LAHORE: A senior citizen taxpayer who earns income from a Behbood/pensioner certificate has asked the Federal Tax Ombudsman (FTO) to act against the Federal Board of Revenue (FBR), after the board declared him “In-Active” on November 1, 2026. His complaint about a wrong tax computation and his application for an extension were both still pending at the time.
The complaint was filed by Waheed Shahzad Butt, Chairman of the LTBA Public Interest Litigation Committee, on behalf of A.H. Butt and other similarly placed pensioners, Behbood Savings Certificate holders and Shuhada Family Welfare Account holders. The respondents are the FBR Chairman, Member (IR-Operations), Member (IR-Policy) and the DG IT-DT.
Under clause (6), Part III of the Second Schedule to the Income Tax Ordinance, 2001, tax on profit from Behbood certificates cannot exceed 5 percent.
The complaint states that the IRIS return software applies this relief through code 9309 but then charges the 10 percent surcharge under section 4AB on the full, unreduced normal tax, which takes back part of the relief granted by Parliament.
In the illustrative computation, normal tax was Rs. 4,241,199 and the clause (6) reduction was Rs. 796,132. The system charged a surcharge of Rs. 424,120, whereas the lawful surcharge on the reduced tax of Rs. 3,445,067 is Rs. 344,507. The excess is Rs. 79,613, and on the correct computation the balance payable is nil.
On October 24, 2026, the complainant wrote to the FBR Chairman, with a copy to the FTO, pointing out the error and providing the correct computation. Before midnight on October 31, the due date, he also applied for an extension of time.
The FBR neither accepted nor rejected the application, and it did not reply to the letter. On November 1, the FBR online verification system showed him as “In-Active” and asked him to file the return or pay a Rs. 25,000 surcharge for inclusion in the Active Taxpayers’ List (ATL).
The complaint argues that changing a taxpayer’s status while his complaint and extension request are undecided is arbitrary and an inattentive decision under section 2(3) of the Ordinance. It adds that the taxpayer was not heard and received no reasoned decision, contrary to Article 10A of the Constitution.
It further states that section 4AB applies to tax imposed under Division I of Part I of the First Schedule, so tax already reduced by the Second Schedule is not tax at the normal rate. It also asserts that a department cannot penalize a citizen for its own software defect.
The complaint says removal from the ATL exposes pensioners and Behbood holders to higher withholding rates, banking and property restrictions, and a late-filing surcharge. It describes the issue as systemic, since every taxpayer with such income above Rs. 10 million is affected.
The FTO has been asked to:
Call a report from the FBR.
Direct immediate restoration of the complainant’s ATL status, with no late-filer treatment, surcharge, default surcharge, penalty or coercive action.
Direct correction of the IRIS logic so that section 4AB is not charged on tax reduced under clause (6), allowing the return to be filed with a nil balance.
Direct a speaking order on the October 24 letter and the extension application.
Recommend a public clarification for all affected taxpayers.
Recommend action against the officials responsible for the delay and highhandedness.
