Month: April 2019

World Bank projects Pakistan’s growth to decelerate in FY19, FY20

KARACHI: World Bank has projected lower GDP growth for Pakistan during two fiscal years i.e. 2018/2019 and 2019/2020 to 3.4 percent and 2.7 percent, respectively.

The World Bank in a report released on Sunday, said that growth for Pakistan is projected to decelerate to 3.4 percent in FY19 and to 2.7 percent in FY20, as the government tightens fiscal and monetary policies.

“While domestic demand growth will slow down immediately, net ex¬ports will only increase gradually,” it added.

The World Bank said that as macroeconomic conditions improve, and a package of structural reforms in fiscal management and competitiveness is implemented, growth is expected to recover to 4.0 percent in 2020/2021.

“This baseline scenario assumes stable international oil prices and reduced political and security risks,” it added.

Inflation is expected to rise to 7.1 percent (average) in FY19 and projected to reach 13.5 percent in FY20 as a result of further exchange rate depreciation pass-through.

The trade deficit is projected to remain elevated during 2018/2019, but to narrow in 2019/2020 and 2020/2021 as the impacts of currency depreciation, domestic demand compression, and other regulatory measures to curb imports set in.

Remittances are projected to finance over 70 percent of the trade deficit.

FDI, multilateral and bilateral debt-creating flows as well as financing from international markets are expected to be the main financing sources of the current account in the near to medium term.

The fiscal deficit is projected to increase to 6.9 percent in 2018/2019 and to remain high during next two fiscal years, a result of large interest payments and a slow increase in domestic revenues.

Public debt to GDP is expected to cross 80 percent in 2018/2019 and to remain elevated in the next two years, increasing Pakistan’s exposure to debt-related shocks.

The pace of poverty reduction is expected to continue to slow-down in FY19 and FY20, following the projected growth deceleration and higher inflation rates.

Together with the macroeconomic adjustment expected over the next two years, there is an urgent need to implement structural reforms to support the growth rebound from FY21 onwards.

Economic uncertainty has increased due to protracted negotiations with the IMF.

In addition, recent regional tensions have had an impact on risk perceptions.

The low reserves position and high debt-ratios limit the buffers that Pakistan could use to absorb external shocks (such as an increase in US interest rates) and may negatively impact the government’s ability to access international markets.

Reforms to put the country on a stable growth path include increased exchange rate flexibility, improved competitiveness and lower cost of doing business.

On the revenue front, reforms to improve tax administration, widen the tax base and facilitate tax compliance are critical.

Higher inflation rates may jeopardize recent gains in poverty reduction, since poor households in urban areas are particularly affected by increases in prices, as shown by the most recent inflation hike during the 2007-08 food price crisis.

April 7, 2019
Sales Tax Act 1990: tax credit not allowed under various conditions

KARACHI: A registered sales tax person is not allowed to entitle to reclaim or deduct input tax paid on various activities of manufacturing / supplies.

The Section 8 of updated Sales Tax Act, 1990 issued by Federal Board of Revenue (FBR) explained where tax credit is not allowed.

Section 8: Tax credit not allowed

Sub-Section (1): Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on –

(a) the goods or services used or to be used for any purpose other for taxable supplies made or to be made by him;

(b) any other goods or services which the Federal Government may, by a notification in the official Gazette, specify;

(c)] the goods under sub-section (5) of section 3:

(ca) the goods or services in respect of which sales tax has not been deposited in the Government treasury by the respective supplier;

(caa) purchases, in respect of which a discrepancy is indicated by CREST or input tax of which is not verifiable in the supply chain;

(d) fake invoices;

(e) purchases made by such registered person, in case he fails to furnish the information required by the Board through a notification issued under sub-section (5) of section;

(f) goods and services not related to the taxable supplies made by the registered person.

