Mohsin Siddiqui (Chief Reporter)
The Federal Board of Revenue (FBR) is set to implement uniform rules for the recovery of sales tax, income tax, and federal excise duty in the upcoming 2024-25 budget, as part of its policy to harmonize tax procedures across the board. This initiative aims to streamline the tax collection process and ensure consistency in the enforcement of tax liabilities.
Under the Sales Tax Act, 1990, taxpayers are given a 30-day period to settle their tax liabilities once they arise, as stipulated in Rule 71(1) of the Sales Tax Rules, 2006. If the liability remains unpaid after this period, it becomes recoverable and enforceable, unless a restraining order has been issued by the Commissioner of Inland Revenue (IR) Appeals or any other competent judicial authority.
The Federal Excise Rules of 2005 contain similar provisions for the recovery of federal excise duty, ensuring that the legal procedures for tax recovery are consistent across different types of taxes.
Directives to Field Formations
The FBR has issued clear directives to its field formations, emphasizing that recovery procedures must adhere strictly to the law. Field formations have been instructed not to proceed with tax recovery if a restraining or stay order has been issued by any appellate forum. This ensures that taxpayers are not subjected to recovery actions while their appeals are pending.
Multiple recovery procedures have been issued to the IR Field Formations, reiterating that no recovery should take place in the presence of any restraining order. This is in line with the FBR’s commitment to uphold judicial decisions and provide taxpayers with a fair opportunity to seek legal relief.
Latest Recovery Procedures for Income Tax
The latest recovery procedures, outlined in C.NO.6(25)S(IR-Operations)/2019-Pt-2/20144-R dated February 7, 2024, specifically address income tax demands. These procedures state categorically that no recovery proceedings shall be undertaken if there is a court order restraining tax recovery.
Even after a restraining or stay order is vacated, recovery actions can only commence after issuing a notice to the taxpayer. If a restraining order is received after recovery measures have begun under the Income Tax Ordinance, 2001, no further action will be taken for tax recovery. When such an order expires, a fresh recovery notice under Section 138(1) of the Income Tax Ordinance, 2001 must be issued, giving the taxpayer at least seven days to make the payment or obtain a new stay order before further recovery actions are initiated. These actions under Section 140 will only proceed with the approval of a committee comprising senior Commissioners IR and headed by the Chief Commissioner IR.
For the recovery of sales tax and federal excise duty (FED), the FBR has issued Circular No.1 dated February 7, 2024. This circular aligns the recovery procedures with the provisions of the Sales Tax Act, 1990, and the Federal Excise Act, 2005. Unlike the Income Tax Ordinance, 2001, these acts do not have a provision similar to Section 138, which mandates a recovery notice giving taxpayers time to settle their liabilities.
To harmonize the recovery procedures across the three Inland Revenue tax laws, administrative instructions have been issued to the IR Field Formations. These instructions stipulate that in cases involving sales tax and federal excise, at least seven days’ notice should be given to taxpayers before initiating recovery proceedings, following the confirmation of an order by an appellate forum.
The FBR places significant emphasis on adhering to court directions and ensuring that no tax recovery occurs in the presence of any restraining or stay order. By issuing these instructions, the FBR ensures that taxpayers have sufficient time to seek legal relief from the concerned appellate forums.
In response to the court’s observations regarding the delay of recovery until a decision by an independent forum, it is highlighted that while the Commissioner Inland Revenue (Appeals) is an income tax authority, its judicial independence is protected by law. The legislature has ensured that the Board cannot interfere with its proceedings, safeguarding the fairness and impartiality of the appellate process.
