As per the new legislation, it is now stipulated that no officer below the rank of Director General and Director of the Central Intelligence Cell (CIC) holds the official authority to conduct investigations into tax evasion
In the current fiscal year 2023-24, the National Board of Revenue (NBR) has rolled out a new Income Tax Act, signaling a significant shift in the landscape of income tax-related activities. Under this revamped legislation, the authority of tax inspectors has been notably curtailed, with only officers holding the rank of Director General and Director of the Tax Intelligence Cell (CIC) within the NBR empowered to investigate tax evasion. Consequently, tax detective operations will now necessitate official approval.
On the flip side, the new Income Tax Act bolsters the powers of tax commissioners across different regions, granting them the authority to initiate criminal proceedings against taxpayers without the need for NBR approval. These changes have been identified through a comprehensive analysis of various sections within the newly enacted income tax law.
2024 Income Tax Act Amendment
As per the new legislation, it is now stipulated that no officer below the rank of Director General and Director of the Central Intelligence Cell (CIC) holds the official authority to conduct investigations into tax evasion. Notably, the Deputy Director and Assistant Director of CIC were vested with this authority under the previous Income Tax Ordinance.
Section 204 of the recently enacted Income Tax Act explicitly outlines the powers of investigating income tax authorities to probe tax evasion cases involving individuals or organizations. Section 198 of the same Act specifies the authorized investigating income tax authority responsible for taxpayer investigations, designating only the Director General of CIC for this role, with no inclusion of other officers.
Furthermore, Section 4 of the new Act incorporates the Director General, Additional Director General, and Director of CIC as income tax authorities, delineating the scope of their duties. These responsibilities encompass intelligence operations for gathering taxpayer information, analyzing income tax records based on intelligence findings, detecting instances of tax evasion, concealed income, and irregularities, as well as initiating legal actions for tax recovery.
According to information provided by the National Board of Revenue (NBR), the Central Intelligence Cell (CIC) currently comprises 26 officers. Among them, there is one Director General and two Directors. Additionally, there are 13 officers holding the ranks of Joint Director, Deputy Director, and Assistant Director. Furthermore, there are 10 officers with designations such as Revenue Officer, Assistant Revenue Officer, and Inspector. Out of these 26 officers, only three are authorized to conduct official investigations aimed at uncovering tax evasion.
Regarding this matter, Syed Aminul Karim, a former member of NBR and former Director General of CIC, expressed his views in an interview, stating,
“The changes in the law have both positive and negative aspects. On the positive side, reducing the authority at lower levels can help prevent potential harassment. There is a certain degree of oversight when the authority rests with the Director. This adjustment has curtailed the arbitrary powers of the investigators.”
In 2004, as part of comprehensive tax administration reforms advised by the World Bank and the International Monetary Fund (IMF), Large Taxpayer Units (LTUs) and Central Intelligence Cells (CICs) were established. This overhaul of the revenue system proved to be highly successful, with approximately 30-35% of the total tax revenue now stemming from 1,000 individual and corporate taxpayers managed by LTUs.
Conversely, the CIC was instituted as a specialized tax intelligence unit, modeled after developed countries’ practices, with a primary mission to detect tax evasion among large taxpayers. Additionally, CIC played a vital role in the prevention of money laundering. In its early years, CIC displayed remarkable activity in investigating significant tax evasion cases.
National Board of Revenue (NBR) officials have stated that these changes were implemented as part of the new law to diminish the discretionary authority wielded by tax officials.
Evolution of Investigative Authority in CIC
On the date of November 1st, an extension of authority took place। When the CIC was initially established, the Income Tax Ordinance clearly outlined the Director General’s powers to investigate tax evasion. However, Deputy Directors and Assistant Directors were not granted similar individual empowerment. Conversations with NBR officials have revealed that this discrepancy led to the dismissal of numerous cases that arose during the highly publicized One-Eleven period.
During that time, the courts argued that Deputy Directors and Assistant Directors of the CIC conducted investigations into these tax evasion cases without possessing authority under the Income Tax Act. Consequently, in 2009, an amendment was made to the Income Tax Ordinance by introducing Section 25 AA, which conferred investigative powers upon them. However, this authority was not retained in the subsequent legislation.
Eliminating Approval in Criminal Cases
Approval is unnecessary in criminal cases under the new law. In cases involving tax offenses, the recent legislation stipulates a potential sentence of up to five years of rigorous imprisonment. Previously, initiating a criminal case against a taxpayer necessitated the NBR board convening a meeting to propose a case and secure approval. Now, the Tax Commissioner’s approval is sufficient to file such cases.
The introduction of the new Income Tax Act for the fiscal year 2023-24 marks a significant turning point in the realm of income tax administration. This legislation has reshaped the roles and powers of tax inspectors, concentrating investigative authority in the hands of high-ranking officers while demanding official approval for tax detective operations.
On the other side of the coin, it has empowered tax commissioners across regions to independently pursue criminal cases against taxpayers without the need for higher-level approval. These changes, driven by the goal of reducing discretionary powers, have brought both positive and negative consequences, as highlighted by experts.
This transformation builds upon the successful tax administration reforms initiated in 2004, which led to the creation of Large Taxpayer Units (LTUs) and Central Intelligence Cells (CICs). These entities played pivotal roles in boosting revenue collection and combating tax evasion, culminating in significant contributions to the country’s tax income.
As the landscape of tax enforcement evolves, it is evident that the new Income Tax Act of 2023-24 aims to strike a balance between empowering tax authorities and ensuring oversight, ultimately shaping the future of tax compliance and evasion detection in the nation.
