Month: March 2021

FBR issues procedure for availing exemption certificate by erstwhile FATA/PATA residents

ISLAMABAD: Federal Board of Revenue (FBR) issued a procedure for issuing tax exemption certificate for residents of erstwhile FATA/PATA.

The FBR issued circular No. 13 of 2021 stating that a standardized procedure for the issuance of Exemption Certificate on quarterly basis is being rolled out so as to ensure fair operationalization of the exemptions enshrined in the law. Accordingly, a FATA/PATA-domiciled person appearing on the “active taxpayers’ list” instituted by FBR in terms of section 181A of the I.T.0, 2001, and intending to import “plant, machinery, equipment” or “industrial inputs” for installation or consumption at his own manufacturing site would lodge a written application to the Commissioner Inland Revenue (CIR) concerned providing therein: –

(i) Production capacity of the manufacturing unit, and if the same has increased over time, the month from which the enhanced production capacity was installed along with particulars of the additional manufacturing capacity;

(ii) Month-wise quantity of (a) raw material imported, and (b) purchased locally since July, 2020 (or 1 st month of the tax year);

(iii) Quantity of stock available from earlier imports;

(iv) Month-wise details of Gas and Electricity consumed since July, 2020 (or lm month of the tax year);

(v) Month-wise particulars of goods produced;

(vi) Month-wise details of post-dated cheques (PDCs) deposited earlier with Customs authorities, if any;

(vii) List of buyers of the goods produced;

(viii) Bank statement for the past quarter;

(ix) Electricity/Gas bills for the past quarter; and

(x) Month-wise proof of Federal Excise paid — only in case of goods covered under the Federal Excise Act, 2005.

The commissioner Inland Revenue would ensure that particulars supplied by the taxpayer are verified before the issuance of Exemption Certificate. In case any data are not verified, the taxpayer would be given an opportunity to complete the application, provide the required information, and make up the deficiency. The Exemption Certificate issued will be directly mailed to the Collector Customs concerned with a copy thereof being duly marked to Member (IR Operations) and Member (Customs Operations), and under no circumstances will be handed over to the taxpayer. If the CIR decides to reject the application for a Exemption Certificate, the previous PDCs deposited would be encashed.

The FBR issued the procedure In pursuance to the amalgamation of FATA/PATA regions via 25th Amendment to the Constitution, in order to boost economic development therein, the Government of Pakistan, vide Clause (146) of Part I of 2nd Schedule to the Income Tax Ordinance, 2001 (hereinafter “the I.T.0, 2001”), exempted income “of any individual domiciled or company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber PalchtunIchwa and Balochistan…with effect from the Is’ day of June, 2018 to the 30th day of June, 2023.”

The “provisions of sections in Division III of Part V of Chapter X and Chapter XII” of the I.T.0, 2001, pertaining to withholding taxes have also been rendered inapplicable to FATA/PATA-domiciled tax persons vide Clause (110) of Part IV of 2nd Schedule to the 1.T.0, 2001.

Although, FBR’s stated position continues to be that section 148 by dint of its being in Division II (instead of Division III) of Part V of Chapter X of the I.T.0, 2001, it has consciously been excluded from the nexus of Clause (110) by the Legislature as also emphatically articulated by FBR vide letter No.DOC.No.1(1)-M(IR-Ops)/2020/165904-R dated 21-09-2020, yet in view of Hon’ble Peshawar High Court’s judgement in W.P.No.442-M of 2020 to the contrary, and till its reversal by the Supreme Court of Pakistan in a CPLA filed by FBR, FATA/PATA-domiciled tax persons could avail exemption u/s 148 of the I.T.0, 2001.

There, however, does exist significant confusion as to the mechanism of operationalization of the exemptions enshrined in the law. In particular, a controversy has recently raged vis-a-vis application of withholding tax at the import stage as to whether it would be available to a FATA/PATA-domiciled persons per se or it would trigger on issuance (and production) of exemption certificate as stipulated in section 148/159 of the I.T.0, 2001.

The Hon’ble Peshawar High Court in W.P.No.442-M of 2020 titled as Hadi Khan Silk Mills Vs. Federation of Pakistan has also categorically held that FATA/PATA-domiciled tax persons “shall be exempt from levy and imposition of advance tax payable under section 148.. .at import stage, till the period mentioned in Clause 146” of Part 1 of 2nd Schedule to the I.T.0, 2001.