(g) goods and services acquired for personal or non-business consumption;

(h) goods used in, or permanently attached to, immoveable property, such as building and construction materials, paints, electrical and sanitary fittings, pipes, wires and cables, but excluding pre-fabricated buildings and such goods acquired for sale or re-sale or for direct use in the production or manufacture of taxable goods;

(i) vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969), parts of such vehicles, electrical and gas appliances, furniture furnishings, office equipment (excluding electronic cash registers), but excluding such goods acquired for sale or re-sale;

(j) services in respect of which input tax adjustment is barred under the respective provincial sales tax law;

(k) import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7 percent under Eighth Schedule to this Act;

(l) from the date to be notified by the Board, such goods and services which, at the time of filing of return by the buyer, have not been declared by the supplier in his return or he has not paid amount of tax due as indicated in his return; and

(m) import of scrap of compressors falling under PCT heading 7204.4940.

Sub-Section (2): If a registered person deals in taxable and non-taxable supplies, he can reclaim only such proportion of the input tax as is attributable to taxable supplies in such manner as may be specified by the Board.

Sub-Section (3): No person other than a registered person shall make any deduction or reclaim input tax in respect of taxable supplies made or to be made by him.

Sub-Section (4): omitted

Sub-Section (5): Notwithstanding anything contained in any other law for the time being in force or any decision of any Court, for the purposes of this section, no input tax credit shall be allowed to the persons who paid fixed tax under any provisions of this Act as it existed at any time prior to the first day of December, 1998.

Sub-Section (6): Notwithstanding anything contained in any other law for the time being in force or any provision of this Act, the Federal Government may, by notification in the official Gazette, specify any goods or class of goods which a registered person cannot supply to any person who is not registered under this Act.

Sub-Section (7): Omitted.

April 7, 2019
FBR issues notices to 350 Sindh bureaucrats for non-filing

KARACHI: Federal Board of Revenue (FBR) has issued notices to 350 senior bureaucrats of Sindh government for non-filing of income tax returns.

The notices have been issued by Regional Tax Office (RTO) –II Karachi on identification of expenditures through various sources by those provincial government officers.

The FBR sources said that these government officers had never filed their annual income tax returns and asset declarations with the income tax departments.

They said that the expenditures details had been obtained through their air travels, banking transactions, purchase of property purchase etc.

The information of those provincial government officers were obtained from their salary disbursements.

They said that the tax department would first enforce income tax returns and then would initiate proceedings of concealment.

The sources said that besides taking action against bureaucrats of Sindh government the RTO –II Karachi was also taking action against 3,000 more salary persons in the private sector to bring them into tax net.

The sources said that many of these salary persons had never filed income tax returns despite having taxable income as well as other source of income.

April 7, 2019
Rupee gains 20 paisas in open market

KARACHI: The Pak Rupee gained 20 paisas in open market on Saturday owing to monitoring launched by exchange companies after meeting with State Bank of Pakistan.

The buying and selling of dollar was recorded at Rs142.30/Rs142.80 from previous day’s ending of Rs142.50/Rs142.50 in cash ready market.

The representatives of Forex Association of Pakistan (FAP) held meetings during last two days with State Bank of Pakistan to control the higher demand of dollar in open market.

In the last day meeting the FAP decided that it would not entertain non genuine buyers of dollars and would monitor the trading in the open market.

April 6, 2019
DRAP warns pharma industry against increasing drug prices

ISLAMABAD: Drug Regulatory Authority of Pakistan (DRAP) has taken notice of unauthorized increase in prices of medicines.

In this regard the authority issued directives to pharmaceutical industries asking them to ensure maximum retail price (MRP).

“Your are advised to monitor MRPs in the market and ensure that MRPs of drugs are not higher than the prices notified through SRO 1610(I)/2018 dated December 31, 2018.”

In case of stocks available in the retail shops or manufactured/imported prior to issuance of this above said SROs must be sold at previous MRPs printed on the label in the manner prescribed by the Drugs (Labeling and Packing) Rules, 1986 and stickers/ cuttings are not allowed.

