Q.

Suggest various steps required to improve tax collection procedure.

(20)

The Tax Collection Process What is a delinquent account?

An account becomes delinquent when the due date for a tax return or other established liability has passed and the amount due remains unpaid.

What happens if your account becomes delinquent?

Penalties and interest begin to accrue on the unpaid tax until the entire balance is paid in full.

If you dont respond to letters or notices and your account continues to be delinquent, it is assigned to a Revenue Agent for collection.

The Revenue Agent will contact you by telephone, letter or in person to resolve the delinquency.

What happens if you do not respond or make satisfactory payment arrangements during the collection process?

The Department may issue an assessment and then a tax warrant covering all unpaid tax, penalty and interest.

If a tax warrant is not paid ten days after the issue date, it is filed with the county Superior Court.

A filed tax warrant establishes a lien against real and personal property.

A filed tax warrant enables the Department to seize property (bank accounts, wages, personal property) to pay the debt.

If a filed tax warrant remains unpaid after 30 days, a hearing to revoke the businesss tax registration endorsement may be held. (A business must have a tax registration endorsement to legally operate in Washington)

What can you do to avoid becoming delinquent?

Know your tax responsibilities and plan for them.

File electronically. Electronic filing reduces errors, allows you to warehouse your payment and saves you time and money.

Pay careful attention to the due date on your tax return.

Respond promptly to any Notice of Balance Due or Delinquency Notice sent to you.

Open and read Department of Revenue correspondence sent to you; it may contain reporting instructions, due dates, changes in laws or tax rates or other important information that may affect your tax responsibilities.

Set up a separate bank account and regularly deposit collected retail sales tax or other taxes you may owe. Withdraw the funds only when you pay the taxes.

Tax Collection Procedures and Actions

There are many procedures and actions that go into the collection of taxes for James City County. Below is a list containing procedures/actions that pertain to most James City County taxpayers. Please click on any selection that you would like to know more about.
COLLECTION AGENDAS

Virginia State Code allows Treasurers to turn over any taxes, over six months delinquent, to a private collection agency. This agency can then apply a 20 percent fee to the bill in question.
DELINQUENT NOTICES

Personal Property - Delinquent notices for personal property taxes are sent out between one and two months after the original due date on the bill in question. This notice will show the current amount due, including penalty and interest, on each account in our records. This notice is a reminder that a balance remains in your name, and that your account needs to be brought current to ensure that no legal actions will be taken against you. If you feel you DO NOT owe the tax due to selling a vehicle, please contact the Commissioner of the Revenue's Office at (757) 2536695. If you cannot pay the entire amount in full, please contact our office at (757) 253-6705 for information on payment agreements. Real Estate - As with personal property notices, Real Estate notices are sent out between one and two months after the original due date on the bill in question. It will also show the current amount due, including penalty and interest, on each parcel in our records. This reminder is sent to allow for payment before legal action is taken. If you have an escrow account for your Real Estate taxes and you receive a notice, please contact your mortgage company immediately to inquire as to why your taxes have not been paid. You may also set up a payment agreement for Real Estate taxes if you feel you will not be able to pay the entire amount due.
MAILING OF BILLS

The Code - The Codes of Virginia require that all tax bills be mailed within 14 days of the due date on said bills. At the James City County Treasurer's office, we try to ensure that the taxpayer has plenty of notice as to the amount due on their next bill and the date in which that amount is due. Therefore, we continually strive to have each bill mailed to the taxpayers at least one month before the due date. Personal Property Due Dates - The usual due dates for James City County Personal Property Taxes are June 5 and December 5 of every year. However, when personal property is purchased within the tax year, a supplemental assessment may be issued by the Commissioner of the Revenue's Office. Due dates for these bills are decided upon as the supplements arise. If you are expecting a supplemental bill, and would like an estimate of the tax amount that will be due, please contact the Commissioner of the Revenue's Office at (757) 253-6695. Real Estate Due Dates - The usual due dates for James City County Real Estate Taxes are June 5 and December 5 of every year. However, please remember that

