ISLAMABAD: All the orders passed by the taxation officers/Inland Revenue officers for the recovery of Capital Value Tax (CVT) on assets, imposed through the Finance Act 2022, are without jurisdiction following a judgment issued by the Supreme Court of Pakistan.
In this regard, former Federal Board of Revenue (FBR) chairman Shabbar Zaidi has issued a technical release 9/2023 on the jurisdiction for charge of CVT.
According to Zaidi, Capital Value Tax 2022 (CVT 2022) has been levied by way of Section 8(7) of the Finance Act, 2022. This is not a tax on “income” under the Constitution. This is a separate tax levied under Entry 50 of the Legislative List under the Fourth Schedule to the Constitution.
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There are specific mannerisms specified in Section 209(1) of the Income Tax Ordinance, 2001, for the exercise of jurisdiction over a taxpayer for income tax purposes, Zaidi said. The leading chartered accountant said that the manner of assigning the jurisdiction for tax purposes has finally been settled recently by the Supreme Court of Pakistan. This inter alia requires a gazette-notified determination of jurisdiction by the Board.
In the case of CVT 2022, a specific jurisdiction was not assigned in respect to any person. The taxation officer, the Commissioner of Income Tax (Appeals) and the Appellate Tribunal Inland Revenue (ATIR), held that the Capital Value Tax Rules 2022 and general rules prescribed for AEOI Zones are sufficient to exercise these jurisdictions. This manner of exercise of jurisdiction was challenged at the respective levels but has not been entertained. The aforesaid decision of the Supreme Court has decided the issue, in substance, that means that jurisdictions were never assigned as required under the law. The Supreme Court has observed that the taxpayers should know who is exercising authority and whether such exercise of authority is permissible.
Accordingly, all the orders passed for the charge of CVT 2022 are without jurisdiction.
Zaidi said that the liability to pay CVT 2022 is by way of the Finance Act, 2023, therefore, lack of jurisdiction cannot be a basis for non-payment of liability for any year.
Nevertheless, with respect to assets which were declared under the Asset Declaration law of 2018 and 2019 the matter of charge of such assets is yet unsettled. There is a strong case that no liability is payable on such assets.
Furthermore, the tax department cannot charge tax on the exchange rate prevailing on June 30, 2023. Tax is payable, if any, at the rate applicable on the date of declaration. In this situation, the taxpayer may opt not to pay the tax voluntarily. The tax department cannot issue notice without having the jurisdiction which is still not there, Zaidi added.
The former FBR chairman said that the provisions of the CVT Recovery and Refund Rules as emphasised are the only basis under which jurisdiction has been exercised by the federal government for the recovery of Capital Value Tax, 2022. It does not fulfil the requirements laid down by the Supreme Court of Pakistan.
The contention of the Appellate Tribunal is apparently invalid and against the decision of the Supreme Court that has held that all jurisdictions have to be identified in the official gazette.
Furthermore, the view that the taxpayers have to identify the jurisdiction is also not in line with the law and the decision of the Supreme Court of Pakistan. It is important to note that when CVT was levied in 1989 special jurisdiction was assigned for the collection of the said tax. This has not been done in the case of CVT 2022.
It has been held by all superior judicial authorities that an order without jurisdiction has no value, Zaidi added.
Copyright Business Recorder, 2023
