After compiling more than 10,000 Income tax returns as a Senior Associate Income Tax Dept of EY. I’m writing about very common questions.
1. Return is Assessment Order
If you have paid the income tax but have not filed the income tax return. It means that there had been no deemed assessment.
An example: If you are a businessman and have bought something via cheque. So, you paid for what you bought and the seller serves an invoice. The invoice enlists details about the bought things for a specified amount.
When the buyer buys these things after that the seller issues the invoice and the transaction is complete.
If you come to know that all that has been mentioned in the invoice is not right, then you can talk to the supplier.
Similarly, Income Tax Return is an assessment of order issued by Commissioner Income Tax. In this Income Tax Return Form you enlist the Salary Income and Tax paid on it along with other required details.
The Federal Board of Revenue prima facie considers it to be correct and accepts it as an assessment order.
When your assessment becomes an order, the transaction is deemed to be complete in respect of tax submitted/deducted.
After the Scrutiny is complete and all the pieces of evidence required have been submitted. The concerned officer will issue an order for tax payable or refundable, to the assessee.
2. Documentation of the Economy
Tax or fiscal laws of income tax are meant for many rationales. Generally, it's perceived that these laws are only for revenue generation but these fiscal laws have many other purposes.
One important purpose is the documentation of the economy. When a citizen files an income tax return then he/she is helping in the documentation of the economy.
An example: Imagine a filer sells his car and reports in the income tax return about this. As a result, the information about the value and other details of the car will be recorded in the tax system.
Now if the buyer is not a tax filer then the system will bring the buyer into the tax bracket. Ultimately that buyer will have to file an income tax return.
So when a citizen files income tax return then he/she is helping in the documentation of the economy. This helps the state with information about the average taxpayer’s
- Electricity Consumption
- Telephone and Internet Consumption
- Household and kitchen Expenses
- Bank Accounts etc.
Hence documentation of the economy is only possible when taxpayers will file returns.
3. Reliable database for FBR
Research and development for the Reliable database of FBR are very important and the Government can use this data for important decisions.
Imagine that all the eligible taxpayers of the economy are filing income tax returns.
If the government wants to provide subsistence to those who are earning below 700,000/- Pakistani Rupees. Then the Government can easily retrieve the data from the FBR database and provide the required subsistence.
4. Benefits of Filing Income Tax Return
There are many benefits to filing income tax returns.
An Example: You are a person from Salaried Class and the deduction of your income tax in the relevant tax year was overcast and tax deducted was more than required.
- Then you can claim a refund from the FBR only if you have filed an income tax return. If you are a non-filer then you cannot claim the refund.
- If you are doing charity or Zakat then you can only claim the tax credit and Income Tax allowance on your filler status.
- Tax Withholding rates for the fillers are way lower than those who are non-fillers.
There are various benefits that one can avail by filling income tax return.
5. Legal Obligation
Benefits or No-Benefits, one has to file an income tax return because its a legal obligation. If you are required by law to file Income Tax Return but you are not filling it then you are in breach of Income Tax Laws.
It is synonymous with not stopping on the red light of the signal. As the traffic police penalize on violation of traffic rules. Similarly, there are penalties for those who are required to file income tax by law but they are not filing the income tax return.
Manner of forecasting tax liability and creating possibilities and strategies to reduce it. (Tax Planning: Strategies & Steps)
For these reasons, it is essential to file Income Tax returns. One can avoid tax legally but not filing a tax return is not an option.
To avoid tax one needs a tax consultant. Tax evasion and none-filing of the tax returns are penalized worldwide.
Effects of Tax Evasion & Tax Avoidance on Global Economy
Tax evasion and tax avoidance are important as they affect both the volume and nature of government finances. Total cost to developing countries of these leakages is US$385 billion annually, dwarfing any potential increase in aid. (Cobham, 2020)
1. Cobham, A. (2020). Retrieved 7 September 2020, from http://www.sataxguide.co
2. Assessment Order, Retrieved 2 September 2020, from https://desk.zoho.com/portal.
2. "Tax Planning: Strategies & Steps." Study.com, 14 April 2017, https://study.com
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2020 Mohsin