Karachi Tax Bar Association (KTBA) has expressed dissatisfaction over the classification of income set in IRIS (portal for e-filing of income tax returns), citing various computational errors and glitches.
Taxation of gain of immovable property
The KTBA said that the law prescribed taxation of gain of immovable property on net amount; however, the return conversely worked out the tax liability on gross amount of gain.
Unadjusted loss on disposal of securities
Similarly, in line with Section 37A, unadjusted loss on disposal of securities during the tax year 2019 and onwards shall be carried forward to subsequent three tax year or is adjustable only against the gain of the person’s gain on disposal of securities in succeeding three years. However, the web portal does not have any dedicated field to declare the amount of loss sustained on disposal of securities and carried forward to future tax periods. Moreover, if such a loss on capital gain of securities is reported under the existing tab the same is resulting in a negative amount of tax that ultimately results in incorrect tax computation.
Initial Depreciation allowance on Plant & Machinery
KTBA further said that subject to certain restrictions initial allowance @ 25% was allowed against plant and machinery on the strength of proviso to the section 23 read with Part II of the Third Schedule). However, the IRIS web portal is presently not catering this scenario in line with law resulting in an incorrect computation of tax depreciation.
Pakistan-sourced royalty and fee for technical services of a non-resident
Under the provisions of the section 152(1) read with sections 6 and 8 of the Ordinance, the tax deducted on payment of Pakistan-sourced royalty and fee for technical services of a non-resident person is a final tax. The online return form is presently classifying it under ‘minimum tax tab’ resulting in incorrect higher tax liability.
Declaration under simplified scheme for manufacturing SMEs
It said that a simplified scheme for manufacturing SMEs having turnover up to 250 million was introduced through Finance Act, 2021. However, no draft return for this purpose was notified and a return is uploaded on the portal without any notification.
Advance tax on functions and gatherings under special tax year
Through the Finance Act, 2020, the advance tax on functions and gatherings has been withdrawn which is practically applicable from July 1, 2020. However persons following special tax year are yet to claim the said deduction whereas this field has been removed from the return. KTBA; therefore, suggested that field should be reinstated to claim tax deduction for those who are entitled for it.
Non-declaration of wealth statement by Non Residents
KTBA observed that statement of wealth for tax year 2021 was pre-populated with opening balance of last year’s closing balance without considering the tax residency of a person. Consequently, non-resident individuals who otherwise are not required to file a wealth statement cannot proceed to file a return of income in the presence of such unnecessary disclosure.
Computation of tax liability of commercial importer
Through Finance Act, 2019, the facility of FTR for commercial importers has been abolished. In order to cater the transition period, the FBR has made appropriate changes in the computation of tax liability of commercial importer like impact of closing and opening stocks. However, IRIS web portal is not catering the impact of closing / opening stock, causing an incorrect tax computation.
Declaration of Income under section 153 and the section 234A
It was suggested that income of persons associated to the section 153 and the section 234A should be allowed to compute and attribute based on facts instead of predefined or programmed formula and relevant field should be relaxed.