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[Lion Heart]

Taxes and duties complaints in 2011
‘1,053 complaints in favour of taxpayers out of decided 1,218’

ISLAMABAD: Federal Tax Ombudsman (FTO) Dr Muhammad Shoaib Suddle said on Friday that in 2011, the FTO received 1,390 individual taxpayer complaints of which 706 or 50.80 percent pertained to income tax, 349 or 25.10 percent to customs, 328 or 23.60 percent to sales tax, and 7 or 0.50 percent to Federal Excise Duty.
Of these, 1,218 or 87.63 percent complaints were decided by December 31, 2011. Of the decided complaints, 1,053 or 86.45 percent ended up in favour of taxpayers.
Aggrieved taxpayers have been able to get refunds of over Rs 7.89 billion due to hectic efforts of the FTO office during 2011 and 760 major cases were implemented by the Federal Board of Revenue (FBR) during this period.
Addressing a press conference here on Friday, FTO Dr Suddle said that the year 2011 has been a historic year in several respects for the Pakistan FTO office. The exceptional achievements of the FTO have added new milestones to its history.
In 2011, a sum of Rs 7.89 billion had gotten refunded to the taxpayers as compared to Rs 7.08 billion during 2010. This included refunds amounting to Rs 606 million in 455 income tax cases, Rs 570 million in 107 sales tax cases, and Rs 81 million in 15 customs cases. The highest amount of refund issued in a single income tax case, sales tax case and customs case was Rs 143.31 million, Rs 143.7 million and Rs 401.09 million, respectively. The taxpayers also received a sum of Rs 6.16 million in compensation for delayed payment of refunds in 81 cases. In addition, under his suo motu jurisdiction, the FTO got settled 181,880 duty drawback customs cases involving refunds of Rs 6.63 billion during 2011 as against 194,056 duty drawback cases involving refunds of Rs 4.9 billion in 2010. It is worth noting that Rs 7.89 billion were received by the taxpayers as the intervention of FTO during 2011 was almost four times of the total amount that they got during 2000-2009, and 36 times of the average per annum the taxpayers received during the same 10-year period.
He said that another milestone that the FTO was able to achieve during 2011 was in terms of disposal time of complaints. The average time taken to decide a complaint was exceptionally brought down to 60 days, as compared to 67 days for 2010 and 117 days for 2009. There is no ombudsman office in the world, which has achieved such a high level of efficiency in handling taxpayers’ complaints.
Under his thematic approach, FTO declared 2011 as the ‘year of implementation’. With exceptional effort, FTO’s decisions in as many as 760 cases had gotten implemented by the FBR during 2011, as compared to 331 cases during 2010 and 170 cases during 2009. In other words, the number of decisions got implemented during 2011 were 2.3 times as much as for 2010. More specifically, the implemented decisions pertained to recommendations issued in 2011 were 222, 2010 - 425, 2009 - 48, 2008 - 52, 2007 - 6, 2006 - 2, 2005 - 2, 2003 - 1 and 2002 - 2.
For the first time in the history of FTO, the taxpayers’ grievances in as many as 370 complaints filed during 2011 were redressed during the investigation phase. The focus was shifted to getting the disputes resolved, from issuing recommendations at the end of investigation. Out of recommendations issued in 683 complaints during 2011, the FBR implemented 222 cases and filed representations in 211 cases. In addition, 184 complaints pending from 2010 were also disposed of by March 31, 2011, he stated.
Responding to a query, the FTO said that all suspended customs officials allegedly involved in ‘ISAF Container Scam’ have been reinstated but FBR would continue to conduct internal inquiry and disciplinary action against these officials till the case reaches its logical conclusion. The government officials cannot remain suspended for an indefinite period. They have to be reinstated under the government rules. However, the disciplinary proceedings would continue against these officials under the ongoing inquiry of the FBR.
FTO Office Secretary Mahmmod Alam added that it is not possible to suspend the government officials for an indefinite period under the Efficiency and Discipline Rules, 1973. Under these rules, the official is initially suspended for a six moths’ period, which is further extendable for another period of three months. However, if disciplinary proceedings have not been finalised during a specific time period, it is not possible to suspend a government official for an indefinite period, Alam added.
On the ISAF Containers Scam; he said that in early 2011 the FTO submitted the ‘container scam’ investigation report to the Supreme Court of Pakistan. The scam turned out to be ‘mother of all scams’. The ongoing follow-up investigation has led to detection of at least 28,802 commercial containers and a further 3,542 containers imported in the name of ISAF/NATO that went ‘missing’ during the period January 2007 to October 2010, and the numbers are still rising. While the security-related aspects of the scam are yet to be quantified, the colossal loss of revenue, assuming that these containers carried the usual smuggling-prone items, has been estimated at over Rs 60 billion. The impact of FTO investigation on local industry, which was dying due to flood of ‘duty-free’ smuggled items, has been phenomenal. Not only has the transit-related ‘smuggling’ registered a staggering drop of 60 percent, the investigation is yielding over Rs 1 billion per month in additional revenue due to diversion of smuggling-prove items to regular import channels.
FTO stated that in a 2011 study conducted by the Islamic Countries Society of Statistical Sciences (ISOSS), a Lahore-based independent research organisation, over 90 percent of the respondents who had actually interacted with FTO rated FTO as most helpful and most clean public sector organisation in Pakistan. The advis.ors and staff of FTO deserve generous appreciation for having achieved so high a performance level.
According to Transparency International’s 2011 Corruption Perceptions Index, Pakistan’s score in 2011 was 2.5 out of 10 as compared to 2.3 in 2010. One of the four organisations that contributed to improving Pakistan’s rank in 2011 was FTO Office, the other three being Public Accounts Committee of Parliament, judiciary, and the Ministry of Defence for applying Public Procurement Regulatory Authority rules. The Transparency International report also rated the FTO as one of the cleanest institutions of Pakistan.

