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TABLE OF CONTENTS

SR. NO. CONTENTS PAGE
1. Executive Summary 1

2. Chapter I Office of the Federal Tax Ombudsman,

Scope & Jurisdiction 7

3. Chapter II Reaching out the Stakeholders 19

4. Chapter III Organizational Set Up 21

5. Chapter IV Performance During the Year 26

6. Leading Cases during the Year


    1. Sales Tax & Central Excise 34

    2. Income Tax & Wealth Tax 77

    3. Customs 114

7. Important Press Clippings

8. Letters of Appreciation



EXECUTIVE SUMMARY

FTO’s Seventh Annual Report

This is the seventh Annual Report of the Federal Tax Ombudsman prepared for submission to the President of Pakistan as envisaged in Section 28(1) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

The report covers details of major achievements of FTO’s Office in the redressal of grievances of the stakeholders during the calendar year 2006.

FTO’s Office and Its Charter

The FTO’s Office was established on 19 September 2000. The incumbent FTO has been holding the post since 08 December, 2004.

The charter of the FTO is to diagnose, investigate, redress and rectify any injustice done to a person through maladministration of the Revenue Division and or its functionaries. The jurisdiction of FTO’s Office does not extend to the cases which are sub judice before any court of law or tribunal constituted for the purpose or falling within the executive functions of the tax collecting departments.

Significance of FTO’s Recommendations

The recommendations made by the FTO played a pivotal role in the implementation of tax policies of the Revenue Division and alleviation of the sufferings of the taxpayers. The guidelines so provided contributed a lot to provide and maintain congenial working environment and relationship between the stakeholders and the tax administration. This will go a long way in restoring the confidence and trust of the people in the tax policy of the government.



Compliance of the Recommendations

It goes without saying that mere making recommendations cannot bring about any tangible change in the efforts of the government aimed at providing speedy and inexpensive justice to the taxpayers. The timely implementation of the recommendation in letter and spirit is the key to providing solutions to the problems faced by the tax-payers. Hence great emphasis has all along been laid on this aspect by ensuring compliance of recommendations made by the FTO.



Performance during the Year 2006

During the calendar year 2006, 1347 complaints were lodged as detailed below:-



Sales Tax

Customs

Income Tax

354

163

830

1015 complaints had been disposed off while 332 were in the process of disposal as highlighted in the following diagram:-



Institution

Disposal

Balance

1347

1015

332

1609 complaints including 262 complaints of the previous year were disposed off leaving a balance of 335 as depicted in the following diagram:-



Previous Balance

Institution during 2006

Total

Disposal


Balance

262

1347

1609

1274

335



Review Cases

Section 14(8) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000 empowers the FTO to review any of his findings communicated or recommendations made or any order passed by him.

By exercising the above powers the FTO reviewed a number of cases and modified findings, recommendations and orders by rectifying apparent errors. This helped to save time and energy, ensured speedy justice and enlisted support of the taxpayers.

Review applications decided by the FTO are depicted in the following diagram:-



Institution

Disposal

Balance

99

88

11



Disciplinary Action

As the FTO’s Office is not adversarial to the existing tax structure, it has a perennial feature of making recommendations for disciplinary action against the delinquent officers of the tax administration with a view to forestalling recurrence of indiscipline as also the complaints.

The result of the action so proposed during the year 2006 is as under:-


Warned and Counselled

Exonerated

Total

07

01

08



Representation to the President

Section 32 of the Establishment of the Office of the Federal Tax Ombudsman, 2000 provides that the Revenue Division or any person aggrieved by a recommendation of the Federal Tax Ombudsman may, within thirty days of the recommendation, make a representation to the President, who may pass such order thereon as he may deem fit. The details of the representations filed during the year under report are given as under:-



Institution

Previous Balance

Total

Disposal

Balance

434

168

602

245

357



Refund and Compensation to Taxpayers

Delay in the payment of refund had always been one of the major causes of grievances of the taxpayers. This has had badly impaired the trust of the taxpayers, discouraged the investors and frustrated the efforts of good governance. The FTO’s Office has, with a view to bridging the yawning gap of trust deficit between the taxpayers and the administration, recommended systemic reforms as to the removal of irritant of non-issuance of refund.

