INTRODUCTION

 

The Federal Revenue Board (FRB) issued S.R.O. 1320(I)/2019 dated November 08, 2019.

 

COMMENTARY

 

Through aforementioned SRO, FBR has proposed draft amendments to The Income Tax Rules 2002. The draft is open for comments by any person affected by the proposed amendments within 7days of the issuance of the subject notification.

 

A new Part – IV in Chapter VII of the Income Tax Rules 2002 has been proposed to be inserted which prescribes special instructions regarding books of accounts, documents and record to be maintained by Designated Persons (DPs) and reporting of Suspicious Transactions.

 

According to proposed rules, “Designated Person” or DP means

 

  • Jewelers; and
  • Real estate agents.

 

Documents and record to be maintained by Designated persons                                 Rule 33C

 

  • When the value of transaction inclusive of all applicable taxes and duties exceeds Rs. 2,000,000 in case of immovable property and Rs. 1,000,000 all other cases, DP is required to obtain and maintain record of documents (CNIC, NICOP, Passport, Pakistan Origin Card etc.) relating to buyers and sellers.

 

  • Where DP has reason to believe that the customer is not the beneficial owner, documents as specified above in case of individual and CNIC of CEO in case of AOP and Company on whose behalf the transaction is being carried out together with NTN certificate of AOP or Company.

 

  • Business license issued under section 181D of Income Tax Ordinance, 2001 for customer who show income from business as their source of funds.

 

  • Copy of banking instruments used for payments.

 

  • Copy of documents should be stamped as “Original seen” by DP after viewing the original documents.

 

  • The DP shall, wherever possible, keep a list of all such documents where the business transaction was refused or needed to be closed either on account failure of the customer to provide the relevant documents as specified above or the original documents for viewing.

 

  • The DP shall make arrangement for conducting reliable independent source verification of the customers in order to mitigate risk associated with a transaction.

 

  • Sale and purchase register as per specified format to be maintained by DP.

 

Furnishing of documents                                                                                             Rule 33D

 

  • DP is required to upload on the IRIS online system, the sale and purchase register for immediately preceding month within 15 days of the end of the preceding month for transactions which-

 

  • Which exceeds limit of Rs. 2 million or I million as described above; and
  • are reportable under Rule 33E (Suspicious transactions)

 

 

Reporting of Suspicious transactions                                                               Rule 33E

 

  • DP is required to mark a transaction as suspicious in the IRIS online system if the DP has reasons to believe that the transaction-

 

  • Involves funds derived otherwise than from the business activity or assets declared to the income tax authorities;
  • Is designed to evade any requirement of the ordinance or to conceal the beneficial owner or his activity;
  • has no apparent economic or lawful purpose after examining the available facts, including the background and possible purpose of the transaction; or
  • involves financing of terrorism, including fund collected, provided, used or meant for, or otherwise linked or related to, terrorism, terrorist acts or organizations and individual concerned with terrorism.

 

  • A transaction shall be marked as suspicious if the buyer or seller-

 

  • Frequently changes bank accounts;
  • Uses a bank account other than an account maintained in the name of beneficial owner;
  • Make or receives payments in cash or primarily in cash;
  • Maintains a creditors or debtors account with the DP and instructs the DP to adjust the balance of his account against a creditor debtor account of another buyer or seller.

 

  • The DP shall not disclose the facts to the customer in realtion to suspicious tranactions.

 

 

Monitoring and compliance                                                                                        Rule 33F

 

  • Record to be maintained by DP shall be subject to spot inspection by income tax authorities.
  • Where the record is not maintained in the prescribed form, the business license of the DP shall be suspended pending further investigations into the matter.
  • Penalty and prosecution provisions of Income Tax Ordinance, 2001 would be applicable where a DP fails to comply with these rules.
  • ON conclusion of investigation the officer may submit a report to the Commissioner and make recommendation regarding;-

 

  • Cancellation or reinstatement of the business license; or
  • Referral of the matter to specialized external investigating agency for further investigation under respective laws

 

LINK OF DOCUMENT

201911816111728174SRO1320