[Amin Khan]

[Lion Heart]

FBR proposes GoP to cut corporate tax rate by 5% from 35%

FBR has reportedly proposed GoP to cut corporate tax rate by 5% from 35%, in next budget.

[Amin Khan]

CGT rules not to facilitate money laundering
KARACHI, May 12: A letter written by the Securities and Exchange Commission of Pakistan (SECP) and forwarded to the three stock exchanges has raised a storm in the tea cup.
The apex regulator in its dispatch to the bourses stated that the Finance (Amendment) Ordinance, 2012 under which the tax department would not ask questions on the source of funds invested in stocks up to June 30, 2014, is not all inclusive.

The money suspected to be channeled into the stocks in contravention of Anti-Money Laundering Act, 2010 would remain open to questions. The letter in essence, therefore, sifts the money invested in stock market, between legal and criminal, more than between black and white or documented and undocumented.
The notice sent to the stock exchanges by the apex regulator, dated May 8 reads: “Pursuant to amendments in the Income Tax Ordinance, 2001 notified through the Finance (Amendment) Ordinance 2012 dated April 24, 2012 whereby provisions related

to Capital Gain Tax (CGT) for the stock market investment have been implemented, the stock exchanges are advised to
immediately circulate the following for compliance of the members/brokers:

The said provisions shall only be applicable under the Income Tax Ordinance, 2001 (ITO) and does not bar asking source of
income under any other law including Anti-Money Laundering Act, 2010 (AMLA). Therefore, the exemption under these provisions is not available for income derived from a criminal activity under any other law for the time being in force.

Second, the requirements of AMLA and the rules and regulations made there under are not affected by these provisions of the ITO and no exemption, in whole or in part, is available for any AML/CFT preventive measures under the AMLA. The KYC/CDD and Suspicious Transaction Report (STR) reporting requirement vide stock exchange regulations and guidelines dated Feb 1, 1012 shall continue regardless of the above amendments. Therefore, brokers shall take reasonable measures for establishing the source of wealth and source of funds for high risk customers and also to obtain sufficient information to determine the expected source of funding for the account.
Third, the Financial Monitoring Unit may refer any STR to tax authorities notwithstanding the provisions of ITO and tax authorities will continue to cooperate with law enforcement agencies on AML matters.”

The SECP letter also alerted stock brokers regarding Section 33 of the AML Act 2010, which inter aila specifically provide for criminal sanctions on failure to file STRs and for providing false information.

“Furthermore, in case any member/broker is found to be in violation of above legal requirements, a simultaneous regulatory action shall be initiated,” the SECP warned.
While most brokers during the weekend were taking the Regulator’s note in stride and some even feigned ignorance about the red flag— understandably to soothe investors’ nerves and dispel any panic in the market when it opens on Monday, one senior
broker asserted that there was nothing new in the SECP note.

”Brokers are already required to file an undertaking every 15 days, certifying that there was no violation of Anti-Money
Laundering Act, 2010 in the ranks of their clients and that the brokerage was following the ‘know your clients’ criteria,” he
noted.

Mr.Nadeem Naqvi, Managing Director of the Karachi Stock Exchange stressed that the SECP letter was being taken ‘out of
context’ in interpretation. He said that it was a mere ‘clarification’ and did not cause change in the already declared provisions
of CGT.He said that two months ago, the bourse had further tightened the tap for scrutiny of funds entering the stock market by
issuance of guidelines for brokers to conform to the AML.

“If sufficient suspicion exists that any money flowing in was in contravention of AML or Anti-terror laws, a scrutiny could always be made by the Anti-terrorism or AML task force,” he said. He stressed that unfolding the letter on May 11, sent by the SECP on May 8, was of little consequence for the information was not ‘price sensitive’. The plunge of 383 points in the KSE-100 index in the last two days of the previous trading week, he said, was not the cause of leakage of information to some selected investors, but the result of a flare up in US-Pak relationship and secondly the payment of dues to Independent Power Producers (IPPs) through the OGDC–the highest weighted scrip on the KSE-100 index, which many thought would impact the valuation of
the big stock.

But for all that, it is difficult to shake off the fear that has come to haunt investors’ in stocks. It would be churlish to think that the major provision in CGT reformed rules of “no questions to be asked on funds invested in stocks till June 2014” may have ever meant that it supercedes the United Nations Convention Transnational Organised Crime, of which the Article 7 covers money laundering. Yet the sudden realisation that funds flowing into the market would, after all, be under the glare of the
authorities, is likely to deal a blow that the market would take right under the chin, when it opens up for trading on Monday.
(DAWN)