KARACHI: Sindh Revenue Board (SRB) has been advised that reverse charge should be restricted to such cases where service providers are located outside Pakistan.
(more…)Month: May 2020
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FPCCI proposes duty free import of used cars for subsequent export
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has proposed duty free import of used cars and their subsequent export after repair.
The apex trade body in its proposals for budget 2020/2021 said that the UAE had developed Export Processing Zone (EPZ) for duty free import of used cars, their repair and subsequent export to different countries especially those of Africa.
“On similar pattern a ‘Used vehicles EPZ’ be set up in Karachi, Port Qasim or Gwadar and import of both right hand and left-hand drive vehicles may be allowed under this EPZ for their export to different countries. Because of its more feasible sea route to Africa and land route to Central Asian markets, cheap labour, painters and mechanics, the proposed EPZ may turn out to more attractive than the ones in UAE.”
The FPCCI also highlighted issue of import of stock lot and job lot goods. The apex trade body said that despite the fact that stock lot and job lot goods are available in the world at lower prices, but for the protection of local industry, their import is banned.
Maintaining the ban for home consumption, permission may be granted for import of stock lot and job lot goods under Export Facilitation Schemes on 100 percent export basis.
The FPCCI also said that import of used clothing and their exports after sorting, repair, washing and packing is allowed to exporters operating in EPZ.
However, this facility is not allowed under DTRE scheme and is denied under other Export Facilitation schemes too. If the same is allowed, Pakistan can capture a bigger share because of its cheap labour.
The FPCCI said that the global warehousing market is more than $ 1.0 trillion and is growing at a very fast pace. The Export Policy Order vide para 9(g) allows export of imported goods in same state – unprocessed form from bonded warehouse and the imported goods already cleared from home consumption.
The FPCCI said that this is not in line with this global business practice. “Singapore, Malaysia, Sri-Lanka and a number of other countries allows such export, which helps in earning FE and generates employment,” it added.
The issue is that re-export of imported goods in the same state is allowed but there is no procedure which allows refund of duty and taxes paid, neither such imports are covered under DTRE or any other export facilitation scheme (manufacturing bond, temporary imports, export oriented unit etc).
No importer can import goods, ware house it and re-export after payment of import duty and taxes. He can re-export to mitigate his loss but cannot adopt it as a business to utilize cheap warehousing in Pakistan.
It proposed the Ministry of Commerce and FBR to allow import for re-exportation under DTRE Rules subject to value addition of 5percent or 10 percent.
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Manufacturers demand domestic supplies against FE should be treated as exports
KARACHI: Manufacturers have urged the government to treat goods booked abroad on which foreign exchange (FE) has been transferred should be treated as export.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021, said that some manufacturers (like Dawlance etc.) are demanding that overseas Pakistanis may be allowed to send foreign exchange to manufacturers through banking channel for delivery of goods to their blood relations / relatives in Pakistan, which may be treated as export.
Some stores outside Pakistan have contacted the manufacturers for delivery of goods in Pakistan. These stores in foreign countries will make consolidated payment in FE through banking channel to manufacturers in Pakistan.
They have requested the manufacturers in Pakistan to send samples for booking of orders. The issue is that after payment of duty and taxes the goods made in
Pakistan become more expensive.
The Pakistanis expatriates abroad then prefers to purchase smuggled goods from the open market or send goods in baggage (better quality and less cost) declaring it as old and used goods after removing its packing etc.
Store owners abroad have shown keen interest in booking Pakistani manufactured goods to be delivered in Pakistan.
“It is, therefore, proposed that such goods, where orders are booked from abroad and foreign exchange is sent in Pakistan through banking channels, may be treated as exported goods and may be exempted from local duty and taxes or partial exemption may be given in the form of fixed duty drawback / rebate of tax to be notified.”
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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.
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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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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.
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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.
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Changes to CNIC condition likely in budget
ISLAMABAD: Federal Board of Revenue (FBR) may introduce changes to mandatory CNIC (Computerized National Identity Card) condition in the upcoming budget 2020/2021 in to facilitate registered taxpayers.
At present unregistered purchasers, excluding end-consumers, of above Rs50,000 are required to provide a copy of CNIC in order bring the sales into the documented economy.
