The federal government announced on Tuesday that it had waived the penalties imposed on nearly 320,000 taxpayers of the salaried class who had filed annual income tax returns after the due date, which may now help restore the shattered confidence of the return filers.The decision was taken three days before the last date of filing income tax returns for the previous fiscal year. So far, less than 850,000 people have filed returns against around 1.45 million people and companies who filed returns in the preceding year.The Federal Board of Revenue’s (FBR) Inland Revenue Operations wing is against any further extension in the date for filing the returns.Minister of State for Revenue Hammad Azhar announced the decision of exempting salaried persons through his twitter handle. “The government has decided to waive the penalty for late filing along with the audit for the salaried group of late filer cases,” said Azhar.These cases were selected for audit and penalty was prescribed by the previous government, said the minister.Although the minister announced the exemption only for the salaried persons, the FBR extended the scheme to cover those people also whose source of income was dividends and profits on debt.There were about 20 individuals who showed dividend income and 44 persons who showed profit on debt as their sources of income.The FBR on Tuesday issued a notification to give effect to these decisions.The Pakistan Tehreek-e-Insaf (PTI) government’s decision to send notices to one million people who had either filed annual returns late or did not file next year’s returns had stirred a controversy. Out of the one million, there were 319,123 salaried persons who had been asked to deposit Rs20,000 each for the late filing of returns.Under the law, the statutory date for filing income tax returns is September 30 of each year, but the FBR due to various reasons has been giving extensions. The returns that are filed after the last or extended date are treated as late filing and were subject to penalties.FBR Member Audit Nausheen Javaid Amjad made a presentation to the Board-in-Council for resolving the issue. There was a proposal to charge a nominal penalty of around Rs2,000 but the minister of state decided to completely waive it.The decision to waive penalty would cost the FBR Rs6.5 billion in potential revenues but it would create confidence among the taxpayers that they would not be unnecessarily harassed.In Pakistan, only 1.2 million to 1.4 million people file tax returns, some of them are new filers. Charging them a penalty instead of encouragement to become a filer in a non-compliant society was a questionable decision.In its September mini-budget, the PTI government had announced audit amnesty for such taxpayers who had automatically been picked for audit. It had offered them to revise their tax liability by increasing it by 25% for the closure of audit cases.In 2015, the Pakistan Muslim League-Nawaz (PML-N) government had inserted Section 214-D in the Income Tax Ordinance with the aim of selecting those people for audit who filed their returns late or did not file the returns in subsequent years. But the then government did not enhance the audit workforce that led to a situation where pending cases increased to over one million.Excluding the salaried persons, the remaining nearly 700,000 people are still required to either deposit 25% higher tax than the preceding year or offer themselves for audit to settle their tax notices.The FBR’s system had picked 300,240 cases for tax year 2015, over 475,901 for 2016 and 246,288 cases for tax year 2017. The FBR said around 402,176 cases belonged to the salary and Final Tax Regime (FTR). The FBR also issued notices to 12,275 persons who declared property as a source of income.Published in The Express Tribune, November 28, 2018.Like Business on Facebook , follow @TribuneBiz on Twitter to stay informed and join in the conversation.