinance, refund becoming due on filing of return after passing all the requirements/test of section 120 cannot be denied by the Commissioner on the pretext that refund application under section 170(4) is not filed electronically. Section 170(3) is self-executory and not to be read as mandatory condition, even if it is posed by FBR through rules in contravention of the law. It is cardinal principle that any rule made in violation or absence of power to make in the main statute is repugnant. “The rule-making authority cannot clothe itself with power which is not given to it under the statute and thus the rules made under a statute, neither enlarge the scope of the Act nor can go beyond the Act and must not be in conflict with the provisions of statute or repugnant to any other law in force”—Pakistan through Secretary Finance, Islamabad & 5 others v. Aryan Petro Chemical Industries (Pvt.) Ltd. Peshawar & others 2003 PTD 505 (S.C.Pak.)=2003 SCMR 370.
Section 170(1) says: “A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess”. The word “may” here cannot be read as “should”, as Legislature in 170(3), as discussed above, imposed a condition on the Commissioner to adjust refund against any demand and in case nothing is payable then refund the amount. Power of FBR to make rules under 170(6) is to ensure “expeditious processing and automatic payment of refunds through centralized processing system” and not to override section 170(3)(c).
Additional payment for delayed refund as provided under section 171 of the Ordinance is not payable immediately unless 90 days limitation expires. Obviously, legislature has given sufficient time of 90 days to the Commissioner to make inquires and verify bona fide of refunds to avoid compensation for a determined refund. It is also pertinent to mention that in the repealed Income Tax Ordinance, 1979, it was made incumbent upon the Assessing Officer to calculate refund, if any, along with the calculation of tax and mention the same on the IT-30 as well as on the demand notice along with assessment order which was to be sent to the assessee. The same situation is retained under the new Ordinance vide section 170(3) of the Ordinance.
The Income Tax Tribunal in its order [(2009) 100 TAX 178 (Trib.)] rightly held as under:
“We cannot approve the stance adopted by the Revenue that the refund shall be treated as having become due on the date the refund order is made in terms of section 171(2)(c) which is a deeming provision enacted to treat in some circumstances the artificial “due” in contradistinction to actual due under section 171(1)(c)”.
Hopefully in the light of above, the order of Supreme Court [(2020) 122 TAX 265 (S.C. Pak.)] will be read in proper context. It is well-established law as decided by Supreme Court in BILZ (Pvt.) Ltd. v. D.C.I.T. Multan 2002 PTD 1 that all the provisions of law in a statute are to be read together unless a section is self-contained. Section 171(2)(c) has to be read in conjunction with other provisions relating to determination of refund and its issuance.
The real issue concerning unpaid refunds with or without additional amount under section 171 of the Ordinance and advance tax under section 147 or numerous withholding provisions is that over the period of time, the Inland Revenue Service (IRS) has started relying mainly on collecting income tax through withholding tax regime.
The law has thus become a tool for extorting money whether due or not. For example, majority of mobile users, subjected to 12.5% advance/adjustable income tax, is not earning any or below taxable income. The law requires them to file complicated income tax return, wealth statement and refund application electronically! About 60% of our population comprising youth is yet not employed, but FBR is extorting income tax from 100 million unique mobile users (having more than one number and active users). The
latest data available on the website of Pakistan Telecommunication Authority (PTA) shows the total cellular subscribers as on August 31, 2020, 169 million, out of which 85 million are 3G/4G subscribers, 3 million basic telephony users and 87 million broadband subscribers. In the presence of such confiscatory taxes, Parliament gives tax amnesties, immunities and waivers to the rich, tax evaders and looters of national wealth or Presidential Ordinances of extending tax benefits are issued for the mighty developers and constructors. This practice should end now when all the businesses, big or small, are struggling to survive the disastrous consequences of second deadly wave of coronavirus endemic.
Revenuecracy [term coined by Dr. Pervez Tahir in Giving FBR a decent burial, The Express Tribune, November 8, 2019], keeps on maligning the citizens as tax dodgers. Unfortunately, the bandwagon is joined by the so-called “informed” analysts and all-knowing (sic) TV anchors calling Pakistanis “tax cheats”, whereas reality is quite the opposite—read details in e-book [Tax Reforms in Pakistan: Historic & Critical View] recently published by Pakistan Institute of Development Economic (PIDE) and available free at its website [https://www.pide.org.pk/pdf/Books/Tax-Reforms-in-Pakistan-Historic-and-Critical-View.pdf].
Since 1996, by taking credit of advance tax relating to the next tax year(s), during the current tax year, FBR not only overstates collection figures, but does not also pay back the excess amount received as withheld or advance tax. What makes the situation more excruciating is the fact that the government pays no compensation to the taxpayers for using their funds received in advance and retained though prior to 1996 the same was paid at the time of assessment and 6% compensation was compulsory for advance tax paid under section 53 of the repealed Income Tax Ordinance, 1979.
It needs to be highlighted that since its inception and until assessment year 1995-1996, section 53 dealing with advance tax under the repealed Income Tax Ordinance, 1979, had the following three specific attributes:
Advance tax was paid by the taxpayer on the basis of latest declared/assessed/estimated income for that assessment year;
Credit for any advance tax collected for an assessment year was accounted for in the related year and not the year of collection; and
6% mark-up on the amount retained as advance tax was paid to the taxpayer at the time of assessment thereby compensating his cost of funds or opportunity cost for the period his money (not yet due) remained with the government.
With increasing pressure on FBR for achieving assigned (inflated) targets (fixed with utter disregard to ground realities after deadly Covid-19 outbreak and frequent complete or partial lockdowns), panic-struck measures are adopted to display a high level of efficiency (artificially) destroying businesses and growth with the following features:
Credit for advance tax is being taken in the year of collection whereas it pertains to next year;
Basis for determining advance tax shifted from income to ‘turnover’ and many other aberrations; and
Compensation for utilising funds of taxpayers is no longer payable.
These measures aimed at collecting advance tax are made absurd and burdensome by amending section 147 on numerous occasions through various Finance Acts and Finance Supplementary Acts. FBR’s performance in achieving collection targets is irrationally measured taking into account figures for the past closing year as well as of the future closing year or years as well. For example, banks having calendar year as tax year during 2021 are paying advance tax on monthly basis for tax year 2022! The credit of advance tax being paid for tax year 2021 every month till 31st December 2021 will be given credit when banks file returns on September 30, 2022—due date under the law. But FBR will take this amount as collection for the current fiscal year ending on June 30, 2021.