Real Estate taxes run on a fiscal year in JCC, meaning the year runs from July 1 through June 30. Bills for those homeowners who have escrow accounts for their taxes are mailed directly to the mortgage company. If you have an escrow account and you receive your bill, please forward that bill to you mortgage company as soon as possible. Supplemental bills may also be imposed on Real Estate if the property has had improvements during the year (ex. house or additions being completed). If you are expecting a supplemental bill, an estimate of the amount can be obtained from the Real Estate Assessor's office at (757) 253-6650.
LIENS

A Memorandum of Lien is a recorded judgment against a taxpayer's property in favor of the county. When the Treasurer files a judgment with the circuit court, it remains in effect for 20 years, or until the underlying debt is resolved. The taxpayer will not be able to sell, refinance, or otherwise dispose of the property listed on the Memorandum of Lien until it is released. Although the Treasurer's office does not report tax account information to credit bureaus, a Memorandum of Lien is a matter of public record and may harm a taxpayer's credit rating.
PAYMENT AGREEMENTS
Payment agreements may be set up at any time for Personal Property taxes, Real Estate taxes, and Business Licenses, unless delinquent actions have commenced. Once seizure warrants (distress warrants) have been issued, payment agreements are no longer an option. A payment agreement is one of the customer service initiatives provided by the Treasurer. The purpose of the agreement is to move the delinquent taxpayer to a position where he has no outstanding delinquent liabilities and can avoid additional penalties and interest on future tax assessments. Taxpayers will be given three payment period options, 6, 12, or 18 months. The taxpayer will be given the amount of the monthly payment based on the number of months and the balance due. Tax assessments that fall due within the chosen period will be included in the agreement. Payments are to be automatically debited from the taxpayers checking or savings account. The Treasurer may require an advance payment of up to 50 percent of the balance due. Taxpayers paying 50 percent of their balance may be eligible to have existing delinquent actions released. Payment agreements may NOT be approved if:

Office.

A previous payment agreement went into default within the past three years. The amount due is not suitable for a payment agreement. The taxpayer demands an amount that will not meet the time requirements set by the Treasurers

If accepted, payment agreements stay in effect until the debt is paid, and no other action will be taken, except of set-off debt transactions, as long as:

No debit is rejected by the bank because of insufficient funds or closing of account without notice to

the Treasurer.

The taxpayer stays current with any tax filing requirements and makes timely payment of any other tax The Treasurer is provided with correct, complete, and current financial information when requested.

obligation not covered in the payment agreement.

If the above is not adhered to by the taxpayer, the Treasurers Office reserves the right to revoke the payment agreement and pursue other actions to collect the amount due.

SEIZURE OF ASSETS

If we are unable to collect your tax liability through other means, Virginia State Code allows the Treasurer to direct the sheriff to seize and sell a taxpayer's property. Before this action can be taken, the Treasurer's office will send the taxpayer a notice giving them ten days to settle the liability. If the liability is not satisfied, the sheriff will proceed to sell the property.
SETOFF DEBT

If you are entitled to any payment from the Commonwealth of Virginia (income tax refund, lottery winnings), we may request that the state take the payment owed to you and apply it to your tax debts, or other unpaid state or local debts. If we receive notice that these funds are available, you will be notified by our office and given 30 days to contest the amount before we actually request it from the state. Four percent of the amount is kept by the Commonwealth for administrative fees. If funds are held for taxes you feel you DO NOT owe due to a vehicle being sold or you have moved from James City County, please contact the Commissioner of the Revenue's Office at (757) 253-6695.

