Day: April 14, 2021

Harmonization of sales tax to complete by June

ISLAMABAD: Harmonization of sales tax between federal and provincial tax authorities may be completed by end-June 2021, officials in the Federal Board of Revenue (FBR) said on Wednesday.

The FBR said that the authorities were in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, which will be completed by end-June 2021.

The officials said that the government had shown commitment to the International Monetary Fund (IMF) of taking several measures including broadening of sales tax base.

The government has committed to reforms the General Sales Tax (GST) system, underpinned by a unified tax base and within the confines of the current constitution.

The authorities will: (i) eliminate all zero-rated goods (Fifth Schedule), except on export and capital machinery goods and move them to the standard sales tax rate; (ii) remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate; (iii) eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e., basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate; and (iv) remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate.

These reforms are expected to yield an estimated 0.7 percent of GDP on an annualized basis.

Moreover, the authorities are also in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, expected to be completed by end-June 2021.

April 14, 2021
ECC approves customs duty withdrawal on cotton, yarn import

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Wednesday approved the withdrawal of customs duty to ensure smooth supply of cotton and cotton yarns to the value-added industry, while bridging the gap between domestic production and overall demand for the inputs.

Federal Minister for Finance, Revenue, Industries and Production, Muhammad Hammad Azhar, chaired the ECC meeting.

Federal Minister for Planning, Development and Special Initiatives Asad Umar, Federal Minister for Privatization Muhammad Mian Soomro, Federal Minister for Maritime Affairs Ali Haider Zaidi, Federal Minister for Energy Omar Ayub Khan, Federal Minister for National Food Security and Research Syed Fakhar Imam, Adviser to the PM on Institutional Reforms and Austerity Dr. Ishrat Hussain, SAPM on Revenue Dr. Waqar Masood, SAPM on Power and Petroleum Tabish Gauhar, Federal Secretaries, senior representatives of Provincial governments, Chairman BOI and other senior officers participated in the meeting. Governor State Bank of Pakistan joined through a video link.

Power Division presented a summary regarding waiver of minimum 66% Take-or-Pay commitment in Power Purchase Agreement(s) (PPA) & Gas Supply Agreement(s) (GSA) of three RLNG based Public Sector Power Plants namely Quaid-e-Azam Thermal Power Plant, Balloki Power Plant and Haveli Bahadur Shah Power Plant.

These amendments would envisage submission of a Monthly Production Plan (MPP) as a binding on the Power Purchaser and the Power Seller wherein the Power Purchaser shall be entitled to submit demand requirement as needed, at least seventy five days before the start of each such month, which will be finalized by the System Operator and Operating Committee under the PPA.

The concept of a Monthly Delivery Plan (MDP) for deliveries of Gas under the GSA, has been paired with the Monthly Schedule as provided under PPA. The MPP will come into effect from the year 2022.

After seeking input from relevant stakeholders, the Committee approved the summary and appreciated the concept of Monthly Production Plan (MPP) as a cost-effective solution, enabling the Power and Gas purchasers to make requisite purchases in line with actual requirements instead of following a fixed arrangement.

Power Division also presented another summary proposing amendment to the Facilitation Agreement and Amendment to the GoP Guarantee Agreement with KAPCO. It included the proposal that the project may be withdrawn from the Privatization Commission and entrusted to Private Power and Infrastructure Board (PPIB).

After due deliberation, the Committee approved the summary, in principle, subject to formal vetting by the Law Division. Secretary, M/o Commerce presented a summary before the ECC for withdrawal of Customs Duty on import of Cotton Yarns under PCT 5205, 5206 and 5207 till 30th June, 2021.

The ECC also approved a Technical Supplementary Grant for Finance division amounting to Rs.11.7 billion as the share of the Federal Government for the establishment of 4 mother and child hospitals in Punjab.

April 14, 2021
Karachi Tax Bar highlights issues in input tax adjustment on provincial invoices

KARACHI: Karachi Tax Bar Association (KTBA) on Wednesday wrote a letter to chairman of the Federal Board of Revenue (FBR) highlighting issues faced by taxpayers on disallowance of input adjustment against entry of provincial invoices.

The tax bar said: this is with reference to above cited subject and the following intimation uploaded on the web portal of Federal Board of Revenue:

“Manual entry of provincial invoices for input tax credit of services in Annex A is disallowed from 01 April 2021 for the tax period from March 2021, Taxpayers as buyers will get monthly input tax credit based on submission of sales invoices and Return in respective tax authority for which the data is made available in Purchase Data Tab. For previous data please contact at [email protected] subject Services data.”

KTBA highlighted the following issues which the Members of KTBA in general and Taxpayers in particular are facing due to the sudden change made through intimation on the web portal:

Till the filing of this letter, the data/invoices of all provinces are not synchronized and are not readily available automatically; this is not only creating problems for the Taxpayers to claim the Provincial Input Tax (Services Input Tax), but the Taxpayers would not be able to submit their monthly Sales Tax Returns for the Tax Period of March 2021 (last date of e-filing April 18, 2021) due to non-availability of Service Input Tax.

In most of cases, the KTBA observed that Service Input Tax data prior to Tax Period March 2021 is not available; due to which the Taxpayers are unable to claim Service Input Tax for tax periods prior to tax period March 2021.

At present, banks and other businesses such as courier services etc., as a routine deposit Provincial Sales Tax (Service Tax) as a bulk entry instead of depositing the same against each Taxpayer which is affecting in claiming the Service Input Tax.

At present, Service Input Tax of only those Taxpayers is being retrieved who have e-filed / submitted their returns which is unnecessarily delaying the filing of Sales Tax Returns as Service Input Tax is not available.

