Virtual Academy ~ FBR ream, Do tt INSPECTOR (inland Revenue) Bs-16 Guide FUNCTIONS OF FEDERAL BOARD OF REVENUE a ee ERLEVENUE STUDY MATERIAL Definition: “Federal Board of Revenue” means the Federal Board of Revenue (FBR) established under the Federal Board of Revenue Act, 2007. Who appointed the FBR? The Federal Government has appointed the Federal Board of Revenue (FBR) by the authority of the Federal Board of Revenue Act, 2007 Basic function of the FBR: Tax collection shall be the basic function of the FBR. Status of the FBR: FBR shall be the highest executive authority in Pakistan Head of the FBR: Chairman of the FBR shall be the main authority in shall be appointed by the Federal Government. Members of the FBR: FBR shall consist of at least seven members who shall be appointed by the Federal Government. Powers and Functions ‘of the Federal Board of Revenue (FBR): following powers and performs the following functions in the presence of its powers 1. Approval of research institutions: The FBR may approve a engaged in scientific research in Pakistan as “Scientific Research In. so that such institution may claim its scientific research expenditures as deduction against income from business he FBR has 2, Approval of employee training scheme: The FBR may approve a Pakistani employee training scheme against which deduction is allowed to business. 3. Approval of Leasing Companies and Modaraba: The FBR may approve any leasing company or Modaraba, where lease rental payment made to such company is allowed as deduction against income from business to that person who makes such payment. 4. Approval of charitable institutions: The FBR may approve any institution as a charitable institution for the purposes of the Income Tax Ordinance, 2001. especially, for donation purposes. 5. Method of accounting: The FBR may specify that any class of persons shall record its "Income from Business" on a cash or accrual basis. 6 Apportionment of deductions: The FBR may make rules ws 237 for the Purposes of apportioning deductions where the expenditure relates to the derivation of more than one head of income. Permission for tax year: The FBR may permit person or class of persons to use special tax year instead of normal tax year. 8. Power to demand particular data: The FBR may demand any data regarding exempted income of any industrial and commercial organization (By delivering data collection and compilation responsibility to any government or private department) 9% Authority of circulars: The FBR may issue circulars to achieve consistency in the administration of the Ordinance and to provide guidance to taxpayers and officers of the FBR. 10. Empowerment of general administration: The FBR shall exercise the general 11, ‘siministration of the Income Tax Ordinance, 2001 Appointment of income tax authorities: The FBR may appoint as many income tax authorities as are necessary.16. 17. 18. 19. 20. 21. 3. an - Functions of Federal Boa | Criterion for selection of audit: The FBR may define aia oe 4 Commissioner of Income Tax that how the CIT select a particular He re conduct audit of its income tax affairs during a particular tax year. ® Appointment of the auditor: The FBR may appcint a firm of Chartered Accountants, to conduct an audit of the income tax affairs of any person. Determination of the scope of audit: The scope of any audit conducted by firm of Chartered Accountants or Cost and Management Accounts shall be determined by the FBR on a case to case basis. Determination of jurisdiction: Where a question arises as to whether a Commissioner has jurisdiction over a person or not, the question shall be decided by the RCIT or RCITs concerned and, if they are not in agreement, it is determined by the FBR. Authority of approval: The FBR may authorize the RCIT or the CIT to grant approval on behalf of the FBR. Registration of income tax practitioners: The FBR may make rules ws 237 for the registration of income tax practitioners. Power to make rules: The FBR may, by notification in the Official Gazette, make rules for carrying out the purposes of the Income Tax Ordinance, 2001. Delegation of powers: The FBR may delegate all or any of its powers and functions to any income tax authority. Unexplained income or assets: The FBR may make rules u/s 237 for the procedure of taxation of any unexplained income or asset of any person discovered by any income tax authority. Supervision of subordinate authorities: The FBR supervises the functions, duties and jurisdiction of its subordinate authorities. INCOME TAX ORDINANCE, 2001+ FBR: Hierarchy of Income Tax Authorities: Chief Commissioner or Director General of Income Tax Commissioner or Director of Income Tax Additional Commissioner or Additional Director of Income Tax Joint Commissioner or Joint Director of Income Tax Deputy Commissioner or Deputy Director of Income Tax Transfer Pricing Officer Income Tax Officer or Tax Recovery Officer Functions of Assistant Commissioner of Income Tax Officers: Seeing that all tax payers grievances Ensuring timely collection Issue of refunds Widening of the tax base Pre-search enquiries Controlling all computer Internal audit functions Statutory functions 9. Search and seizures 10, Preparation of appraisal report 11, Keeping liaison with other departments 12, Deals with the informants Powers of Income-Tax Officers: 1, Production of evidence 2 Requisition books of accounts, SrXAAKWaYN—Power to call for information. Power to inspect register of companies, 3 4. 