The Federal Board of Revenue (FBR) would have to revisit its policies to broaden tax net as discourteous attitude of tax officials is discouraging new investments and new businesses. These views were expressed by PIAF-Founders Alliance leaders including Iftikhar Ali Malik, Mohammad Ali Mian, Sh. Mohammad Asif, Sheikh Mohammad Arshad and Sohail Lashari while addressing the the businessmen during their visit to Anarkali here on Saturday. The Alliance leaders took a strong exception to the Federal Board of Revenue for introducing unrealistic and unjustified amendments to be incorporated in Sales Tax and Federal Excise Duty Return Forms. They said that the business community has strong apprehensions that the proposed amendments will have devastating effect on the businesses in Pakistan. They said that the proposed return requires to feed details of each and every sale or purchase transaction at the time of online submission of return and it will almost be impossible to provide details of each and every transaction online. Secondly it will increase the cost of compliance for the tax payers who are already facing the brunt of sheer price hike, economic recession and poor security situation in the country. The Alliance leaders said that the proposed return also requires that NTN or CNIC number of each and every purchaser or seller should be provided with the return. They said that given the literacy rate in the country and lack of compliance culture in general masses it will be very difficult to obtain such personal details from the buyers or sellers of the goods. Furthermore, there is another requirement to provide summary of stock on monthly basis. This is also not practically possible. They said that these and many other proposed changes in the tax returns will strangle the

already crisis-hit businessmen in the country. We feel that the tax department is shifting its burden of monitoring and tracking of the tax system on business community which is unjust and unethical. We urge the Government to make simple and easy procedures for increasing revenue collection, as people do not want to join the tax net due to the complex taxation system. The PIAF-Founders Alliance leaders urged the Federal Finance Minister Dr Abdul Hafeez Sheikh to help withdraw the proposed amendments.

Q. 3 Select the best assessment procedure by taking into consideration various assessment procedure.

he draft Income Tax ordinance 2001, released to the Press last week to elicit public opinion before finally enforcing it, has evoked a mixed reaction. Most of the stakeholders have, however, strongly criticised it as being harsh and coercive while few have termed it simple and practicable. The most severe criticism has come from employees of the corporate and private sector for raising their tax slabs unreasonably. The tax practitioners have attacked it for its flawed assessment procedure and ignoring the self assessment scheme altogether. In the assessment sections 205-213 there is no mention of self assessment scheme. This is most surprising, because it is the declared objective to move as quickly as possible to a point of universal selfassessment scheme in order to reduce the contact between the assessing officer and the taxpayer. The draft Income Tax ordinance also tends to delete the existing section 12(9-A) giving powers to the companies to retain their profit by converting it into reserves and save tax. According to said section companies could convert their profits into reserves and thereby avail exemption from payment of tax only after paying 40% of their earned profits amongst the share holders as dividend. Before discussing the Assessment Procedure sought to be introduced in the Draft Income Tax Ordinance 2001, it is appropriate to discuss briefly the existing system. There was time when only one kind of assessments made. Each year each taxpayer was required to submit his return, which was then processed under the normal provisions of the Income Tax Act. Because of widespread complaint of harassment by the assessing officers, it was felt necessary to reduce contact with them. This gave birth to the idea of self assessment scheme (SAS). Since the 1980s, first gradually then rapidly, the SAS began to take roots. The quintessence of the SAS, has been the acceptance of a declared version of the assessees and passing assessment orders under the scheme in which no increase is made in the income. Of course, the SAS has never been and can never be a carte-blanche for the taxpayers. Each year the SAS prescribes certain conditions and those who fulfil these enjoy the facility of no increase of income in their assessment orders. The current position is that the majority of the returns filed each year are accepted under the SAS. In the assessment sections 205-213 of the Income Tax Ordinance there is no mention of self assessment scheme. If it were contended that section 205 is meant for SAS it would be unconvincing argument. To read such a long presumption in section 205 would be ridiculous. There is not even a hint of SAS in section 205. Therefore this section cannot be assumed to relate to SAS exclusively. In terms of clarity and specificity section 59(1) of the Ordinance is far superior. It is titled self-assessment and states that assessment under this section will be made only in the case of those returns, which fulfil the requirements of SAS. And the SAS of each year is different. If section 205 is not meant for SAS, which it cannot then it is a classic example of self-contradicting section. Section 205, is as under: "205. Assessment where a taxpayer has furnished a return of income (other than a revised return under subsection (8) of section 200 for a tax year. (a) the commissioner is taken to have made an assessment of the taxable income of the