More importantly, the Hon’ble High Court, in the same judgement, has gone on to address the critical question as to how this particular exemption would operationalize by mandating “that for seeking exemption from payment of advance income tax under section 148 of the Ordinance at import stage, the petitioners shall have to seek exemption from the levy thereof, under section 159 of the Ordinance.” The Hon’ble High Court has re-affirmed this mechanism in W.P.No.1219-M of 2020 titled Sohrab Sons & Co. Vs. Government of Pakistan & Others and W.P.No.2009- P of 2020 titled Ws Dawood Steel Vs. Federation of Pakistan & Others.

March 29, 2021
SBP signs pact for digitizing government payments

KARACHI: State Bank of Pakistan (SBP) on Monday signed an agreement with Controller General of Accounts Pakistan (CGAP) for digitizing payments of the federal government.

A SBP statements said that through the Memorandum of Understanding (MoU) the federal government payment would be digitized through RAAST

– Pakistan’s First Instant Payment System, launched in January 2021 by SBP.

Raast is a flagship initiative of SBP, which provides simple, fast, low-cost, interoperable and secure electronic payment platform for instant processing of high volume retail payments. Raast also has the ability to make payments to multiple beneficiaries at a time in order to cater high volume government payments like salaries, pension and social security payments.

In the pilot phase, the salaries and pensions of a group of Federal Government employees will be paid through Raast. The payroll and pension-roll data will be shared from CGA system to SBP’s Raast through a highly secured interface, and payments to the beneficiaries’ accounts will be made instantly after validating the beneficiaries’ detail.

To ensure that payments are only credited in the intended beneficiary’s account, Raast verifies the beneficiaries’ details with their banks on real time basis before crediting the payment in beneficiary’s account.

After the pilot run, the facility will be rolled out to cover all the salaries, pension as well as supplier payments of the federal and provincial governments. SBP is also working to use the powerful capacities of Raast to include payments of social security nets such as the Ehsas Program, BISP and other government entities.

March 29, 2021
Tax exemption withdrawal ahead budget to adversely affect trade, industry

KARACHI: The apex trade body of the country has expressed reservations over withdrawal of tax exemptions ahead of federal budget 2021/2022 and said that it will adversely affect trade and industry.

Mian Nasser Hyatt Maggo, President of Federation of Pakistan Chambers of Commerce and industry (FPCCI) in a statement on Sunday said that under the prevalent difficult condition of COVID-19, the pre-budget withdrawal of number of exemptions will affect trade and industry negatively, which is based on planning of fiscal based promised position for year up to June-2021.

“Such non predictability is against the sustainable growth of business economy and encroaches upon ease of doing business,” he said.

He was referring to the Tax Laws (Second Amendment) Ordinance, 2021 dated March 24, 2021.

While expressing concerns over the amendments before budget, he said that FPCCI has already suggested that the amendment should be made only with prior consultations with, to be affected stakeholders with sufficient time space to prepare the future plan of the left out period up to June-2021.

The outcome of consultations of both public and private sector may have otherwise trimmed the contents of the ordinance in the business economy interest, equally important for government in terms of goodwill and believe in consultations with private sector.

He further said that the business sector is already facing tight restrictions as per IMF program conditionality, much being agreed amongst stakeholders as originating implementation directions concurred by public sector without any reference to the negotiations with private sector.

The amendments were introduced through the Tax Laws Amendment Ordinance, 2021 issued through presidential Ordinance to amend 76 corporate income tax exemptions and allow tax credit facility from March 24, 2021.

The tax credit facility has been extended to industrial undertakings; charitable organizations and IT export services. Under the Ordinance, 100 percent tax credit would be allowed to the IT services or IT-enabled services after fulfillment of certain conditions including the filing of returns/withholding tax statements.

President FPCCI further stated that withdrawal of exemptions in lieu of extending credit facilities is a measure which gauges the poor performance of FBR up till now and hence the collection targets are finding the only priority and it appears that FBR is running on a bad doctrine that more tax collection will improve the growth of economy, to which we disagree in absolute terms.

President FPCCI Mian Nasser Hyatt Maggo also said that the newly promulgated Ordinance 2021 is also limiting the charitable activities by allowing restricted number of such institutions and placed them under newly introduced 13th schedule for Section 61 of the Income Tax Ordinance.