5 Power to allot permanent account number. 6. Power to make assessment. 7 8. 9. V 1 Power to direct an assessed to get his accounts audited. Power to grant refund, ‘ 7 Power to withhold refund in certain cases 0. Power to impose penalty for the prescribed defaults under the Act 1 Power to determine arm’s length price of international transactions ‘TNFORMATION ABOUT INLAND REVENUE IN PAKISTAN, 1, Domestic Taxes, comprising Income Tax, Sales Tax and Federal Excise Duty, constitute about 90% of the Revenue collected by FBR. These taxes are not only similar in essence, but also are interdependent in practice. The time tested international tenor vindicates the same. The assimilation of these taxes into a single administrative structure was imminent since Jong, but never in the history of the Pakistan’s Economy, was the need so great for the materialization of this change. Spurred by these exigencies and with a view to apply the modern taxation techniques to improve the tax to G.D.P ratio, the'Inland Revenue Wing of the FBR was created, combining the three domestic taxes. 2. It is expected that the inception of this wing would facilitate the taxpayers, as it would provide them to carry through their tax matters in one organizational structure. The creation of this wing would also be conducive for the tax administration, as the access to the taxpayer’s data in respect of different domestic taxes would be casily available. 3. The organizational structure of the Inland Revenue Wing at the FBR Headquarter and their job assignments are as under: Chief IR (HQs): The following sections would work under Chief IR (HQs): IR - Judicial Section: LR - General: , © ADR matters - Income Tax/ Sales Tax © Matters pertaining to rewards for detection © FTO maters - Income tax / Sales Tax of tax evasion * Legal matters, Appeals and Court Cases © Matters pertaining to PRAL Parliament business ¢ Matters pertaining to _—_—reforms/ © Cabinet matters restructuring/ re-organization © Any other job assigned © Any other job assign LR - Coordination Section: LR- Revenue Budget: : © Coordination on Income Tax and Sales | Assignment and monitoring of collection Tax matters, including:- targets of Income Tax, Sales Tax and * Taxpayers Registration for Income Tax FED. and Sales Tax . © Matters pertaining to I. Tax/ S. Tax/ FED © Board in Council Jurisdiction. * Conferences © Matters pertaining to Income Tax/ Sales * Any other job assigned Tax refunds. . 4 ; , © Authorization of banks for collection of revenue, CL Any other job assigned.INLAND RREVENUE POLICY Chief (ST/FED - Policy): Secretary (ST & FED Budget) would work under him. His assignment would include:- ; - All budget and policy matters relating to dutiable / taxable goods and services - Post budget clarifications and SROs - ST and FE law and procedure and interpretation thereof ~ Issuance of SROs/General Orders/ Circulars/Clarifications etc. - Clarifications of goods and services - Valuation of goods and tariff values - Any other job assigned Chief (Income Tax Policy): The following sections would work under Chief IR (Income Tax Policy):- | Secretary (ITP): Secretary (WHT): All Matters pertaining to income tax policy All matters pertaining to withholding taxes Clarifications on income tax policy | Secretary (Exemptions)/(I.T Rules: Secretary (International Taxes) : All matters pertaining to Income Tax | All matters pertaining to international taxes exemptions/Second Schedule and Income | Income Tax and Sales Tax Tax Rules Coordination / liaison with BOI, IMF, WB, | All matters pertaining to sales tax exemption | IFC, DFID, OECD (including training) etc, Matters relating to international tax agreements/treaties 4. In order to rationalize the work flow, compliance, enforcement, monitoring and Tecovery of taxes ensuring facilitation for the taxpayers in their respective areas of responsibilities an equal number of RTOs/LTUs i.e. seven (07) offices (mentioned below) are placed under each Chief (Inland Revenue) of FBR. Each Chief (IR) ‘would be assisted by Secretary and Second Secretary. and would have the following jurisdiction:- Chief Inland Revenue-I Chief Inland Revenue-II Chief Inland