The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to re-examine 103 tax credit cases from 2014 to 2021 in light of Section 65D of the Income Tax Ordinance 2001 and process the pending 281 tax credit claims.

In an investigation initiated by the FTO, it was found that the authorities allowed undue tax credit to companies formed as new industrial undertakings without laying down any standard operating procedures (SOPs) for such credit allowance.

The FTO has also issued a checklist for FBR’s field formations to collect complete data in each case and re-examine the same in terms of provisions of Section 65D.

As per Section 65D of the ordinance, tax credit is admissible equal to 100% of the income tax payable on income by a new industrial undertaking for a period of five years.

It was, however, observed that upon introduction of the Universal Self-Assessment Scheme (USAS), the returns of income filed by taxpayer companies automatically became assessment orders, under Section 120(1)(b) of the ordinance, on the day the same were furnished.

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During the investigation, it was noted that in cases where tax credit under Section 65D was claimed, the income tax department paid no heed to the verification process required for determining the validity of the claims.

Ironically, the income tax department took cognisance of such undue claims only when the FTO pointed it out.

Therefore, the FTO observed that evidently no SOPs had been evolved by the FBR for timely examination of tax credit claims filed by the taxpayer companies and to create a built-in monitoring mechanism for ensuring strict compliance with Section 65D(4) of the ordinance.

It was observed that the tax credit available under Section 65D was grossly misused because of the absence of an inbuilt checking system to monitor the authenticity of tax credit claims and their timely disposal.

Published in The Express Tribune, September 10th, 2021.

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