Tax Reform Era Role of Professionals Younus Rizwani Sheikh

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Tax Reform Era ---

Role of Professionals

Tax Reform Era ---

Role of Professionals

BY

Younus Rizwani Sheikh

President APTBAat

Asia Pacific Tax Conference 2006



I would like to take this opportunity to thank the organizers of

the seminar for inviting me to express my views on the Tax

Reforms Era ± Role of professionals. From the time Income

Tax Act, 1922 was promulgated in undivided India,

Professionals have always played a major role in the

implementation of the tax laws. When Pakistan achieved

independence in 1947 the tax machinery of Pakistan was in

its teething state and was looking to eminent tax practitionerswho had practicing tax before pre-partition days for

assistance in the collection of the taxes by the new

Government. At his juncture, these tax practitioners

motivated the business community to pay their due share of

taxes so that a strong foundation can be laid. The IncomeTax Bar Association, Karachi was established in 1956 by a

group of eminent tax professionals a numbers of whom like

Mr. Iqbal Naeem Pasha, Mr. Masood Ahmed Abbasi, Mr. H.

Shaban are still present in our midst and are playing their

role in the tax development in Pakistan.



From the time ITBAK was formed the bar took itself the task

of apprising the government in power with the needs and

the difficulties being faced by the tax payers and themembers of the Bar, and every year proposals were sent to

the government for amendments in the I.T.Act /ordinance

and critical evaluation was made and sent to the

Government authority in respect of the amendments to be

made in the I.T statutes.

The role of professionals was not only appreciated in

Pakistan but also in India where huge crowds used to

gather to listen to the comments of that great tax

practitioner Pakiwala¶s comment on provisions of theFinance Acts. In both these countries the governments had

also recognized the potential of the tax professionals and

were inducting them in various committees & task forces

formed to initiate and evaluate various tax reforms.



In Pakistan, stalwarts like Mr. Iqbal Naeem Pasha, Mr.

Rehan Hassan Naqvi, Mr. E.U.Khawaja, Mr. Siraj-ul-Haq

Memon, (Late) Mr. Z.H.Jafri were inducted into variouscommittees and now no committee formed by the

government on tax legislation is considered to be

complete unless it includes my fellow panelist Syed

Shabbar Zaidi. All these professionals had voluntarily

and without any honorarium devoted considerable timeand input for the effective completion of the assignments

entrusted to these committees.

Legislation of tax laws though is a major part of taxationbut the development of the tax laws can not be complete

without its effective interpretation by the courts, and a

number of professionals have played a major role in

assisting the courts in the implementation of the tax laws.



The decades of 60 & 70 were dominated by tax wizards

such as Late (Justice) Noor-ul-Arfeen, Late (Justice)

S.S.Nusrat and Mr. Ali Ather. In 80s & 90s the trio of Mr.Iqbal Naeem Pasha, Mr.Rehan Hassan Naqvi, who can

also be called as Baba-e-Writ and Mr. Siraj-ul-Haq Memon

have played a major role in the development of tax laws. I

will be failing in my duty if I fail to give credit to that

Honorable Judge who during his tenure of judgeship inHigh Court & Supreme Court authored approx 150 trend

setting judgments in which most of the thorny issues of

taxes were settled. He is none other then my lord Justice

Saleem Akhtar who has recently retired as a Federal TaxOmbudsman.

Presently my lords Justice Nasim Sikandar of the Lahore

High Court & Mr. Justice Mujibullah Siddiqui of Karachi

High Court are laying new precedent in the field of taxation



The concept of taxes in Pakistan under went a drastic

change when the mantle Finance Ministry was adorned

our Prime Minister Mr. Shaukat Aziz. His tenure is nowregarded as a tax reform Era and these tax reforms

began to be efficiently implemented when the present

incumbent of the post of Chairman CBR Mr. Abdullah

Yousuf took over his office.

The Income Tax Ordinance, 2001 is based on the concept

of voluntary compliance backed by strong audit.

The provisions of this Ordinance and the amendmentsmade by Finance Act, 2004 have come as a very

pleasant surprise and have strengthened the faith in the

credibility of the Government and its intention to the

taxpayers to carryon a taxpayer friendly policy.



