Pkrevenue.com

Author: Mrs. Anjum Shahnawaz

  • Under-invoicing by commercial importers destroying industry: PBC

    Under-invoicing by commercial importers destroying industry: PBC

    KARACHI: The Pakistan Business Council (PBC) has informed the higher authorities that the massive under-invoicing, especially by commercial importers, is destroying domestic industry.

    In its proposals for budget 2021/2022 the PBC pointed out that across the board massive under invoicing and dumping of imported products has been increasing.

    Information regarding values at which various custom check posts clear import consignments is not publicly available.

    This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues.

    Values at which import shipments are cleared through PRAL or CARE need to be publicly available.

    The Government of Pakistan must insist of Electronic Data Interchange (EDI), for both Free Trade Agreement (FTA) and non-FTA imports from China & other major trading partners China & other major trading partners.

    In future the requirement of EDI should be made compulsory for imports from FTA / PTA & major trading partner countries.

    The rate of withholding tax on imports for commercial importers should be at least 2 percent higher than what it currently is and the Withholding tax should be considered as an adjustable advance tax.

    Valuation Ruling should be issued in consultation with Brand owners, i.e., who have valid registration of the brands under relevant intellectual property laws.

  • Weekly Review: market likely to trade bullish

    Weekly Review: market likely to trade bullish

    KARACHI: The stock market likely to trade bullish during the next week on expectations of relief in the upcoming budget 2021/2022 such as reduction in duties on imported raw material etc.

    Analysts at Arif Habib Limited hoped that the market to remain bullish in the upcoming week amid expectation of relief in the upcoming budget, reduction in duties on imported raw material for construction sector and export oriented sector to spur growth which might keep these sectors in limelight.

    On the other hand, E&Ps scrips are expected to continue performing well due to higher international oil prices and government shelving divestment plan of E&Ps scrips.

    The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 7.0x (2021) compared to Asia Pac regional average of 16.3x while offering a dividend yield of ~6.9 percent versus ~2.6 percent offered by the region.

    The outgoing week trading commenced on a positive note with the index increasing by 182 points on Monday. The uptrend was driven by NAC’s provisional data on GDP growth which is projected at 3.94 percent in FY21. Optimism at the bourse was further fueled by

    i) Current account posting a surplus of USD 773 million in 10MFY21,

    ii) Government cancelling its divestment plan for PPL and OGDC as well as higher oil prices WoW resulting in heavy buying in these scrips,

    iii) MSCI rebalancing on Thursday resulting in foreign buying, and

    iv) Pakistan developing a local COVID-19 vaccine.

    Likewise, technology sector gained traction amid re-rating of sector multiple along with expectation of relief in the upcoming budget resulted in massive activity in the sector.

    With that said, PSX posted a hat-trick this week (record volumes on three consecutive days). The KSE-100 index closed at 47,126 points, up by 1,211 points or 2.64 percent WoW.    

    Sector-wise positive contributions came from i) Commercial Bank (456  points) ii) Oil & Gas Exploration Companies (163  points), iii) Cements (131  points), iv) Technology & Communication (120  points) and v) Fertilizer (89  points). Meanwhile, the sectors that contributed negatively include Tobacco (26  points) and Chemical (17  points). Scrip-wise positive contributors were HBL (174  points), BAHL (103  points), PPL (101  points), SYS (92  points), and OGDC (82  points).

    Foreign buying was witnessed this week arriving at USD 2.1 million against a net sell of USD 49.3 million last week. Buying was witnessed in Cement (USD 23.9 million) and Technology and Communication (USD 9.2 million). On the domestic front, major selling was reported by Individuals (USD 10.2 million) and Mutual Funds (USD 7.4 million). Average volumes arrived at 1,238 million shares (up by 103 percent WoW) while average value traded settled at USD 178 million (up by 30 percent WoW).

  • FBR urged to restore group tax laws in actual form

    FBR urged to restore group tax laws in actual form

    KARACHI: Pakistan Business Council (PBC) has urged the Federal Board of Revenue (FBR) to restore laws related to group taxation in the initial form as introduced via Finance Act 2007 and Finance Act 2008.