The complainants of the refund cases where inordinate delay had been caused by the tax employees were duly compensated as detailed below:-


Refund Recommended

Refund Issued

Amount

235

178

Rs. 183.77 million



Compensation Cases

Compensation Issued

Amount

41

18

Rs. 2.47 million

Budget Estimates

As against Rs.36.443 million provided during the financial year 2005-06, funds to the tune of Rs.42.642 million had been allocated out of the Federal Consolidated Fund for the financial year 2006-2007, break down of which is given as under:-



Financial Year

Islamabad Rs(in million)

Karachi Rs(in million)

Lahore Rs(in million)

Total Rs(in million)

2005-2006

19.219

7.383

9.841

36.443




2006-2007

19.276

11.668

11.698

42.642




Informal Resolution of Disputes

Section 33 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 envisages that the FTO and authorised Staff Members shall have the authority to informally conciliate, amicably resolve, stipulate or ameliorate any grievance without written memorandum and without the necessity of docketing any complaint or issuing any official notice.

As an Agent of Change, the FTO is looked upon by the aggrieved ones to informally help remove the irritants and solve the disputes which damage the relations between them and the tax administration. As a step in that direction, and besides formally recommending measures for the eradication of maladministration, he has given meanings to informal resolution of disputes, for example, in the following cases:-

(i)

(ii)

Mr. Ali Manzil, Islamabad

Versus


Secretary Revenue Division

(Complaint No. 533 of 2006)



M/s Hussain Flour Mills Havelian, Abbottablad

Versus


Secretary Revenue Division

(Complaint No. 337 of 2006)




Staff Service Rules and Delegation of Financial Powers

Section 36 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 empowers the FTO to make rules, with the approval of the President, for carrying out the purposes of the said Ordinance. “Staff Service Rules, 2006 of the FTO’s Office” have since been approved by the President.

The Finance Division with a view to imparting greater financial autonomy and independence to the Office of the Federal Tax Ombudsman has allowed the FTO to exercise Financial Powers in relaxation of the provisions contained in the System of Financial Control and Budgeting, 2006.

Participation in the International Fora

Importance and vitality of the FTO’s institution is felt the world over. More than 250 Ombudsman Institutions are functioning in about 110 countries. Two major international organizations are: (i) The International Ombudsman Institute (IOI) based in Canada with the objective to promote concept of Ombudsmanship. The FTO’s institution is one of the 163 voting members; and (ii) the Asian Ombudsman Association (AOA), which was established in 1996 on the initiation of Pakistan, represent the Ombudsman of different countries. Pakistan has been holding the post of President of AOA since its inception. The interaction and exchange of views and experience resulted in strategies such as capacity building and identification of subjects of research beneficial for member states.

The FTO hosted a dinner on 15 December, 2006 at the hotel Marriott, Islamabad, in honour of the AOA’s delegates from Philippines, Hong Kong, South Korea, People’s Republic of China, Iran, Japan, Macao and Malaysia on their visit to Pakistan.

CHAPTER - I
OFFICE OF THE

FEDERAL TAX OMBUDSMAN,

SCOPE & JURISDICTION

The office of Federal Tax Ombudsman was established through Ordinance No.XXXV of 2000 called the "Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000". The first Federal Tax Ombudsman took oath of his office on 19th September, 2000 and completed his tenure on 18th September, 2004. Present Federal Tax Ombudsman Justice (R) Munir A. Sheikh was administered oath as Federal Tax Ombudsman of Pakistan on 8th December 2004.
The objective of appointment of Federal Tax Ombudsman according to the preamble of the Ordinance is to diagnose, investigate, redress and rectify any injustice done to a person through Maladministration of the government functionaries administering tax laws. It is a welfare legislation for the benefit of taxpayers and reflects the policy of the Government to create confidence in various sections of society and stakeholders by creating an independent institution for good governance in revenue departments.
Scope of Action

The functions and powers of the Federal Tax Ombudsman involve Investigation into any allegation of Maladministration on the part of Revenue Division or any tax employee

  1. on a complaint by an aggrieved person,

  2. on a reference by the President,

  3. on a reference by the Senate,

  4. on a reference by the National Assembly,

  5. on a motion of the Supreme Court during the course of any proceedings before it,

  6. on a motion of the High Court during the course of any proceedings before it and

(vii) of his own motion.
Filing Procedure

The procedure for filing complaints with the Federal Tax Ombudsman is provided in section 10 of the Ordinance. The complaints have to be filed in writing and their correctness is to be verified by the complainant on solemn affirmation.