A number of proposals, which the various associations

were craving for a number of years have been

incorporated in the new Finance Act. For a change insteadof nullifying the judgements of the Superior Courts an

amendment has been made to give effect to the judgement

of the Lahore High Court Rawalpindi Bench. The rate of

Sales Tax, additional tax and penalties under the Sales Tax Act, 1990 which to start were very high and arbitrary have

been rationalized. The process of Sales Tax Registration

has been simplified, anomalies have been removed from

section 73 and other controversial sections. The Custom

Tariff has also been rationalized.

The Post Finance Act 2004 era has also been full of

surprises. Refunds, which were deemed to be un-

recoverable are being received by the taxpayers through

mail.



Communication between the taxpayers and the tax

collectors are restricted to correspondence only and nodirect communication is being made. Tax Education and

Tax Facilitation are at their incredible best and for the

first time the taxpayers are being given their due

respect. This is a clear indicator of the Government¶s

efforts to make tax payer friendly reforms.

There are definite positive vibes emanating from the

Government¶s action and I hope the taxpayers will

respond to the positive vibes emanating from the actionof the Government and start fulfilling their national

obligation in true national spirit.



At this point, I am reminded of the following couplet of

Khumar Barabankvi:

SUNA HAI QAYAMAT QARIB AAH RAHI HAI

KHUMAR AB MASJID KO JANAY LAGAY HAIN

And note that Khumar has started going to Masjid it is

the bounden duty of us, professionals to play our role to

ensure that Khumar i.e. CBR continues on its reform

agenda which is only possible if the visit to Masjid resultsin acceptance of his prayers i.e. enhanced collection of

revenue.



The government has laid a great trust on the tax payer and

under the provision of section 120 of this Ordinance, the

return filed by a taxpayer unconditionally is converted into anassessment order and the only tools available with the

department are either amendment of the assessment under

the provision of sub-section (5) & (5A) of section 122 or

selection of case for audit under the provisions of section

177. Despite the fact, that the procedure of finalization of theassessment has been simplified but due to complex form of

return more than 75% of the tax payers still prefer to get

their returns prepared and filed through tax professionals.

The preparation and filing of the return casts a very heavy

responsibility on the professionals preparing the return.

Since, the department is committed to unconditionally

accepting the return filed by the taxpayer and converted

automatically into an assessment order it becomes the

sacred duty of the tax professionals to assume their role of a



tax assessor in addition to his role as a tax advisor and

motivate his client to file a true and correct return of

income as under the new law there is no possibility that acorrect return will be rejected and arbitrary assessment will

be made, which acted as a deterrent in the pre-reform era

for the taxpayer to reveal their true state of affairs. I

therefore, feel that in this post reform era the role of the tax

professional has not been minimized but has beenenhanced to a large extent.

In the pre-reform era, the avowed intention of the revenue

was to eliminate the professionals whom they insultingly

referred to as the middleman and establish direct contactwith the taxpayer. However, the amendments made in the

Ordinance and the measure introduced by various Finance

Ordinances to practically implement the government

reform policies, a number of roles have been provided to

the professionals for the implementation of the tax laws.



Vide Finance Ordinance, 2004 the concept of Alternate

Dispute Resolution (which is now invoked in all over the

world for settlement of legal disputes) was introduced in

the Income Tax Law by incorporation of section 134Asimilar amendments were also made in the Sales Tax Act,

1990, the Customs Act, the Federal Excise Act and the

repealed Wealth Tax Act, 1963.

As pointed out above, this concept has been incorporated

in all the revenue acts and the revenue authorities are

encouraging the taxpayers to resolve their disputes and

hardships through mediation through the alternate dispute

resolution committee. Great importance has beenattached to the professionals and in almost every ADR

committee consisting of maximum three numbers. One to

two members are almost always from the selected panel

of professionals like chartered accountants, advocates

and tax practitioners.