Revenue-III _LTU, Islamabad LTU, Lahore LTU, Karachi RTO, Islamabad RTO, Lahore RTO, Karachi RTO, Rawalpindi RTO-II, Lahore RTO-II, Karachi RTO, Peshawar RTO, Sialkot RTO-III, Karachi RTO, Abbotabad RTO Gujranwala RTO, Hyderabad RTO, Faisalabad RTO, Multan RTO, Sukkur LRTO, Sargodha’ RTO, Bahawalpur RTO, Quetta . Matters pertaining to complaints of tax evasion and tax] Chiefs, I, II and III for their respective jurisdiction. . Matters pertaining to PAC/ DAC and external audit will be dealt by Chief IRI. Monitoring of daily collections, refunds and filing of returns will be monitored by Chief IR, 1, I, II] for their respective jurisdictions, Automation and e-filling will be handled by Chief IR- III Sesseessescas payer's grievance will be dealt byThe Chief Commissioner Inland Revenue shall possess the the following functions: (a) (b) (c) (4) CHIEF COMMISSIONER INLAND REVENUE (CCIR) following powers and perform Transfer the jurisdiction in respect of case or persons from one Commissioner subordinate to him, to another Revise certain orders passed by his subordinate authorities Call for the record of any proceedings relating to issuance of an exemption or lower rate certificate with regards to collection or deduction of tax at source Appoint any of his subordinate authority with the approval of Board COMMISSIONER INLAND REVENUE Commissioner Inland Revenue enjoys the following powers and has to perform the following functions under the law: 1 PI Away 20, 21. 22. Allow an employee to pay tax on his retirement payments and golden handshake payments as per normal procedure or pay tax on the basis of average rate of tax based on the three preceding tax year Allow an employee to pay tax on salary received in arrears in the tax year in which services were rendered Extend the date of selection out of the options available to an employee Allow a person to change his method of accounting Permit the change of stock valuation method Allow a person to use special tax year Allow a person to use normal tax year instead of special tax year Impose conditions while permitting a person to use a special tax year or normal tax year Withdraw the permission granted to a person to use a specific tax year Distribute, apportion or allocate incomes, deductions or tax credits in respect of any transaction between associates Charge to tax the value of any unexplained income or asset and determine the value if it is declared less than the fair market value Require a person or his representative to furnish the return of income Require a person to furnish his wealth statement Require a person to furnish the return if the business sis discontinued and the person has not furnished his return of income Extend the time for filing a return Make an assessment order if the taxpayer has not furnished his retum of income Make an amended assessment order Make a provisional assessment order Make an assessment order to give effect to an order of an appellate authority or a court Make an assessment in the light of a point of law decided by the High Court or the Appellate Tribunal Inland Revenue Modify the original order if the orders of the Tribunal or the High Court are changed at the higher appellate forum Take all necessary and appropriate actions for recovery of tax from a taxpayer23. Recover the tax from a person who holds money on behalf of the taxpayer 24, Notify and recover the tax from the liquidator of a company, which has gone into liquidation 25. Allow a person to make payment without deducting tax at source 26. Issue an exemption certificate 27. Extend the period for filing of different statements 28. Adjust the amount of excess tax paid by a taxpayer and if there is any balance after the adjustment of any other tax liability refund the same to the taxpayer 29. Authorize a person to maintain the prescribed records, books, accounts, etc, 30. Enter and search premises 31. __ Issue notice in order to obtain information or evidence 32. Select .. »’ person for audit 33. Approve a person as translator in case the accounts, etc., are kept by a taxpayer in a language other than Urdu and English 34. Impose penalties for different defaults 35. Initiate prosecution for offences committed by a taxpayer 36. Impose default surcharges if the taxpayer fails to pay the tax by due date 37. Appoint any of his subordinate authority with the approval of Board 38. Delegate any of his powers to any Officer of Inland Revenue 39. Rectify any mistake in his order, apparent from the record 40. Appoint an expert for the purposes of valuation, audit, etc. OFFICER OF INLAND REVENUE Any of the following officers appointed by Board for the purposes of the Income Tax Ordinance shall be an officer of Inland Revenue: Additional Commissioner Inland Revenue Deputy Commissioner Inland Revenue Assistant Commissioner Inland Revenue