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IMF lays down parameters for new income tax return form

ISLAMABAD (April 06 2003) : To collect maximum information on taxpayers and identifying those involved in under-reporting, the International Monetary Fund (IMF) had laid down certain parameters for the Central Board of Revenue (CBR) to design new income tax return form for all categories of taxpayers.

Commenting on the draft form, the IMF has proposed comprehensive changes in the form for eliciting maximum information from the taxpayers, speedy processing of returns through computer, early commencement of audit and identification of potential taxpayers liable to audit.

The Fund is confident that the new income tax form would also provide substantial data to frame audit selection criteria and would assist audit officials during examination of taxpayers records.

The IMF has expressed its serious concern over the volume of information being sought from non-employee individual taxpayers and raised apprehensions that huge volume of data would be difficult to handle through computer.

The Fund has pointed out that effective design of return forms containing instructions was necessary for income tax self-assessment arrangements.

Tax returns should be designed to facilitate accurate completion by taxpayers, while not being overly burdensome so as to discourage non-completion or increase the likelihood of errors, enable rapid processing, capture sufficient information about the taxpayers and their tax affairs to enable their accurate identification and location, accurate computation of tax liabilities, and the identification of 'at risk' taxpayers, ie those having potential for audit.

The IMF has raised the following concerns during examination of draft forms pertaining to 'individuals'.

First, the proposed non-employee individual return seeks a substantial amount of line-item information from taxpayers that, in the mission's view cannot be justified, eg, details of personal living expenditure, wealth information, and specific data on non-deductible/inadmissible items.

Secondly, the proposed non-employee individual return was designed to computer-capture a substantially excessive amount of information, the attempted execution of which would seriously hamper the CBR's capacity to rapidly process tax returns.

On this later point, the CBR should bear in mind that rapid processing of returns was intended to meet a number of important objectives.

The refund of overpaid tax within 45 days of returns being filed to avoid any exposure to the payment of interest and early commencement of audit activity using computer-generated audit selection criteria.

Restricting data capture to a minimum was a key strategy to achieve these outcomes, IMF maintained.

Concerning the need to capture return information for the framing of audit selection criteria, the mission has asked the CBR to ensure that all the returns were coded by processing staff or taxpayers with a standardised form of industry/occupational coding, which was computer-captured.

The computer should capture all gross aggregates of individual income items, (eg gross interest, gross business income, gross rents) and gross aggregates of deductions, (eg, gross business deductions, gross rental income deductions) and specific income/deduction items that have a high risk of error, (eg, entertainment, repairs).

This type of information would be instrumental in screening the taxpayer populations and the targeting potential 'at risk' taxpayers.

Furthermore, the ultimate recording of such information on a multiyear basis would enhance future audit selection processes, the IMF added.

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