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FTO asks CBR to amend Section 236 of Income Tax Ordinance

LAHORE (June 12 2005): Federal Tax Ombudsman (FTO) has directed CBR to make necessary amendments in section 236 of Income Tax Ordinance by enlarging its scope, which is presently restricted to prepaid cards only, so that amount of tax collected on sale of chips is also deposited in the government accounts.

He also directed the CBR to make proper announcement for the guidance of the withholding agents and public at large.

The FTO passed these orders in a petition filed by one Aamir Hussain alleging mal-administration, represented by absence of procedure. He directed the respondents to submit a compliance report within 30 days.

The petitioner purchased a tele-connection activation chip for Rs 2,999, which, as printed on its folder, included Rs 2,000 as tax. When asked, the company issued a certificate only in respect of tax deduction/collection under section 236 of the Income Tax Ordinance 2001 on sale of calling cards, but not for the activation of the connection.

It was alleged that the CBR has not prescribed any procedure for accounting the deductions on activation of cellular phones despite mention by the Finance Minister in his budget speech for 2004-2005 about reduction in the tax for this service from Rs 2,000 to Rs 1,000. Consequently, the complainant could not claim adjustment/refund of the prepaid tax.

The petitioner contended that phone companies were authorised to collect tax along with activation charges. Thus entitlement to claim credit/refund accrued to all those persons purchasing cell phones. It was the responsibility of the CBR to specify the section under which collection was to be made, and to prescribe the procedure for the same.

The failure is deemed as mal-administration, which is causing a huge loss of revenue to the government, because phone companies deduct tax but issue no certificate in respect of activation charges for the chip, thus depriving the government of enormous amount of revenue; and the taxpayers also suffer as they have no certificate to claim refund/adjustment.

The court, after hearing the petitioner's counsel at length, passed necessary directions to the CBR and disposed of the petition.

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