In many deserving cases Hon’ble FTO, after listening to the complainant converted them into written complaints and ordered investigation for redressal of the grievance cited in the complaints.

The procedural requirements of subsection (1) of section 10 are:


  1. A written complaint addressed to the Federal Tax Ombudsman on solemn affirmation in writing that contents of the complaint are true and correct.

  2. In case complaint is not verified on solemn affirmation, an affidavit reiterating the contents of complaint should be filed.

  3. Complaint, solemn affirmation / affidavit to be signed by the aggrieved person or in case of death of the aggrieved person by his legal representative.

  4. Complaint can be delivered in the offices of the Federal Tax Ombudsman by any means of communication.

Subsection (2) ibid, in order to foreclose the possibility of vexatious and unsubstantiated complaints provides that anonymous or pseudonymous complaints shall not be entertained.

Subsection (3) ibid, provides that a complaint shall be made not later than six months from the day on which the person aggrieved first had the notice of the matter alleged in the complaint till the date of filing of complaint. However, the Federal Tax Ombudsman may entertain the complaint, which is not within time if he considers that there are special circumstances that deem it proper in the interest of justice to conduct any investigation pursuant to a complaint.

Where the Federal Tax Ombudsman proposes to conduct investigation he shall, in accordance with subsection (4), provide an opportunity to the Secretary of the Revenue Division or to the functionary who is alleged in the complaint to have taken the action or authorized the action complained of, to reply to the allegations contained in the complaint through a notice, when he proposes to conduct an investigation. Further in such eventuality subsection (6) provides for an opportunity to the parties to be heard in person or through an authorized representative by the Federal Tax Ombudsman.

However, where he decides not to conduct an investigation, sub-section (10) provides that he shall send to the complainant a statement of his reasons for not conducting the investigation.

Subsection (5) provides that normally every investigation shall be conducted in private. However, the Federal Tax Ombudsman may adopt such procedures, as he considers appropriate for carrying out such investigation. He may also obtain information from such persons and in such manner and make such inquiries as he thinks fit.

Any person who attends or furnishes information for the purpose of any investigation shall receive, in accordance with subsection (7), expenses and allowances from the Federal Tax Ombudsman in accordance with the rules made under the Ordinance.

The Federal Tax Ombudsman, in exercise of his powers under subsection (9), may require any tax employee to furnish any information or to produce any document which in his opinion is relevant and helpful in the conduct of the investigation and there shall be no obligation to maintain secrecy in respect of disclosure of any information or document for the purpose of such investigation.

Sub-section (8) permits the Revenue Division to take any action or to exercise any power or duty to take further action in respect of any matter which is subject to investigation. It is however clarified that such action should be, just, proper and according to law and should not be motivated, biased, prejudiced or with the intention to forestall and frustrate the investigation.

Maladministration


Maladministration has been defined to include: -

“(i) a decision, process, recommendation, act of omission or commission which-

a) is contrary to law, rules or regulations or is a departure from established practice or procedure, unless it is bona fide and for valid reasons.


  1. is perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory;

  2. is based on irrelevant grounds; or

  3. involves the exercise of powers, or the failure or refusal to do so, for corrupt or improper motives, such as bribery, jobbery, favouritism, nepotism and administrative excesses;

(ii) neglect, inattention, delay, incompetence, inefficiency and ineptitude, in the administration or discharge of duties and responsibilities;

(iii) repeated notices, unnecessary attendance or prolonged hearings while deciding cases involving-

(a) assessment of income or wealth

(b) determination of liability of tax or duty;



  1. classification or valuation of goods;

  2. settlement of claims of refund, rebate or duty drawbacks; or

(e) determination of fiscal and tax concessions or exemptions.

(iv) wilful errors in the determination of refunds, rebates or duty drawbacks;

(v) deliberate withholding or non-payment of refunds, rebates or duty drawbacks already determined by the competent authority;

(vi) coercive methods of tax recovery in cases where default in payment of tax or duty is not apparent from record; and

(vii) avoidance of disciplinary action against an officer or official whose order of assessment or valuation is held by a competent appellate authority to be vindictive, capricious, biased or patently illegal.

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