President FPCCI said that we are not following the successful tax models which are based on reducing the tax rates and extending the facilities to be affecting the increase in tax collections, rightly agreed by the apex body that Laffer curve will result in maximum tax revenue for government by cutting taxes in certain circumstances that would allow governments to cut the taxes and simultaneously increase revenue and economic growth.

President FPCCI said that public sector negotiating with IMF in exclusion of participation of apex body representing private sector trade, industry and service sector is dictatorial impositions of decisions negatively affecting the business and its growth for reducing the fiscal deficits, a prime objective we believe is being asked for by IMF.

He further said that country like US during the period of Ronald Reagan, 40th US President, the tax cuts resulted in doubling the tax from USD 500 Billion to Dollar 01 Trillion. The Georgian politicians and businessmen together in the reforms reduce the number of taxes to 1/3rd and reduce the national tax burden to quarter of a GDP resulted in doubling the percentage of taxes from 13 percent to 25 percent of GDP.

He further said that the case of India is no exemption wherein single GST increase the GST registrations by almost 100 percent.

“We are not learning any lesson from the available examples of tax reforms and what we are marching towards is to hide our inefficiencies in tax administration by withdrawing the exemptions, imposing RDs, ACDs and taking all the measures which has made the whole taxation structure full of the anomalies,” he said, adding that the government should think about that if either the economy will generate taxes or imposition of increase in taxes will generate growth of the economy.

March 28, 2021
Tax recovery through bank accounts should only from unregistered persons

KARACHI: Federal Board of Revenue (FBR) has been urged to restrict its powers of tax recovery from bank accounts on unregistered persons.

In its proposals for budget 2021/2022, Karachi Chamber of Commerce and Industry (KCCI) pointed out Section 140 of Income Tax Ordinance, 2001 that is related to recovery of tax from persons holding money on behalf of a taxpayer.

According to the law for the purpose of recovering any tax due by a taxpayer, the Commissioner may, by notice, in writing, require any person –

(a) owing or who may owe money to the taxpayer; or

(b) holding or who may hold money for, or on account of the taxpayer;

The chamber said that this provision and further access to information on bank accounts under other provisions of law, have been counter-productive and led to a flourishing cash economy. Many innovative ways have been evolved by businesses similar to block-chain and a local hundi system. Such provisions only affect the documented businesses while the entire undocumented sector is immune from such laws.

The KCCI said that access to bank accounts may only be limited to accounts of unregistered persons with unusually high amounts of transactions.

Commissioner should only be authorized to obtain information about the funds in accounts and to seek clarification as to the nature of transactions and sources of funds. Such persons may be brought into the tax-net.

The chamber said that it will:

1. Relief to the registered persons and restore confidence in banking system. Encourage official transactions.

2. Bring unregistered persons into the tax-regime.

3. Stimulate economic activities and growth. Increase bank deposits which may be used for lending to industry.

March 28, 2021
FBR suggested to stop intelligence, investigation raids

The Karachi Chamber of Commerce and Industry (KCCI) has called upon the Federal Board of Revenue (FBR) to reevaluate its approach to tax enforcement, urging a halt to the aggressive raids conducted by the Directorate of Intelligence and Investigation.
(more…)

March 28, 2021
Exchange companies to pay 0.6pc withholding tax on cash withdrawal

ISLAMABAD: The concessionary rate of tax allowed to exchange companies on cash withdrawal has been linked to active taxpayers list. The amendment has been brought through Tax Laws (Second Amendment) Ordinance, 2021, officials in Federal Board of Revenue (FBR) said.

The rate of tax is 0.15 percent under section 231A on cash withdrawal by an exchange company, duly licensed and authorized by the State Bank of Pakistan, exclusively dedicated for its authorized business-related transactions, subject to the condition that a certificate issued by the concerned Commissioner Inland Revenue for a financial year mentioning details and particulars of its Bank Account being used entirely for business transactions is provided.

Now, tax at rate of 0 percent will be charged 0.6 percent if the exchange company is not on active taxpayers list.

March 28, 2021
Tax concession to charitable organizations linked to return filing

ISLAMABAD: A charitable organization is entitled for 100 percent tax credit only on filing annual return of income for the tax year, according to Tax Laws (Second Amendment) Ordinance, 2021.

