Day: May 25, 2020

New slab for withholding tax on motor vehicle purchase recommended

KARACHI: Regional Tax Office (RTO) – II Karachi has recommended revision in slab for withholding tax collection on purchase of new motor vehicles from next fiscal year.

The RTO-II Karachi in its proposals for budget 2020/2021 suggested revision in existing slabs for withholding tax collection on motor vehicles.

The RTO-II Karachi proposed to create a new rate of withholding tax on purchase of motor vehicle engine capacity below 850CC.

At present the FBR is collecting Rs7500 as withholding tax on registration of new motor vehicle engine capacity up to 850CC. The RTO-II Karachi proposed to exempt withholding tax on vehicles of engine capacity up to 250CC.

The tax office suggested to create slab of Rs3,000 for registration of new motor vehicles with engine capacity between 251CC to 650CC.

Similarly, the RTO-II Karachi also suggested to bring change slabs of withholding tax rate on transfer of ownership of motor vehicles.

At present motor vehicles up to 850CC is exempted from tax at the time of transfer first tax rate is applicable at Rs5000 on engine capacity between 851CC to 1000CC.

The RTO-II Karachi suggested that the withholding tax rate should be exempted on transfer of motor vehicle up to 650CC. The tax office suggested that the tax rate for first slab should be Rs5000 for the motor vehicle transfer of engine capacity between 651CC to 1000CC.

The regional tax office recommended change in slabs of motor vehicle tax. Whereas, at present the motor vehicle tax on engine capacity up to 1000CC is Rs800.

The tax office proposed that motor vehicle tax rate should be exempted on vehicle with engine capacity up to 250CC. Meanwhile, the motor vehicle tax should be Rs800 on engine capacity between 251CC to 1000CC.

May 25, 2020
Sindh urged to bring down sales tax rate at 10 percent

KARACHI: Sindh Revenue Board (SRB) has been suggested to bring down sales tax on services rate to 10 percent from existing 13 percent to encourage registration of more taxpayers.
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May 25, 2020
Federal, provincial tax conflict hampers FDI

KARACHI: Foreign investors have said that duplication of taxes due to lack of coordination between federal and provincial tax authorities are hampering foreign direct investment (FDI) into Pakistan.

The Overseas Investors Chamber of Commerce and Industry (OICCI), the representative body of foreign investors in Pakistan, said that duplicate taxation is causing hardships to taxpayers and has given rise to unnecessary litigations and is one of the deterrents in attracting FDI in Pakistan.

The OICCI in its budget proposals for 2020/2021 submitted to Sindh Revenue Board (SRB) said that all the four provinces and the federal government have introduced distinct sales/service tax laws for their respective jurisdictions, with some of the clauses in clear conflict with each other resulting in foreign investors being pursued and harassed by the federal and provincial revenue collectors (FBR, PRA, SRB, KPRA and BRA) demanding tax on the same transactions creating undue hardship and double taxation claims for taxpayers.

“This situation is highly undesirable and creates complexities for investors,” the OICCI said.

Giving an example, the OICCI said that a service provider registered in Sindh providing taxable services to recipient in Punjab is liable to pay sales tax in Sindh whereas the withholding agent (recipient of service) is registered in Punjab and is liable to withhold sales tax and pay the same to Government of Punjab.

Although, some improvements have been noted in the coordination between the revenue authorities, investors’ concerns continue, for e.g. the issue of levy of sales tax at ‘origination’ and ‘termination’ of service in both the provincial legislations on services has still not been resolved.

Section 60A and 60B of the Income Tax Ordinance, 2001 has not been amended to allow contribution to Provinces in respect of WWF and WPPF.

The OICCI recommended:

In line with International and Regional practices a uniform service tax law may be drafted and agreed upon by the tax authorities of the Provinces and Federal Government, for implementation in their respective jurisdiction. Furthermore, a uniform tax return may also be introduced for the taxpayers.