    In its proposals for budget 2021/2022, the business council said that most recently, via Income Tax Laws (Second Amendment) Ordinance, 2021, exemption from the levy of tax on intercorporate dividend between companies eligible under section 59B of Income Tax Ordinance, 2001 (Group Relief) has been revoked.

    The PBC proposed group taxation laws should be restored in its initial form as introduced via Finance Act 2007 and Finance Act 2008.

    Specifically, the following is being proposed:

    Clause 103C of Part I of Second Schedule of ITO, providing exemption from Intercorporate Dividends to group companies eligible under section 59B of the ITO, should be reinstated.

    Amendments made in Clause 11B of Part IV of Second Schedule via Finance Act 2015 and Finance Act 2016, should be revoked to ensure exemption from withholding tax is provided on intercorporate dividends exempt under clause 103A and clause 103C of Part I of Second Schedule of ITO.

    Through Finance Act 2016, a restriction was introduced by insertion of sub-section 1A in section 59B of ITO such that the surrender of losses is now restricted to the percentage of shareholding. This amendment is against the intent of the legislation and it is recommended that sub-section 1A and its references in section 59B should be removed.

    Condition of Group Return Filing introduced in Clause 103A Part I of Second Schedule of ITO Via Finance Act 2015 to claim exemption on Intercorporate Dividend between wholly owned entities (eligible under section 59AA), should be removed.

  • Business Council identifies anomalies in minimum tax regime

    Business Council identifies anomalies in minimum tax regime

    KARACHI: Pakistan Business Council (PBC) has identified anomalies in minimum tax rates and demanded the levy should be abolished.

    In its budget proposals for 2021/2022 submitted to the Federal Board of Revenue (FBR) the council said that the rate of minimum tax of 1.5 percent is extremely high and unrealistic.

    It identified that as per the judgment of the Sindh High Court in case of Kassim Textile, carry forward and adjustment of Minimum turnover tax is not allowed in cases where the taxpayer reports loss. On the other hand, Lahore High Court, in case reported as 2019 PTD 1994, minimum tax, even in case of loss year, is allowed to be carried forward for adjustment.

    Income Tax Law prescribes that ‘income’ of the Zone Enterprise (located in Notified SEZ) is exempt from tax for 10 years. However, no explicit exemption is provided from Minimum Tax (payable under section 113 of the Income Tax Ordinance, 2001) to Zone Enterprises. SEZ Act, 2012 is a special law governing SEZs and Zone Enterprises granting exemption from all income taxes (which include Minimum Tax also), however, due to ambiguity, tax department does not allow exemption from minimum tax to entities operating in SEZ.

    Section 65D/65E of the Income Tax Ordinance, 2001 provides exemption for 5 years from all income taxes [including minimum tax and final tax] to company formed for operating a new industrial undertaking. On the other hand, no such benefit has been provided to an existing company investing for Expansion or extension to achieve benefits of large-scale manufacturing

    Therefore, the PBC proposed that in order to promote industrialization, Minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audit. For other companies, rate of minimum tax be reduced gradually by 0.2% on an annual basis so that by Tax Year 2025 the rate is 0.5%.

    Moreover, in order to streamline the mechanism of carry forward and adjustment of Minimum tax, minimum tax should also be allowed to be carried forward for adjustment in subsequent years even in case of losses.

    Exemption from minimum tax to all companies operating in SEZ In line with the tax credits under sections 65D/65E, in order to achieve economies of scale to compete with international suppliers, allow exemption for 5 years from all income taxes [including minimum tax and final tax] on income generated from expansion / extension / BMR projects by an existing industrial undertaking subject to the condition that the minimum investment in such extension / expansion project should not be less than $15 million

  • PBC suggests rationalizing sales tax regime

    PBC suggests rationalizing sales tax regime

    KARACHI: Pakistan Business Council (PBC) has suggested rationalizing sales tax regime as higher standard rate of 17 percent is discouraging documentation.

    In its proposals for budget 2021/2022, the PBC said that the high standard tax rate of 17 percent has led to low registration of less than 200,000 while income tax filers are about 2. 8 million.