Inland Revenue Officer Inland Revenue Audit Officer Any other officer designated or appointed by the Board DIRECTOR GENERAL (Information Management System) Director General (Information Management System) is responsi system specifications for future FBR needs, technology architecture desi; formations in consultation with appointed consultants. This includes develop for coordination and application of software based on re-engineering of the system. He guides and advises the persons and teams dealing with reengineering of business processes, He is assisted by a Chief Coordinator, Income Tax. In Board, e is also assisted by a ‘Second Secretary: DIRECTOR GENERAL (Intelligence and Investigation) Director General (Intelligence and Investigatren) FBR base processes, disseminates information and enforces prevention of tax evasion. He measures to prevent smuggling of contrabands (Goods prohibited by law or treaty ayaenen ble for development of ign of FBR and its field ment of a stratesy at Islamabad collects, fe also enforces from bein’imported or exported), including drugs. The Director i i i ationed at Karachi, Lahore and Islamabad. a A ee DIRECTOR GENERAL (Internal Audit) Direct Taxes Director General (Inspection and Audit) (Direct Taxes) based at Islamabad operates directly under the Secretary, Revenue Division. He carries out inspections, audits and investigations of Taxes and offices involving evasion of taxes and malpractices by the functionaries of the Income Tax Department. He submits recommendations to the Board regarding tax policy, tax administration and tax operations. The Director General is assisted by three Regional Directors, each posted at Karachi, Lahore and Islamabad. DIRECTOR GENERAL ; (Withholding Taxes) ; The Board may appoint the Director General, Directors, Additional Directors and other officers for scrutiny of withholding taxes. The objective is to ensure that withholding agents collect and pay to the government all amounts due under the tax law properly. The Board may specify the functions, jurisdiction and powers of the Directorate General of withholding taxes. DIRECTOR GENERAL (Human Resource Management) Director General (Human Resource Management) has seven basic wings which are as follows: 1 Work Force Planning 2. Foreign Training 3 Local Training 4. Institutional Training 5. Organizational Development 6. Coordination 1 Internal Job Posting The responsibilities assigned to each of these wings are as: 1. Work Force Planning: Work force planning deals with the liaison with business processing reengineering, managers of reformed units, administrative wing on re designation of posts, to perform work activity analysis and job designing and revision. 2 Foreign Training: Foreign training is concerned with listing of short courses offered by foreign providers, application processing and liaison with foreign training providers. It also processes the application for master degrees funded by Training and Administration Reforms Programs and creates liaison with foreign training providers on different issues. 3, Local Training: Local training wing responsibility is to look <“ter the job, management and other related training programs run by the local institutes and to create liaison with the Directorate of Trainings. 4, Institutional Training: The responsibility of the “Institutional Training Wing” to conduct the refresher courses as well as Master of Business Administration training programs. 5S. Organizational Development: Primary responsibility of the Organizational Development is to formulate policies and procedures for the development of human resource, reorganization of Registered Training Organizations, designing of the organizational structure, preparation of job descriptions and evaluation ofbonus schemes. Along with other responsibilities it also re-organizes Regional Teo ereeton: Coordination plays a pivotal role by coordinating Board polices * ee ocedures ‘with the World Bank mission. It also conducts human resources eluted seminar to equip the manpower with the new and improved techniques introduced in the world. It also verifies the compliance of Training & Administration Reforms Programs with Strategic Planning and Static wing and provides awareness about Inland Revenue Services. a 2 Internal Job Posting: Employment related services are arranged by this wing by setting up panel for interview, conducting various tests, compilation of results and recommendations on the basis of the results compiled, POWER OF THE HUMAN RESOURCE WITH 1. Power to implement the human resource policy 2. Power to assess, identify, create, decrease and reduce or designate or, re-designate Posts and prepare, execute the internal job posting regime in accordance with the tules 3. Power to lay down qualifications and criteria for the posting of employees