taxpayer for the year and the tax due thereon, equal to those respective amounts specified in the return. (b) the assessment is taken to have been made on the day on which the return was furnished." The acceptance of all taxable returns whether they qualify for the SAS or not is quite strange and illogical. The Association of Tax Consultants and Chartered Accountants of Pakistan, while appreciating its clarity and simplicity, have opined that the ordinance is heavily dependent on presumptive tax regime for collecting revenues and also seeks to enhance discretionary powers of the assessing officers which is against the declared policy and public commitment of this government. It also aims at increasing taxes on the salaried class specially employed in the private sector by bringing all this perquisites, perks and benefits under taxation net. At a seminar held at Karachi by the Association to examine the draft ordinance there was a consensus that the proposed ordinance did not come up to the expectations of the people as well as it was in contradiction of the declared policy and repeated public commitments of the government. The mood and tone witnessed during the session indicated that the draft ordinance was not only harsh, it was incomplete and deficient in many respects. While delivering his key not address. Mr. Farrukh V. Junaidi said though the IMF and other donor agencies are insisting that reliance on the presumptive tax should be minimised, it appears to be a difficult proposition for the government to shift to the net income basis of assessment. Even the new draft law continues to place emphasis on presumptive tax as it assures revenue collection, which otherwise may be difficult if presumptive tax is done away with. Ever since the introduction of presumptive tax regime through Finance Act 1991, the scope of withholding tax was also widened. Presently, withholding taxes contributes around Rs. 74 billions to the income tax revenue. which constitutes around Rs. 74 billions to the income tax revenue, which constitutes around 70 per cent of the income tax revenue. Mr. Junaid suggested several changes needed to be made in the proposed draft law so that irritants are removed for smooth implementation of the ordinance. Most of the irritant and changes recommended by him are related to fixed income group i.e., salaried class. He said that retirement benefits gratuity and pensions received by an employee on his retirement have been subjected to tax in the draft ordinance. He demanded that they should be kept from undue tax burden. Similarly the existing exemption on allowances and benefits provided to persons having salary income up to Rs.300,000 should be reinstated in the new law. He further said that the draft ordinance seems to have withdrawn the provisions of Clause 167(c) of the second Schedule to the Income Tax Ordinance 1979, which should not be done. He said that section 26(1) of the Draft Ordinance recommends to allow deduction for any expenditure incurred by a person in the year to the extent the expenditure is incurred in deriving income from business chargeable to tax. Whereas, the criteria for deduction should be based on the principle of expenditure incurred for the purpose of the business and not for deriving of income. This would mean, he said that even medical expenditure incurred by an employer on medical facilities to his employees would be taxable. Furthermore, he said the effect of section 26(1) goes to such an extent that even expenditure on providing meal, refreshment and entertainment shall become inadmissible deduction against income. In other words, he said even the cost of providing a cup of tea would not be spared. A leading tax consultant and chartered accountant Akbar Merchant was highly critical of the draft law, and said it has drastically increased the discretionary powers of assessing officer. He said no doubt that the draft law is simple, straight but considering the implications, it is a nonstarter because it lacks objectivity as it has taken care of the interests of income tax department and not of an assessee.

Investors in the share markets are also critical of the ordinance as it would discourage the companies from paying dividend to their share holder as the ordinance 2001 tends to delete section 12(9-A). This section was inserted in the last government's period to push the companies for declaring profit to shareholders. Now the entire responsibility falls on Securities and Exchange Commission of Pakistan (SECP) to protect the rights of brokers and small investors.