Sources in Federal Board of Revenue (FBR) said that the exemption regime has been replaced with tax credit for charitable organizations.

Through Tax Laws (Second Amendment) Ordinance, 2021, the Section 100C of Income Tax Ordinance, 2001 has been replaced with the following:

“100C. Tax credit for charitable organizations.– (1) The persons mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred percent of tax payable under any of the provisions of this Ordinance including minimum and final taxes in respect of incomes mentioned in sub-section (3) subject to the conditions and limitations laid down in sub-section (4).

(2) The provisions of this section shall apply to the following persons, namely:–:

(a) persons specified in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance;

(b) a trust administered under a scheme approved by the Federal Government and established in Pakistan exclusively for the purposes of carrying out such activities as are for the welfare of ex-employees and serving personnel of the Federal Government or a Provincial Government or armed forces including civilian employees of armed forces and their dependents where the said trust is administered by a committee nominated by the Federal Government or a Provincial Government;

(c) a trust;

(d) a welfare institution registered with Provincial or Islamabad Capital Territory (ICT) social welfare department;

(e) a not for profit company registered with the Securities and Exchange Commission of Pakistan under section 42 of the Companies Act, 2017;

(f) a welfare society registered under the provincial or Islamabad Capital Territory (ICT) laws related to registration of co-operative societies;

(g) a waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or any other law for the time being in force or in the instrument relating to the trust or the institution;

(h) a university or education institutions being run by non-profit organization existing solely for educational purposes and not for the purposes of profit;

(i) a religious or charitable institution for the benefit of public registered under any law for the time being in force; and

(j) international non-governmental organizations (INGOs) approved by the Federal Government.

(3) The following income is eligible for tax credit, namely:–

(a) income from donations, voluntary contributions and subscriptions;

(b) income from house property;

(c) income from investments in the securities of the Federal Government;

(d) profit on debt from scheduled banks and microfinance banks;

(e) grant received from Federal, Provincial, Local or foreign Government;

(f) so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:

Provided that in the case of income under the head “income from business”, only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and

(g) any income of the persons mentioned in clauses (a), (b) and (h) of sub-section (2) of this section.

(4) Eligibility for tax credit shall be subject to the following conditions, namely:-

(a) return has been filed;

(b) tax required to be deducted or collected has been deducted or collected and paid;

(c) withholding tax statements for the relevant tax year have been filed;

(d) the administrative and management expenditure does not exceed 15% of the total receipts:

Provided that clause (d) shall not apply to a non-profit organization, if-

(i) charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; or

(ii) total receipts of the non-profit organization during the tax year are less than one hundred million Rupees;

(e) approval of Commissioner has been obtained as per requirement of clause (36) of section 2:

Provided that the condition of approval in respect of persons mentioned in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the first day of July, 2022 and the requirements of clause (36) of section 2, shall not be applicable for earlier years;

(f) none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person:

Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and

(g) a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed form and manner.

(5) Notwithstanding anything contained in sub-section (1), surplus funds of organizations to which this section applies shall be taxed at a rate of ten percent.

(6) For the purpose of sub-section (5), surplus funds mean funds or monies –

(a) not spent on charitable and welfare activities during the tax year;

(b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes;

(c) which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and

(d) are not part of restricted funds.

Explanation.- For the purpose of this clause, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.”

March 27, 2021
Tax credit for eligible capital investment allowed

ISLAMABAD: Tax credit of 25 percent on capital investment on an industrial undertaking has been allowed under Tax Laws (Second Amendment) Ordinance, 2021.

Sources in Federal Board of Revenue (FBR) said that a new Section 65G has been introduced to Income Tax Ordinance, 2001 through amended ordinance.

According to the new section:

“65G Tax credit for specified industrial undertakings.- (1) When making certain eligible capital investments as specified in sub- section (2), the eligible taxpayers defined in sub-section (3) shall be allowed to take an investment tax credit of twenty-five percent of the eligible investment amount, against tax payable under the provisions of this Ordinance including minimum and final taxes. The tax credit not fully adjusted during the year of investment shall be carried forward to the subsequent tax year subject to the condition that it may be carried forward for a period not exceeding two years.

(2) For the purposes of this section, the eligible investment means investment made in purchase and installation of new machinery, buildings, equipment, hardware and software, except self-created software and used capital goods.