against specialized or available posts 4. Power to implement a transparent evaluation process to assess if the official is qualified for posting against a specialized or available post Power to make assessment, of integrity of the employees for the purpose of evaluation processor for the purpose of posting, promotion or transfer 6. Power transfer, select or post the officials and employees against any post' on the basis of transparent criteria of selection for internal job postings or transfers 7. Power to transfer any official to any post in any entity controlled by the board 8. Power to prepare and recommend to the, competent authority, the voluntary severance scheme and on approval subsequently implement the same 9. Power to take any action, make rules, regulations, guidelines, code of conduct, in order to fulfill the objects and purposes of the act 10. Powers to make rules for uniformed services with regard to maintenance and, up keep of uniform and discipline and matter connected therewith or incidental thereto. . DIRECTOR GENERAL (Training and Research) Director-General of Training and Research (DGTR) means a person appointed to be a Director-General of Training and Research, under the Income Tax Ordinance, 2001, Appointment: The Director, General (Training and Research) is appointed by the Federal Board of Revenue. Basic Function: The Director General (Training and Research) provides training and research facility to the Income Tax' Department. ‘Further, he shall per-form such functions as may be specified by the Federal Board Revenue. Jurisdiction of the DGTR: The jurisdiction of the Director General (Training and Research) is specified by the Federal Board Revenue. Authorities Subordinate: The following authorities are subordinate to the Director General (Training and Research): 1. Director (Training and Research); 2. Additional Director (Training and Research) 3. Deputy Director (Training and. Research)runes 4. _ Assistant Director (Training and Research) 5, _ Any other officer appointed, VALUER Valuer is not an income tax authority under the Income Tax Ordinance, 2001. However, he assists the Commissioner in the valuation of assets. 1. Appointment: The Commissioner Inland Revenue may appoint the Valuer as a result of an application made by a person willing to be a valuer. 2. _ Functions: The basic function of the Valuer is to assist the Commissioner Inland Revenue in valuation of the capital assets belonging to a taxpayer. 3. Qualification: A person should be competent according to nature of assets normally valued by him. Generally, a person who holds a recognized degree or equivalent qualification in civil, mechanical, electrical engincering or, architectural field etc. maybe appointed as Valuer. 4 Disqualified Valuers: The following persons are not qualified for appointment as a Valuer: (i) A person who has been dismissed or removed from government service (ii) Anun-discharged insolvent (iii) A person who has been professional capacity (iv) Representative of taxpayer found guilty of misconduct hi his 5. Termination: The Commissioner may terminate the Valuer at any time without assigning any reason and without paying any compensation, 6. Remuneration: A Valuer is remunerated on the basis of the value of the assets valued by him. Remuneration list has been provided in the of the Income Tax Ordinance, 2001. APPELLATE TRIBUNAL INLAND REVENUE The Federal Government is the appointing authority of the Appellate Tribunal. It is the second court of appeals. The taxpayer or the Commissioner Inland Revenue, if not satisfied with the decision of the Commissioner Inland Revenue (Appeals) can appeal to the Appellate Tribunal Inland Revenue. The details regarding the constitution and functioning the Appellate Tribunal Inland Revenue have been provided in the Income Tax Ordinance, 2001 and Income Tax Appellate Tribunal Rules 1981. Important points, of these two statutes are being given here. MEMBERS OF APPELLATE TRIBUNAL INLAND REVENUE The Appellate Tribunal Inland Revenue consists of two types of members: 1. Judicial members; 2. Accountant members. The qualifications necessary for their appointments are as follows: 1. Judicial Members: The Federal Government may appoint @ person as judicial member of the Appellate Tribunal Inland Revenue ift (a) _ he has exercised the powers of a District Judge and is qualified to be a Judge ofa High Court; (b) he is or has been an advocate of High Court and is qualified to be a Judge of High Court; or (©) he isan officer of Inland Revenue service in BS-200r above and is a law, graduate. 