4 You, as tax consultant, are given a task to prepare a brief report regarding the various tax reforms needed in the current tax rules.

1. Pakistan is in dire need of increasing its tax revenues by implementing a broad-based modern form of sales tax on goods and services. The Sales Tax Act, 1990, was originally designed on the basis of accepted value added taxation doctrines but due to political compromises and revenue exigencies, it increasingly became distorted and narrow-based because of ever-expanding exemptions, special regimes, multiplicity of rates and several other deviations from international best concepts and practices. Resultantly, not only the tax base of sales tax and income tax has been eroded but also lack of documentation of the national economy has proved a big hindrance in the development of effective tax policy options. 2. Under the existing constitutional framework, the Federal government can impose taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed. The Federal government has been levying excise duty on services. After passage of the 18th Constitutional Amendment, taxation of services now wholly falls within the domain of Provincial governments. 3. Presently, apart from sales tax on the supply and import of goods, Federal excise duty is chargeable on communication (including telecom) services, certain categories of advertisements, insurance services other than life, marine, health and crop, banking services, franchise services and services provided by property developers/promoters, stockbrokers and port/terminal operators. Besides, Provincial sales tax is chargeable on services provided by hotels/clubs/caterers, custom agents, ship chandlers and stevedores, courier services and advertisements on TV & radio. Except franchise services, Federal excise duty and Provincial sales tax on all the aforesaid services is being collected under GST mode with backward and forward cross-crediting (inter-tax adjustment) with Federal sales tax. 4. Tax-to-GDP ratio on account of the said sales taxes has stagnated on lower side although internationally, the standard rate of 17 percent sounds on higher side. The principal reason of lower tax to GDP ratio of sales taxes has been widespread and unbridled concessions and waivers on both

local supply and import stages including zero-rating on several categories of domestic supplies, besides non-coverage of the services sector in general. 5. The consultations with tax professional circles have over the passage of time convinced that there is an overdue need to thoroughly reform and revamp the whole existing sales tax system to bring it closer to international standards. The new GST system will change the mindset of the public at large as well as of the tax machinery and will strengthen governments efforts to formally depart from excise-style of sales taxation on goods and services. 6. The GST Bill, 2010 will replace the present Sales Tax Act, 1990. While the issues of collection and administration of sales tax on services are being separately negotiated with the Provinces in the light of recent NFC award, a provision has been included in the Federal Bill to integrate Provincial sales tax on services with the Federal sales tax on goods as and when the Provinces authorize FBR to collect and administer sales tax on services. 7. Under the new GST law, exemptions have been kept intact in respect of basic food items including wheat, rice, pulses, vegetables, fruits, live animals, meat and poultry etc. Edible oil chargeable to Federal excise duty will remain exempt from GST as before. Exemptions earlier available for philanthropic, charitable, educational, health or scientific research purposes or under international commitments/agreements including grants-in-aid will also continue. Moreover, life saving drugs, books and other printed materials including newspapers and periodicals have been kept exempt. 8. Local consumption of sectors like textile (including carpets), leather, surgical and sports goods has however, been subjected to tax. Similarly, defence stores, stationary items, dairy products, pharmaceuticals (other than lifesaving), agricultural inputs, agricultural machinery and implements, aviation/navigation equipments including ships & aircrafts etc. have also been proposed to be taxed. Acquisition of capital goods will be facilitated through expeditious adjustment/refund of input tax involved therein. 9. GST will be chargeable only on value added component of each stage of the supply chain. Due to the provision for set-off of the tax paid at earlier stages in the chain, net tax incidence remains as a single stage levy. Due to automatic input tax adjustment facility, businesses are attracted towards voluntary registration so that they may avail such adjustments and improve their cash flows. For this reason, GST always promotes documentation and encourages self-compliance. 10. Other salient features of the new GST system are as follows. GST will replace the existing regimes of sales tax and excises on services. GST will apply on both at import and local supply stages. Standard rate of 15% has been proposed instead of the present rate of 17% or multiple other rates going upto 25%. There shall be no fixed tax, reduced tax, enhanced tax, retail price-based tax or special tax scheme under the new GST system.