    Moreover, Tier 1 retailers engaged in the business of finished fabric, and locally manufactured finished articles of textile, textile made-ups, leather and artificial leather are allowed reduced sales tax rate of 12 percent, if their sales transactions are integrated with the FBR system.

    Unfortunately, several income taxpayers are not willing to register owing to high rate and even retailers are not interested in implementing the POS integration as high rate of 12 percent is not attractive, in addition to other issues.

    The Standard rate and POS rate be gradually reduced by 1 percent per year to attract to encourage the unregistered taxpayers to become registered and avail benefits of input adjustment.

    This will increase the documentation of the economy and create a level playing field for the registered taxpayers.

    It is proposed that Section 3(1A) should be rationalized and further tax should not be applicable if:

    a) Buyer in not required to be registered under Sales Sax Act 1990;

    b) Buyer holds FTN; Buyer, being service provider, is registered under respective provincial authority

  • Key policy rate kept unchanged at 7pc on improved GDP growth forecast

    Key policy rate kept unchanged at 7pc on improved GDP growth forecast

    KARACHI: The Monetary Policy Committee (MPC) on Friday decided to keep the key policy rate unchanged at 7 percent owing to improved GDP growth forecast to 3.94 percent and hope of further higher growth in the next fiscal year.

    A statement issued by the State Bank of Pakistan (SBP) said that since its last meeting in March, the MPC was encouraged by the further upward revision in the FY21 growth forecast to 3.94 percent.

    The MPC noted that this confirms the strength of the broad-based economic rebound underway since the start of the fiscal year, on the back of targeted fiscal measures and aggressive monetary stimulus.

    This positive momentum is expected to persist, translating into higher growth next year.

    According to the SBP statement, the inflation rose to 11.1 percent (y/y) in April, propped up by the lingering impact of this February’s electricity tariff increase as well asa pick-up in month-on-month food prices, partly driven by the usual seasonality around Ramzan. The MPC noted that supply-shocks to food and energy still dominate, with a small number of energy and food items in the CPI basket accounting for about three-fourths of the rise in inflation since January.

    The MPC also observed that although core inflation in urban areas has risen by around 1.5 percentage points during this period, available evidence suggests that demand-side pressures on inflation continue to be relatively contained.

    This reflects the fact that despite the economic recovery, there is still some spare capacity following last year’s contraction. Second-round effects from the supply shocks are also not visibly apparent: price pressures are concentrated in a few items, wage growth is subdued keeping a cap on costs, and inflation expectations remain reasonably anchored. As previously forecast, the headline year-on-year inflation rate is likely to remain elevated in the coming months due to the recent electricity tariff hike, pushing the average for FY21 close to the upper end of the announced range of 7-9 percent. As supply shocks dissipate thereafter, inflation is expected to gradually fall toward the 5-7 percent target range over the medium-term.

    In light of the foregoing considerations, the MPC was of the view that the current significantly accommodative stance of monetary policy remains appropriate to ensure the recovery becomes firmly entrenched and self-sustaining. This is especially so given the renewed heightened uncertainty created by the on-going third wave of Covid in Pakistan and the fiscal consolidation expected this fiscal year. As a result, the MPC noted that it was important for monetary policy to remain supportive. The MPC observed that given the Covid-related uncertainties, the cost of withdrawing monetary stimulus too soon exceeded that of withdrawing too late.

    Looking ahead, in the absence of unforeseen circumstances, the MPC expects monetary policy to remain accommodative in the near term, and any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates over time. If demand side pressures emerge as the recovery becomes more durable and the economy returns to full capacity, the MPC noted that it would be prudent for monetary policy to begin to normalize through a gradual reduction in the degree of accommodation. This would help ensure that inflation does not become entrenched at a high level and financial conditions remain orderly, thereby supporting sustainable growth.

    In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.

  • Stock market gains 336 points on improved GDP growth forecast

    Stock market gains 336 points on improved GDP growth forecast

    KARACHI: The stock market gained 336 points on Friday owing to investor sentiments after improved GDP growth forecast. The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) closed at 47,126 points as against previous day’s closing of 46,791 points, showing an increase of 336 points.