Our Members have informed that in certain cases, Taxpayers in some cases are unable to claim Service Input Tax in the Sales Tax Returns though the same is available under Annexure A.

Apart from above, there are other teething issues which are practically creating issues for the Taxpayers and Members of KTBA alike which are including but not limited to withholding tax on Service Tax showing as payable, Service Input Tax entries once deleted are not uploaded again and deferment of Service Input Tax, etc.

In view of above, the KTBA highlighted the following for your kind perusal and ready action:

Till the time this new system is fully functional; KTBA suggest to use both old as well as new system for claim of Service Input Tax to allow taxpayers to claim genuine Service Tax paid by them;

Old system of claim of Service Input Tax should be phased out in gradually instead of sudden disallowance;

Once the system is fully functional, KTBA suggests providing an option to claim Service Input Tax manually, which for any reason is not available up by the system, through manual entry with the option to upload the Service Tax Invoice not uploaded automatically. Such entry should then be checked and if found otherwise be routed through S. No. 7 (a) (b) (c) of the Sales Tax Return;

Ensure invoice wise entry by all Taxpayers ensuring entry against NTN / STRN of each Taxpayer in order not only to streamline the process but to proper claim of Input Tax both Federal and Provincial;

Claim of Service Input Tax be allowed instead of marking the same is “input tax not claimable”;

Field relating to Withholding tax on provincial sales tax should be removed from the Federal Sales Tax return; and

Feature of re-uploading of Service Input Tax be made available.

Although, KTBA feels that use of IT based technology/digitalization of records is the only way to resolve the multi-faceted complex issues vis-à-vis to address the issues of flying / fake input tax; however, sudden implementation of new scheme in the midst of MOU signed by the Federation and the Provinces to develop one Sales Tax Return is likely to create chaos and disorder for the Taxpayers.

In view of above submissions, KTBA feels that appropriate measures including but not limited to extension of date for the Tax Period of March 2021 for filing of Sales Tax Return and resolution of above highlighted issued be addressed forthwith to ease the pressure of the Taxpayers and Members of KTBA alike.

April 14, 2021
FBR recommended to reduce minimum tax for chemical companies

KARACHI: Federal Board of Revenue (FBR) has been urged to reduce minimum tax rate for chemical companies having large turnover with low profit margins.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 submitted to the FBR, recommended that minimum tax rate should be reduced to 0.2 percent for large chemical companies with large turnover with low profit margins.

It further recommended that clause b of Section 148(7) of Income Tax Ordinance, 2001 as deleted by the Finance Act, 2017 should be restated, which read as follows: “148(7) b fertilizer by manufacturer of fertilizer” to allow adjustment of tax deducted at import stage for fertilizer imported by a fertilizer manufacturer so as not to make it a final tax.

It recommended that exemption under Clause 42 read with section 153(3) of the Income Tax Ordinance, 2001 be available to all terminals without discrimination. The said clause be re-worded as follows:

“(42) The provisions of sub-section 3 of section 153 shall not apply in respect of payments received by a resident person for providing services by way of operation of terminal(s) at a sea-port in Pakistan or of an infrastructure project covered by the Government’s Investment Policy, 1997.”

For the fertilizer industry, the GST on supply of natural gas as feed stock is at 5 percent and as fuel stock is 17 percent. However, the output GST rate on sales of finished goods i.e. urea is 2 percent. This mismatch between input and output GST results in excessive input tax refundable build-up.

GST rate on supply of natural gas for fertilizer industry should be zero percent.

For the sales tax rate on raw material of paints, the OICCI made following recommendations:

i. Sales tax of 25 percent should be imposed on some basic raw materials like Titanium dioxide and other following categories for commercial importers.

ii. Enforcement measures to be made more effective in consultation with OICCI members, who are established taxpayers, to penalize tax evaders.

The OICCI highlighted that macro nutrients being imported under Chapter 31 of Pakistan Customs Tariff, enjoy reduced duties and taxes representing only 8 percent of the value imported whilst in case of micronutrients being imported under Chapter 28, the import duties and taxes are quite high representing 29% of import value.

It recommended to make necessary amendments in the revenue regulation to reduce sales tax and import duties on import of micronutrients.

April 14, 2021
Stock market gains 262 points on corporate results

KARACHI: The stock market gained 262 points on Wednesday as investors were remained positive on quarterly financial corporate results.

The benchmark KSE-100 index closed at 45,311 points as against previous day’s closing of 45,048 points, showing an increase of 262 points.

Analysts at Arif Habib Limited said that first day of Ramadan marked positive opening for the benchmark KSE100 index with an overall increase of 299 points during the session and closed +262 points.

Proximity to announcement of quarterly corporate results made investors take a positive view on the market. Buying activity was observed in cyclical sectors such as Autos, Cement and Steel. O&GMCs saw SNGP performing, besides Refinery and Technology stocks where NETSOL hit upper circuit today.

Among scrips, FNEL remained the volume leader with 43.1 million, followed by MDTL (20.2 million) and GGL (19.5 million).

Sectors contributing to the performance include Technology (+46 points), Cement (+35 points), Banks (+29 points), E&P (+26 points) and Refinery (+24 points).

Volumes declined from 473.4 million shares to 341.9 million shares (-28 percent DoD). Average traded value also declined by 11 percent to reach US$ 108.5 million as against US$ 120.7 million.

Stocks that contributed significantly to the volumes include FNEL, MDTL, GGL, TRG and WTL, which formed 35 percent of total volumes.

Stocks that contributed positively to the index include TRG (+32 points), FFC (+19 points), HBL (+19 points), LUCK (+18 points) and ATRL (+17 points). Stocks that contributed negatively include MCB (-12 points), POL (-9 points), ABL (-4 points), KTML (-3 points) and UNITY (-3 points).

April 14, 2021