 A uniform enhanced annual exemption threshold of Rs.7.5 million (which is presently Rs. 5 million) shall be applied to keep small businesses including small traders/retailers/cottage industry out of mandatory tax compliance. All exports shall be zero-rated. Input tax adjustment of both direct and indirect constituents shall be allowed on totals basis (excluding entertainment and non-business use passenger vehicles). Sales tax on goods and services where so authorized by the Provinces shall be mutually adjustable so that double taxation does not occur. No general zero-rating shall be admissible on any commercial form of domestic supply or on any local consumption. The GST system will work purely on self-assessment and self-policing basis. Cash flow of businesses shall be facilitated through expeditious centralized (Electronic) refund payment system. Tax compliance shall be encouraged through transparent and fair audit system with increased use of modern information technology. Adjudication, appeal and alternative dispute resolution (ADR) systems have been provided as before. FBR will issue simplified rules to regulate the GST procedures and processes. The GST Bill 2010 shall take effect from such date as may be notified by the Federal government. The new GST system will be applied in FATA/PATA, the Province of Gilgit-Baltistan and AJ&K in due course. 11. The proposed GST system will certainly not generate any sudden increase in revenue yield. It will however, increase the overall tax-to-GDP ratio from the present below 10% to about 12% in next 3-5 years. Pakistan has a strong potential to implement such value added tax type sales tax because of the reason that besides having a properly-reformed collection infrastructure, it has a long-operating sales tax system and substantial hidden sales taxation on inputs of exempt outputs (exempt supplies are input taxed) is already being borne in the aggregate national consumption. 12. The proposed GST system is expected to operate without any serious inflationary impact. It will rather promote economic equity and enable the country to direct national resources towards more productive goals of national development. Reformed GST is also likely to progressively minimize the grey component of the national economy and facilitate fair income redistribution. It will eventually cast healthy impact on income tax receipts and enhance fool-proof tax culture in the country.

Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year. CAPEX is used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings[1]. In the case when a capital expenditure constitutes a major financial decision for a company, the expenditure must be formalized at an annual shareholders meeting or a special meeting of the Board of Directors. In accounting, a capital expenditure is added to an asset account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset adjusted for tax purposes). CAPEX is commonly found on the cash flow statement under "Investment in Plant Property and Equipment" or something similar in the Investing subsection. For tax purposes, CAPEX is a cost which cannot be deducted in the year in which it is paid or incurred and must be capitalized. The general rule is that if the acquired property's useful life is longer than the taxable year, then the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. Further to the above, CAPEX creates or adds basis to the asset or property, which once adjusted, will determine tax liability in the event of sale or transfer. In the US, Internal Revenue Code 263 and 263A deal extensively with capitalization requirements and exceptions.[2] Included in capital expenditures are amounts spent on: 1. 2. 3. 4. 5. 6. acquiring fixed, and in some cases, intangible assets repairing an existing asset so as to improve its useful life upgrading an existing asset if its results in a superior fixture preparing an asset to be used in business restoring property or adapting it to a new or different use starting or acquiring a new business

An ongoing question for the accounting of any company is whether certain expenses should becapitalized or expensed. Costs which are expensed in a particular month simply appear on thefinancial statement as a cost incurred that month. Costs that are capitalized, however, are amortized or depreciated over multiple years. Capitalized expenditures show up on the balance sheet. Most ordinary business expenses are clearly either expensable or capitalizable, but some expenses could be treated either way, according to the preference of the company.Capitalized interest if applicable is also spread out over the life of the asset. The counterpart of capital expenditure is operational expenditure ("OpEx").

A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset. A revenue expenditure is an amount that is expensed immediatelythereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures.