Taxing Times: Settling taxes through cheque

Muscat: As highlighted earlier in this column, tax revenues continue to remain an important source of non-oil revenue for the Government of Oman, given the fact that oil prices have remained low. This is also evident from the Oman Government’s 2017 budget wherein the revenue from ‘taxes and fees’ for 2017 is budgeted to go up by 7 per cent, compared to the figure budgeted for 2016.
With this growing pressure to increase the tax revenues, the tax authorities are becoming aggressive and stricter with respect to collection of taxes and levying additional tax and penalties for delay in payment of taxes.
In this article, KPMG seeks to provide an insight into the due date for payment of taxes, the change in the position of the tax authorities with regard to the date officially considered as the date of settlement of taxes if the payment is made through cheque and some measures which could be taken by the tax payers in the current scenario to avoid such additional taxes.
Due date
A taxpayer must settle the tax liabilities by depositing the same with the central treasury by the due date mentioned in the Income Tax Law. Such deposit can be made by cheque or direct transfer to the designated bank account of the tax authorities.
The Tax Law provides that the taxes due as per the Provisional Return of Income (PRI) should be paid along with the submission of the PRI, which is within three months from the end of the accounting period (March 31 for a December 31 accounting period).
Similarly, any differential taxes due as per the Final Return of Income (FRI)should be paid along with the submission of the FRI, which iswithin six months from the end of the accounting period (June 30 for a December 31 accounting period). Further, the taxes on account of completion of an assessment should be paid by the specific date mentioned in the assessment order (which is generally 30 days from the date of the assessment order).
With respect to withholding taxes, the tax payer should deduct tax at source and remit it to the tax authorities within 14 days following the end of the month in which the payment or credit was made.
The Tax Law also provides for levy of an additional tax on any delay in the payment of tax. The additional tax is calculated at the rate of 1 per cent per month, from the due date for payment until the date of actual payment.
Date of payment
With respect to the settlement of taxes through cheques, there is usually some time gap between the deposit and the actual clearing of the said cheques based on which the funds get transferred to the tax authorities’ bank account.
Till 2015, the tax authorities considered the date of submission of the cheque to the tax authorities as the date of payment of taxes. However, from 2016, the tax authorities have changed the practice and have started to consider the actual date of clearance of the cheque as the date of payment of taxes. This change in the basis of recognition of the settlement date is based on a strict interpretation of the Income Tax Law, which provides that the taxes have to be paid within the due date.
This change in the position of the tax authorities has resulted in additional taxes being levied on the tax payers for the timing difference between the due date of payment of taxes and the date of actual clearing of cheque, even though the cheque was submitted to the tax authorities on or before the due date. It is relevant to note that once the cheque is deposited by the tax payer, the onus of its speedy deposit and clearance lies entirely on the tax authorities and the banking system. Hence, any delays emanating from the internal procedures of the tax authorities for deposit of cheque to the bank for clearance results in undue hardship to the tax payers.
Way forward
Given the aggressive approach of the tax authorities, it is highly recommended that the tax payers plan the payment of taxes appropriately, considering the aforesaid possibility of delay in cheque clearance.
Ideally, the payment should be made through a direct transfer and if that is not feasible, then the payment through cheque should be made keeping an appropriate buffer of at least three working days prior to the due date in order to avoid additional taxes and unnecessary time involved in resolving the issue with the tax authority.