The authority said that some complaints had been received that unscrupulous elements in the pharma industry had increased prices of their drugs over and above approved maximum retail prices by the federal government.

In recent past MRPs of 889 drugs were notified after approval by the federal government through SRO 1610(I)/2018 dated December 31, 2018.

In addition an increase at 9 percent over and above the notified prices was allowed on January 10, 2019. Besides, another 15 percent increase was allowed on the same date in case of several other drugs.

The authorities said that in case of non-compliance by pharma industry, legal action would be taken against violators under the Drugs Act, 1976, DRAP Act, 2012 and rules framed three under and SRO 913 dated September 09, 2019.

April 6, 2019
Weekly Review: Market to positively respond to IMF talks

KARACHI: The equity market likely to stay positive in coming weeks as the expected staff level meeting of IMF is scheduled in April 2019.

Analysts at Arif Habib Limited said that this will revive the market sentiment.

Moreover, interest rate is expected to peak following another 50 basis points hike in May 2019; which will bring clarity to the investors.

On the currency front, the analysts expect the Pak Rupee to settle at 147/USD by June 2019.

Moreover, result of offshore drilling at Indus offshore block G ‘Kekra-1’ is also expected within six weeks, where materialization of oil / gas discovery will drive the market in general and OGDC and PPL in particular.

The analysts said that this week trading commenced on a negative note despite China depositing USD 2.2 billion to support the balance of payments position and depleting foreign exchange reserves which crossed the USD 17 billion mark.

Market activity remained depressed on the back of i) 50bps increase in policy rate augmenting pressure on leveraged industries, ii) higher than expected inflationary readings; at 9.41 percent YoY in March 2019 (5-year high), iii) continuous depreciation of PKR against the Greenback, iv) delay in finalisation of the IMF program which is now expected by May, and v) projected slowdown by the Asian Development Bank of Pakistan’s GDP to 3.9 percent.

The benchmark KSE-100 of Pakistan Stock Exchange (PSX) closed at CY19’s lowest level of 37,522 points, down by 1,128 points or 2.92 percent WoW.

Contribution to the downside was led by i) Commercial Banks (-383 points) due to foreign selling, ii) Fertilizer (-134 points) amid announcement of 100,000 tons of urea import, iii) Oil and Gas Marketing Companies (-35 points) on account of slowdown in petroleum off-take by 17 percent YoY in Mar’19, iv) Pharmaceuticals (-92 points), and v) Power Generation and Distribution (-67 points). Scrip wise major losers were HBL (-122 points), UBL (-71 points), PPL (-58 points), ENGRO (-51 points), and PSO (-47 points). While the only sector that contributed positively to the index was Miscellaneous (+57 points).

Foreign selling witnessed this week clocked in at USD 3.7 million compared to a net buy of USD 0.5 million last week.

Major selling was witnessed in Fertilizer (USD 1.6 million) and Power Generation (USD 1.6 million).

On the local front, buying was reported by Individuals (USD 5.5 million) followed by Banks / DFIs (USD 4.7 million).

That said, average daily volumes for the outgoing week were down by 7.5 percent to 118.7 million shares likewise value traded declined by 20.4 percent to USD 24.9 million.

April 6, 2019
Sales Tax Act 1990: deduction of input tax by registered persons

KARACHI: A sales tax registered person is allowed to deduct input tax against output tax for determination of taxable supplies made during a period.

According to updated Sales Tax Act 1990 issued by Federal Board of Revenue (FBR), Section 7 explained the procedure of deduction of input tax by sales tax registered persons.

Section 7: Determination of tax liability.

Sub-Section (1): Subject to the provisions of section 8 and, for the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall, subject to the provisions of section 73, be entitled to deduct input tax paid or payable during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax excluding the amount of further tax under sub-section (1A) of section 3 that is due from him in respect of that tax period and to make such other adjustments as are specified in Section 9:

Provided that where a registered person did not deduct input tax within the relevant period, he may claim such tax in the return for any of the six succeeding tax periods.

