The Federal Board of Revenue (FBR) has decided to check the tax records of around 9,641 non-residents, including foreign companies and big foreign investors, to determine status of taxability of their income and verify tax exemptions obtained by non-resident persons/units under Income Tax Ordinance 2001.

Sources told Business Recorder here on Sunday that the FBR has chalked out an 'implementation plan' (2012) to ensure that all non-residents, including foreign investors, are fully compliant with the local tax laws, wherever applicable. Under the FBR's enforcement plan (2012), tax records of all categories of non-residents, including corporate units, foreign companies, associations of persons (AOPs), business individuals and salaried persons would be checked to ensure that genuine non-residents have obtained exemption certificates from the tax department. This is for the first time that the FBR's enforcement strategy is seriously focusing on the tax status of non-resident companies to check the authenticity of the exemptions claimed by foreign units in Pakistan. Apparently, a number of non-residents are non-compliant taxpayers, which needs to be checked through a national enforcement action in 2012.

According to the FBR's plan (2012), reportedly around 9,641 non-residents are operating in the country with different status, i.e. corporate (1239), AOPs (824), business individuals (277), salaried persons (5497) and others having status of non-residents under Income Tax Ordinance 2001. The total of non-residents comes to nearly 9641, covering different categories of taxpayers. Out of these, 8622 non-residents are reported to be non-compliant of returns of Income Tax, Sales Tax and periodic statements as Withholding Agents, notwithstanding returns of Income filed by companies for whom last date for filing of Returns was December 31, 2011 and those taxpayers among non-residents who have filed returns manually whose data is not yet available.

The FBR said that the slack enforcement action with respect to this class of prospective taxpayers poses double jeopardy as it involves outflow of precious foreign exchange without determination of taxability of their income in Pakistan or examination of claim of exemption from taxation This needs to be done in collaboration with the State Bank of Pakistan, that has the data of outwards remittances from Pakistan. Substantial yield is expected if all the non-residents are made compliant with local tax laws, FBR's plan added.

Under the plan, the FBR will also identify non-filers, individuals & AOPs, liable to file returns of income manually. In the first phase, the Pakistan Revenue Automation Limited (PRAL) will intimate numbers by January, 2012. The data entry of returns filed manually in the integrated tax management system (ITMS) by the RTOs / LTUs by February 29, 2012.

In the next stage, the PRAL will intimate numbers of defaulters along with names and NTNs after feeding of Returns / data entry of Returns is completed by the field units by March 15, 2012. The legal action against all the defaulters would be completed by RTOs / LTUs by April 30, 2012.

The FBR said that the revenue mobilisation is the prime function of FBR. In order to take meaningful actions for it, various steps are under way. It includes the tax reform initiatives of the government in the operations and policy realms aimed at bringing in extra revenue.

Tax Administration Reforms component involved various measures that included creation of Enforcement Wing in 2009 as part of overall Reforms Process for rendering the functional support to the then Operations Wing comprising two Members for North and South (now abolished due to reasons best known to the concerned in charge at that time). The Jurisdiction of the Enforcement & Accounting Wing includes planning and designing and putting in place the procedures and measures in the matters such as taxpayers registration, tax returns processing and taxpayers accounts, control over non-filing, evaluation of Inland Revenue (IR) activities for advising the Member, recovery of arrears and matters relating to Public Accounts Committee.

The FBR said that the Annual Enforcement Plan is a regular feature. The plan was prepared on the previous patterns and handed over to SP&S Wing for possible discussion during World Bank & IMF discussions. However, it is the considered view of this Wing that an issue based plan--more focused on real enforcement issues instead of a general statement hardly read and followed by the field offices in the past--is the need of the hour on account of problems of implementation of the plans like this plan of 2012.

The real enforcement issues are characterised by huge non-filing by existing tax payers, non-registration of significant number of those liable to file the returns for Income Tax and Sales Tax and resultant weak enforcement environment that hardly makes possible to take meaningful action to get effective resource mobilization underway. Since potential is huge, it is believed that with the help of proper plan and effective follow-up, further sources can be tapped. Accordingly, as part of the overall Annual Enforcement Plan, the specific action areas can be focused for tightening the screws on these areas, the FBR added.