The business community raised concern over the low purchase limit. The sources said that the FBR is considering to enhance the limit to Rs200,000.
In the last budget the government made it mandatory for registered persons to obtain CNIC of unregistered person at the time of sale above Rs50,000.
The amendment was brought to Section 8 and Section 23 of Sales Tax Act, 1990 under which in case of invoices issued without CNIC or National Tax Number (NTN) of buyer, related input tax was disallowed on prorate basis except in cases where supplies are made to end consumers not exceeding Rs. 50,000.
Condition of providing CNIC number of buyers on invoices, to claim input tax adjustment, have benefitted unorganized sector more than the already documented sector.
Due to the condition, buyers prefer to purchase from unregistered suppliers as they do not ask for CNIC numbers. On the other hand, registered persons and corporate entities, who were already facing resistance from buyers for charging sales tax and further tax, have been facing severe deterrence from buyers who are resisting provision of CNIC numbers.
Consequently, the compliant taxpayers are forced to either provide CNICs of their employees, relatives, truck drivers, etc. or to shut down their businesses as they are at a competitive disadvantage with the unorganized sector.
This condition has also encouraged cash economy as taxpayers have been withdrawing their money from banks and are dealing in cash only.
According to a report despite massive changes in sales tax laws in Finance Act 2019 to force and mandate sales tax registration and filing of sales tax returns, there is only about 7 percent annual increase in sales tax returns filed from 146,922 return filers in June 2019 to 158,206 in December 2019.
Out of 11,284 additional returns, only 2,769.are payment returns while rest is Nil and Null returns.
The condition of CNIC on unregistered sales has been introduced in the Finance Act 2019 but it was not implemented in July 2019. While, from August 2019 to January 2020, the condition was relaxed through agreement between shopkeepers and FBR.
The FBR sources said that business community had also recommended changes in provisions related to CNIC conditions.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021 suggested to enhance the purchase limit to Rs100,000.
It also pointed out that CNIC condition has been causing cashflow issues since its implementation which will further intensify during the current pandemic of CoVid-19, especially for registered taxpayers.
Therefore, the FPCCI sought a general amnesty through legislation in the next budget regarding CNIC condition for the whole tax year 2020 starting from August 2019 to June 2020.
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Eid ul Fitr Mubarak 2
As the holy month of Ramadan draws to a close, PkRevenue.com extends heartfelt Eid-ul-Fitr greetings to its esteemed readers and followers. In the spirit of joyous celebration and communal harmony, the online platform takes this opportunity to convey warm wishes for a blessed and prosperous Eid-ul-Fitr.
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Hot, humid weather drops COVID-19 transmission rate: Pakistan Met
ISLAMABAD: Pakistan Meteorological Department (PMD) has identified that COVID-19 transmission rate declined due to rise in temperature and humidity.
The PMD on Saturday told the National Command and Operation Centre (NCOC) that its study had found a decline in COVID-19 transmission rate related to rise in temperature and humidity.
The PMD official briefed the NCOC meeting headed by Minister for Planning, Development and Special Initiatives Asad Umar through video link about the findings of its research conducted in collaboration with the Ministry of Health Services, Regulations and Coordination.
He added that a deep study of the pandemic outbreak pattern showed that the coronavirus spread mostly occurred in the mid latitude which had cold and dry weather.
No single case was reported in the tropical belt during the first three weeks of the contagion rise.
“Increase in temperature from 3-5 degrees mainly beyond 30 degree and mean humidity over 50 degree would slow down the virus transmission,” he noted.
The Forum was also apprised about the testing regime adopted at the airports to contain the epidemic spread.
Special Assistant to the Prime Minister on National Security Dr Moeed Yusuf said that there was 90 percent local transmission of COVID-19 at the moment and only ten percent were foreign induced.
He said there was no testing done of the air travelers at the airports in many of the countries rather they were putting the masses under self-quarantine.
The forum made detailed discussion on the issue with the provinces where the provincial chief secretaries agreed to the idea of abolishing testing on arrival of the passengers and agreed for a strict and proper screening of the passengers arriving at the airports.
The forum including provincial chief secretaries condoled the demise of the passengers of PIA aircraft crashed in Karachi.