Guidelines for Objection
Guidelines regarding the payment of 30% & furnishing of bank guarantee on objection against income tax assessments
Section 131 A of the Income Tax Act 1995 has been amended to enable taxpayers to pay the 30% by installment. Taxpayers who, because of cash flow problems or for other reasonable grounds, cannot pay the 30% on objection can also give security by way of a bank guarantee.
Where a taxpayer is dissatisfied with an assessment and cannot pay the 30% as required under section 131 A (2)(b), the burden lies on him to prove to the Director General that he has reasonable grounds for not being able to pay the 30% in one sum.
"Reasonable grounds" is not defined, but includes, the following:
- Cash flow problems – A letter from the taxpayer explaining his financial problem and a copy of his latest bank statements in respect of all accounts held by him should be sought as evidence.
- Where the taxpayer is in receivership or in winding-up process.
- Where a taxpayer is no longer in business and is not deriving any income, he must demonstrate that he is in severe financial difficulties
Objecting on Approved Form
Where a taxpayer is not satisfied with an assessment, he may object to the assessment by filling in the approved form and should indicate his inability to pay the 30%. The Independent Objection Unit of the relevant department should call the taxpayer or his representative to consider the grounds put forward for non payment of 30% in one sum. The approved form may be collected from MRA service counter, Ehram Court or be downloaded from MRA website.
Payment of 30% by instalments
If the reasons put forward for not paying the 30% in one sum are accepted, then a written agreement will have to be made with the taxpayer for the payment of 30% by instalments. No interest will be charged during that period but the delay cannot exceed six months from the date of the objection. Alternatively, the taxpayer may provide a bank guarantee. The agreement form is available at MRA service counter, Ehram Court or be downloaded from MRA website.
Where a taxpayer who has entered into an agreement fails to pay any instalment prior to the determination of the objection, his objection may be deemed to have lapsed. On the other hand, a taxpayer who has not yet paid the whole of the 30% (because payment of certain instalments is not yet due) on determination of the objection may be allowed to make representations to the ARC on issues relating to the merits of his case. Therefore, once a taxpayer has made arrangements to pay the tax by instalments and is complying with the agreement, the objection should be considered as valid.
The provision of a bank guarantee is not an automatic alternative in lieu of the payment of 30%. The taxpayer must still show that the business has liquidity problems. Objection cases, where a bank guarantee has been accepted, should, as far as possible, be determined within three months. After the objection is determined the taxpayer should be requested to proceed as follows:
- pay the amount of 30% of the tax initially assessed in case the assessment is maintained;
- pay the amount of 30% of the tax initially assessed in case the assessment is revised to an amount which exceeds the amount of 30%;
- pay the full amount of revised tax in case the assessment is revised to an amount which is less than the amount of 30%
In case of non compliance, the bank guarantee will be enforced to ealize the amount of tax due as mentioned above.
Lapsing of objection
Taxpayers who are unable to provide satisfactory explanation as to why they cannot pay the 30%, will have their objection lapsed
Cases pending before the A.R.C
There are a number of cases pending at the ARC, where the objection has been deemed to have lapsed for non payment of the 30%. The facility to settle the 30% by instalments may also be extended to such cases. Taxpayers willing to avail themselves of this facility should sign the agreement and pay the tax in question within 4 months with a down payment of 25%.
Before withdrawing the case from the ARC, the taxpayer should be requested to sign the relevant agreement and effect the initial payment. The case will then be determined on merits within four months from the date the down payment is effected.
Notes on verso of Notice of Assessment
Proper guidance notes on verso of Notice of Assessment have been inserted to inform taxpayers their obligations under Section 131 A of the Income Tax Act.
Bank Guarantee for VAT cases
The above guidelines relating to bank guarantee apply equally to cases of objection in respect of VAT assessments.
These guidelines take effect forthwith.