The above points can be addressed by taking the following steps which will lead to effective management and expansion of the tax base:

i. A policy board comprising of the Chairmen of the Federal and Provincial revenue authorities (FBR, PRA, KPRA, BRA and SRB) should be formed to ensure synchronization of the policies, standard tax rates, basis of apportionment of revenues and removal of all anomalies/ conflicts between the laws of the different revenue boards (for example issues of jurisdiction, sales tax on toll manufacturing, clarity on jurisdiction and deductibility of WPPF/WWF expenses paid to the provinces).

ii. Revenue authorities should decide the basis of levy of indirect tax, which can be origination or termination, to establish jurisdiction of taxation of services;

iii. To promote transparency and uniform interpretation, a ‘Standard schedule’ should be introduced covering all services along with standard Tariff Headings and Standard definitions. The standard schedule should be adopted by all provinces and Islamabad Capital Territory while levying sales tax on services in their respective jurisdictions

iv. One return may be filed with identification of provincial head of account and direct deposit of share of tax of each province.

v. SRB to resolve with FBR for appropriate amendment in IT Ordinance, 2001 to ensure that payments made to the provincial tax authorities on account of WWF and WPPF are allowed as tax deductible expense.

vi. SRB should take up the matter with FBR for the proper mechanism for adjustment of input tax on franchise service payable in reverse charge mode.

May 25, 2020
Adjustable advance income tax recommended on sale of agri produce

KARACHI: The tax authorities have been recommended to collect adjustable advance income tax on sale of agriculture produce in order to broaden tax base.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for provincial budget 2020/2021 submitted to Sindh government, recommended that adjustable withholding tax should be introduced on sale of agricultural produce, such as sugar cane, wheat, cotton and others.

The OICCI said that as per the constitution of Pakistan, right of taxing income lies with the federal government except income from agriculture which is taxable under the respective provincial laws.

Agriculture related activities contribute approximately 20 percent of the overall national production. However, the collection of agricultural income tax is estimated to be even less than 1 percent of total collection of Federal and Provincial taxes.

The disparities in tax levies between different incomes segments need to be addressed.

“Therefore Sindh government/revenue authorities should take appropriate measures to increase revenue collection from the agriculture sector.”

The original rationale of keeping agriculture out of tax net to facilitate small agriculturists is not applicable, due to non-implementation of land reforms, and the benefit of the tax exemption is being availed, as per common perception, by big landowners earning huge incomes and unscrupulous elements by transfer of income and wealth to businesses fronting as agriculture sector.

Some of the key issues related to agriculture income are identified as follows:

Principle of Non-Discrimination: In principle, income from all sources, including agriculture, if exceeding the minimum threshold applicable for other sources of income should be taxed without any discrimination.

Determination Basis: A transparent, easily understandable and applicable manner of determining such income should be designed.

Flexible Income Based System: The current agricultural income tax has effectively become a land tax, based on land holding, that leads to the perception that there is no tax on agricultural activities.

Identification and Linkage with National Tax Number: There is no identification of even the small number of agricultural income taxpayers as they are not on the national tax number (NTN) system.

The OICCI recommended:

Income Based System: At present, tax is payable on ‘land holding’ or ‘net income’ whichever is higher. However, the manner of determination of net income is complicated and therefore in almost 100 percent of the cases tax is received on land holding basis. Therefore taxability of income on land holding should be abolished and taxes collected on ‘net income basis’.

There are only around 10 to 15 agencies and enterprises which acquire such crops. The advance tax should be adjustable against income tax payable on net income basis. Rates of withholding and the threshold for the same should be aligned with other products – for example any payment exceeding Rs 25,000 should be subject to advance tax at the rate of 1 to 3 percent as the case may be. Federal taxation system may be used for such collection on behalf of the provincial government in the same manner as is being done in other cases by the provincial government.

Link and Interface with the National Tax Number: All persons holding land should be required to obtain a Provincial Tax Number (PTN), like the NTM maintained by FBR, modified by adding one or two digits so as to identify that source of income is agriculture.

Definition of Agricultural Activity: Definition of agricultural income should be amended to include all agricultural activities like non-corporate dairy farming, poultry etc.

Rent for the Use of Agricultural Land: Under the specific provision, the rent for use of agricultural land, which is general practice, especially for large landowners, is an agriculture income. There is effectively no mechanism to ensure completeness of recovery of taxes from such receipts. Such rent income should be subject to same rate of tax as is currently in vogue on property income under the FBR system.

May 25, 2020