Sub-Section (2): A registered person shall not be entitled to deduct input tax from output tax unless,-

(i) in case of a claim for input tax in respect of a taxable supply made, he holds a tax invoice in his name and bearing his registration number in respect of such supply for which a return is furnished:

Provided that from the date to be notified by the Board in this respect, in addition to above, if the supplier has not declared such supply in his return or he has not paid amount of tax due as indicated in his return;

(ii) in case of goods imported into Pakistan, he holds bill of entry or goods declaration in his name and showing his sales tax registration number, duly cleared by the customs under section 79, section 81 or section 104 of the Customs Act, 1969 (IV of 1969);

(iii) in case of goods purchased in auction, he holds a treasury challan, in his name and bearing his registration number, showing payment of sales tax;

Sub-Section (3): Notwithstanding anything in sub-sections (1) and (2), the Federal Government may, by a special order, subject to such conditions, limitations or restrictions as may be specified therein allow a registered person to deduct input tax paid by him from the output tax determined or to be determined as due from him under this Act.

Sub-Section (4): Notwithstanding anything contained in this Act or rules made there under, the Federal Government may, by notification in the official Gazette, subject to such conditions, limitations or restrictions as may be specified therein, allow a registered person or class of persons to deduct such amount of input tax from the output tax as may be specified in the said notification.

April 6, 2019
Increase in refund claims by registered persons selected for audit

KARACHI: Federal Board of Revenue (FBR) has selected sales tax audit of those sales tax registered persons whose refund claims increased in a month over the corresponding month last year.

According to risk parameters for selection of audit under Audit Policy 2018, the FBR selected audit cases through computerized balloting of those registered persons whose refund claim increase during a month over the corresponding month last year.

The FBR also randomly selected those cases where decline in value of supplies as compared to corresponding months of previous year.

Besides consistent increase in input tax/output tax ratio over corresponding months of previous three years were also selected through random balloting.

Other risk parameters are included:

Decrease in taxable supplies to total supplies ratio as compared to corresponding months of previous year.

Difference in declared value of sales as compared to declared turnover in Income Tax Return.

Persons declaring reduced rate sales.

Manufactures showing inadequate value addition.

Declared sales are less than imports

Decrease in payment of tax as compared to corresponding months of previous year.

Increase in refund claimed as compared to corresponding months of previous year.

Unclaimed purchase to declared purchases ratio is high.

Utilities to sales ratio is high.

Discrepancy identified by CREST.

April 6, 2019
KTBA asks FBR to clarify filing withholding statements after amendment

KARACHI: Karachi Tax Bar Association (KTBA) has asked Federal Board of Revenue (FBR) to issue clarification regarding filing withholding tax statement following amendment made through Finance Supplementary (Second Amendment) Act, 2019.
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April 5, 2019
Exchange companies stop dollar selling except for needy customers

KARACHI: Foreign exchange companies have decided to stop sale of dollars except for needy customers for education, health and Hajj, said Malik Bostan, President, Forex Association of Pakistan (FAP) on Friday.

The representatives of FAP today again held a meeting with Syed Irfan Ali Shah, Executive Director of State Bank of Pakistan (SBP) to discuss reducing dollar rate and availability of the greenback to customers in the open market.

After the conclusion of the meeting, the FAP decided that US Dollars should only be sold to real customers, including persons going abroad for heath and education. Further, buyers of dollars for Hajj and Umrah should also be entertained, it was decided.

It is decided that dollars should not be sold to people, who wanted to create uncertainty in the market.

Malik Bostan urged people to invest in local money instead of US dollar. “We should shun use of dollar to strengthen our economy,” he said.

He appealed the people that if they avoid dollar buying for few days then its value would automatically reduce.

Malik Bostan said that at present the dollar demand is around $7-8 million and in contrast the supply is only $4-5 million.

April 5, 2019