(3) For the purpose of this section, eligible person means –

(a) green field industrial undertaking as defined in clause (27A) of section 2 engaged in –

(i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

(ii) ship building:

Provided that the person incorporated between the 30th day of June, 2019 and the 30th day of June, 2024 and the person is not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project; and

(b) industrial undertaking set up by the 30th day of June 2023 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from the date such industrial undertaking is set up.”

March 27, 2021
Return filing made mandatory for computer software exporters

ISLAMABAD: The filing of income tax return is mandatory for persons engaged in exporting computer software to avail 100 percent tax credit.

Sources in Federal Board of Revenue (FBR) on Saturday said that the exemptions for IT and IT enabled services had been withdrawn through Tax Laws (Second Amendment) Ordinance, 2021. However, a tax credit equal to 100 percent has been granted through the ordinance to facilitate the software exports.

The sources said that certain conditions have been introduced including making return filing mandatory and provision of income tax audit has been added through the latest amended ordinance.

Following new section has been added to Income Tax Ordinance, 2001 through Tax Laws (Second Amendment) Ordinance, 2021:

“65F Tax credit for certain persons.- (1) Income of following taxpayers shall be allowed a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations detailed as under: –

(a) persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects;

(b) a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years;

(c) persons deriving income from exports of computer software or IT services or IT enabled services upto the period ending on the 30th day of June, 2025:

Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

Explanation.- For the purpose of this clause, –

(i) “IT services” include software development, software maintenance, system integration, web design, web development, web hosting and network design; and

(ii) “IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing.

(2) The tax credit under sub-section (1) shall be available subject to fulfillment of the following conditions, namely:-

(a) return has been filed;

(b) tax required to be deducted or collected has been deducted or collected and paid;

(c) withholding tax statements for the immediately preceding tax year have been filed; and

(d) sales tax returns for the tax periods corresponding to relevant tax year have been filed:

Provided that nothing contained in this section shall preclude the applicability of section 214C or section 177.

March 27, 2021
Weekly Review: stock market likely to move positive on stable exchange rate

KARACHI: The stock market likely to move positive during next week owing to strengthening of Pak Rupee against the dollar and stable external position.

However, third wave of COVID-19 is ongoing and smart lockdowns are being placed to counter it hence the element of uncertainty cannot be ignored, analysts at Arif Habib Limited said.

The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 6.8x (2021) compared to Asia Pac regional average of 17.0x and while offering DY of around 7.0 percent versus 2.6 percent offered by the region.

The market commenced this week on a positive note. Amid expectation of supportive policies for refineries, the refinery sector remained in the limelight.

With inflows of foreign funds, the SBP reserves climbed up by USD 275 million WoW, PKR/USD parity settled at PKR 154.59 (which is the strongest parity since March 06, 2020).

Additionally, Current Account Deficit for the month of February 2021 witnessed 75 percent YoY/76 percent MoM decline.

Moreover, the IMF agreed to release USD 500 million to Pakistan. However, in order to comply with IMF conditions an ordinance for withdrawing corporate tax exemptions was signed by the President, which somewhat suppressed sentiment in the bourse.

Furthermore, recent surge in COVID-19 cases (4,368 new cases yesterday with infection ratio standing at 10.3 percent) sent alarm bells ringing. The market closed at 45,522 points, gaining 620 points (up by 1.4 percent) WoW.

Sector-wise positive contributions came from i) Technology & Communication (333 points), ii) Oil & Gas Exploration Companies (94 points), iii) Auto Assembler (71 points), iv) Refinery (62 points) and v) Chemical (50 points).

Whereas sectors that contributed negatively include i) Commercial Banks (46 points) and ii) Cement (39 points). Scrip-wise positive contributors were TRG (280 points), PPL (65 points), ATRL (56 points), OGDC (47 points) and ANL (44 points) while negative contributors included HBL (52 points), POL (28 points) and ENGRO (24 points).

Foreign selling this week clocking-in at USD 0.1 million compared to a net buy of USD 3.0 million last week. Selling was witnessed in Technology & Communication (USD 2.1 million) and Power Gen. (USD 1.2 million).

On the domestic front, major buying was reported by Broker Proprietary (USD 3.7 million and Mutual Funds (USD 1.7 million). Average volumes arrived at 463 million shares (down by 4 percent WoW) while average value traded settled at USD 159 million (up by 10 percent WoW).

March 27, 2021