In this way, the professionals have been saddled with the

very important responsibility of mediating the disputes

between the revenue and the taxpayer and submitting

their recommendations to the Central Board of Revenuefor resolving the dispute and hardship. Despite the fact,

that under the law, CBR is not bound to accept the

recommendations of the alternate dispute resolution

committee but practically it has been seen that in morethan 80% of the cases, the recommendations made by the

ADRC have been accepted by the CBR and appropriate

orders on the basis of these recommendations have been

passed, which have been implemented by the

department. Therefore, the role of the professionals is nolonger limited to tax planners and advisors but has been

extended that of adjudicator and therefore, now he is

required to look at both sides of the problems and sort it

out in accordance with his conscience and provide even

handed justice.



I am sure that my fellow professionals will handle their

assignments as members of the ADRC impeccably and

within a few years more than 90% of the disputes andhardships will be mediated and disposed-of by the

ADRC.

In almost all the revenue laws including the Income Tax

Ordinance and the Sales Tax Act the revenue

authorities have been authorized to appoint a firm of

Chartered Accountants or Cost and Management

Accountants to conduct special Income Tax audits and

Sales Tax audit. . This audit is different from a normal

audit of the accounts as in this audit, the auditor is alsoexpected to point out the discrepancies in the accounts

as far as they relate to the infringement of the

provisions of Income tax Ordinance and Sales Tax Act

and also recommend to the tax authorities the action to

be taken to retrieve the loss of revenue, if any.



I am of the view that while conducting these audits, the

professionals enjoy immense power to conduct all sorts

of enquiries and inspection and examination required toarrive at the correct state of affairs. I would advice my

colleagues to conduct these audits in a judicious

manner without fear or favour and finalize the

recommendations on the basis after carefully

considering the provisions of the act / ordinance under which they have been assigned this audit.

However, at this juncture had been frankly concede that

the tax reforms initiated by the government may resultin complete elimination of those professionals whose

main assignment consisted of preparation and filing of

return and finalization of assessment on routine and

mechanical basis.





fellow professional will respect this trust if it is imposed

on them by government and only certify the return only

after examining and ascertaining its authenticity. I wouldalso request the government to make a law like the one

in the legal practitioners and bar council act that every

tax payer declaring an income of above certain limit must

compulsorily appoint a tax retainer.

As pointed out by me in earlier part of this paper, the

association of tax practitioners have a major role to play

even in this post tax reform era these associations have

initially to play the role of a watch dog which means thatthese associations should be monitoring the

implementation of the tax policy of the Federal

Government and ensure that the Federal government

does not back out of its commitments.



We should however, not hold brief for the tax evaders

and the dodgers and should never recommend any

proposal which may need to ramped tax evasion. Another important area in which these associations

should function is to act as a lion between the tax

payers and the tax collectors. We should bring the

genuine difficulties and problems faced by thetaxpayers to the notice of the tax collectors and

recommend measure by which these difficulties

problems can be dissolved. We must also propagate

any policy of the government, which according to us

the continuation of the reform process and will bemutually beneficial and lead to the economical

development of the country and motivate the tax

payers to say LAB-BAIK and assist him in

implementation of that.



In return, we must also be continue our old job of

presenting proposals for positive amendment in the

revenue laws and critically review the amendmentsmade in the revenue laws by the government. We

should also be advising the government on how to

attract foreign investment and want incentive offer to

foreign investors, which may result in economicdevelopment of the country. In return, we expect that

the doors of the revenue authorities would always open

for us and our proposals are thoroughly examine before

their acceptance or rejection and any criticism made by

us on the government policies may be taken in correctspirit. I would also recommend that professionals

should be more in the efforts to promote foreign

investment and should be a part of all the delegations

and committees, which are interested with the task of

soliciting foreign investment.



I would like to ensure the federal government if the

recommendations made by me through this august forum

are implemented in later and spirit and the role of professionals is broadened it may lead to a substantial

broadening of a tax base, which I regret to say is one

target the CBR has failed to achieve in last 59 years

despite all the resources at their command.

I would urge all the stakeholders, the revenue

department, the professionals and the taxpayers to unite

so that we may achieve what should be the ultimate goal

of all of us un-presented economic growth of our beloved

country. I would once again thank the organizers of Asia

Pacific Tax Conference for inviting me to make this

presentation and would like to admit that it gives me

immense pleasure to communicate with such a elite

audience .

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Tax Reform Era Role of Professionals Younus Rizwani Sheikh