Islamabad: The Federal Tax Ombudsman (FTO) has determined that collecting tax deposits from taxpayers under Section 175C of the Income Tax Ordinance, 2001, without a subsequent legal determination of liability, constitutes maladministration and violates due process principles. The Federal Board of Revenue (FBR) has been instructed to submit a compliance report within 45 days.

According to Press Information Department, the complaint was lodged by the owner of Noor Surgical Hospital in Abbottabad, who claimed that Inland Revenue Department officials coerced a substantial tax deposit during proceedings without lawful assessment or determination of liability. The FBR, however, contended that the proceedings were lawful and that the taxpayer voluntarily made the payment during monitoring and inquiry proceedings.

During the FTO proceedings, both parties presented their cases, but the Department failed to provide legal documentation such as a speaking order or assessment order to justify the alleged tax liability. The Ombudsman pointed out that Section 175C is primarily an investigative tool for monitoring business activities and does not authorize tax collection without statutory assessment.

The FTO emphasized that “voluntary deposits” during inquiries raise concerns about transparency and fairness, as they may not replace the legal process required for tax determination. The Ombudsman concluded that the Department’s actions constituted maladministration under the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000, by failing to issue a speaking order and discontinuing proceedings after the tax deposit.

The FTO has recommended that the FBR conduct a fact-finding inquiry to determine the circumstances of the deposit and ensure officers adhere to lawful authority. Administrative guidelines for accepting “voluntary deposits” during inquiries were also suggested to ensure transparency and compliance with legal standards.