2. Accountant Members: The Federal. Government shall appoint the Acgountant Members of the Tribunal also. He must possess anyone of the following qualification: (@) he is an officer of Inland Revenue services equivalent to the rank of Regional Commissioner,(b) a Commissioner Inland Revenue or Commissioner Inland Revenue (Appeals) having at least three years experience as Commissioner (©) 1s.aperson who has, for a period of not less than ten years, practiced professionally as a Chartered Accountant. (d) is a person who has practiced professionally as a Cost and Mana; Accountant for at least ten years. The Federal Government may appoint as many judicial and accountant members as it think’ necessary for the proper wprkillg pf the Appellate Tribunal Inland Revenue. The Federal Government shall uppoint a judicial member of the Tribunal as the Chairperson of Appellate Tribunal Inland Revenue. However, under special circumstances an accountant member may also be appointed as Chairperson. Administration: A full \ime registrar is responsible to receive the appeals and look after the working of the offices of the Tribunal. He is subordinate to Chairperson of the Appellate Tribunal Inland Revenue and works under his guidance. He entertains the appeals provisionally, fixes the dates for hearing and looks after the administrative affairs of the Appellate Tribunal Inland Revenue. His office is situated in the headquarters pf Appellate Tribunal Inland Revenue in Islamabad. There are Assistant Registrars posted in Karachi and Peshawar benches. FUNCTIONING OF THE APPELLATE TRIBUNAL INLAND REVENUE! The Chairperson of the Appellate Tribunal Inland Revenue may constitute benches to perform the functions of Tribunals. A bench normally consists of two members. However, a larger bench may also be constituted by the Chairperson. A bench usually consists of equal number of judicial and accountant members but in certain cases the number of one type of members may exceed the other type by one. The Chairman is also empowered to constitute as many benches consisting of a single member as he may deem necessary to hear such cases or class of cases as the Federal Government may by order in writing specify. Organization of Appellate Tribunal Inland Revenue can best be explained with the help of the following chart: Appellate Tribunal igemnent Chairperson Members Accountant Members Judicial MembersExplanation: A bench might consist of to judicial members and one accountant member or tWO. judicial members and three accountant members. The Federal Government may authorize the Chairperson or any one member of the Tribunal to alone hear and decide the case. The Chairman or other members of the Appellate Tribunal Inland Revenue authorized, in this behalf by the Chairman who constitutes a single member bench may dispose of any case where the amount of tax or penalty involved does not exceed Rs. 10,00,000. If the members of a bench differ in opinion on any point, the majority decision is accepted but if the members are equally divided the point in dispute is referred to the Chairperson of the Tribunal. In such cases the Chairperson appoints one or more of the other members of the Tribunal to hear the disputed point, The question is then decided according to the opinion of majority of members who have heard the case including those who first heard, Final Fact Finding Authority: The decision of the Appellate Tribunal Inland Revenue ona point of fact is final. Due to this reason it is mown as fina! fact finding authority. However, if the decision of the Appellate Tribunal Inland Revenue involves a point of law, the case can be referred to the High Court. The Appellate Tribunal Inland Revenue has the power to regulate its own procedure and the procedure of the Benches of the Tribunal. It can also itself decide all matters arising out of discharge of its functions including the places at which the Benches shall hold their sittings. To sumn up the present position of income tax authorities after incorporating the latest amendments is as follows: Current authority Previous Designation Appellate Tribunal Inland Revenue Income Tax Appellate Tribunal Directorate General of Income and Sales Tax, Commissioner Income Tax Chief Commissioner Inland Revenue Commissioner Inland Revenue: Commissioner Inland Revenue (Appeal) | Commissioner Income Tax (Appeal) ‘Additional Commissioner Income Tax / Additional Commissioner Inland Revenue Taxation Officer _ Deputy Commissioner Income Tax Deputy Commissioner Inland Revenue eee Pace a Assistant commissioner Income ‘Assistant Commissioner Inland Revenue | ‘Tay rraxation Officer Officer Inland Revenue Income Tax Officer / Taxation Officer Special Officer Inland Revenue Special Officer Income Tax 7 Taxation Officer Inspector Inland Revenue The changes which have been brought in the hierarchy of Taxat previous yeas are being watched closely by tax experts. The FBR claims, Income Tax Officer (ITO) Prove beneficial in removing short fails of taxation system in the country. tion Laws during the that the changes will