    Market showed consistent performance today with a further increase of 456 points and closing the session +356 points. E&P, O&GMCs, Banks and Fertilizer sector stocks well today even after major sell-off of E&P sector stocks yesterday in MSCI rebalancing. Cement and Steel sector stocks didn’t contribute much to the index today.

    Macro news flow on Pakistan’s green bond as well as improved real GDP estimates helped lifting investor sentiment, which was further supplemented by inching up of international crude oil prices.

    Among scrips, WTL realized trading volumes of 380.4 million shares, followed by SILK (56.3 million) and BYCO (38.7 million).

    Sectors contributing to the performance include Banks (+98 points), E&P (+96 points), O&GMCs (+53 points), Fertilizer (+39 points) and Autos (+22 points).

    Volumes declined from 2,220 million shares to 959.9 million shares (-57 percent DoD). Average traded value also declined by 47 percent to reach US$ 148.0 million as against US$ 277.4 million.

    Stocks that contributed significantly to the volumes include WTL, SILK, BBYCO, HUMNL and NRSL, which formed 56 percent of total volumes.

    Stocks that contributed positively to the index include BAHL (+47 points), SYS (+46 points), PPL (+46 points), HBL (+39 points) and OGDC (+35 points). Stocks that contributed negatively include TRG (-48 points), AICL (-11 points), DGKC (-8 points), COLG (-7 points) and SEARL (-5 points).

  • Rupee recovers 41 paisas against dollar

    Rupee recovers 41 paisas against dollar

    KARACHI: The Pak Rupee recovered 41 paisas against the dollar on Friday owing to improved inflows of workers’ remittances and export receipts.

    The rupee ended at Rs154.43 to the dollar from previous day’s closing of Rs154.84 in the interbank foreign exchange market.

    Currency experts said that the sufficient supply of the foreign currency was available during the day that helped the rupee to recover value.

    They said that the rupee witnessed deterioration during past couple of days due to demand of the foreign currency for import payment.

    They said that the rupee may make gain in coming days owing to inflows of the foreign currency.

  • FBR projects Rs5,700bn tax collection for next fiscal year; IMF says ‘do more’

    FBR projects Rs5,700bn tax collection for next fiscal year; IMF says ‘do more’

    ISLAMABAD: The Federal Board of Revenue (FBR) has estimated Rs5,700 billion as a net revenue collection for the next fiscal year 2021/2022, around Rs263 billion less then projection of International Monetary Fund (IMF).

    (more…)
  • Stock exchange recommends 20 percent tax credit for listed companies

    Stock exchange recommends 20 percent tax credit for listed companies

    KARACHI: Pakistan Stock Exchange (PSX) has recommended a 20 percent tax credit should be granted to listed companies in order to encourage documentation of the economy.

    In its proposals for budget 2021/2022, the PSX said that it is generally observed that when companies opt for a listing on a stock exchange, their profits grow substantially due to effective corporate governance, better disclosures, and ability to raise capital from the market.

    Increased number of listed companies and higher profitability leads to higher tax revenue for the government, including incremental revenues from capital gain tax (CGT).

    Hence it is important to encourage companies to get listed on PSX.

    However, tax credit on enlistment under section 65C has been withdrawn through Second Amendment Act, 2021.

    This tax incentive was a very small carrot with no significant revenue impact.

    Presently, only 10 listed companies are availing this tax credit which we estimate, based on their latest audited financial statements, has a tax revenue impact of Rs. 175 million per annum. Out of these 10 companies, 4 companies are in their 4th or last year of this benefit and 4 companies have recently listed in the current financial year, the PSX said.

    In fact, the tax revenue benefit in the medium term is very large as the documentation of the corporate sector increases and hence tax revenue of Pakistan.

    Further, the CGT collected on these 10 symbols for the 8 months period from July 2020 to February 2021 is Rs.176 million, and, extrapolating based on this 8 months average collection of CGT, the tax collection for the 12 months period could be Rs.264 million, compared to the total estimated tax credits of Rs.175 million availed by these 10 companies.

    The average rate of tax in the Asian region is 21.32 percent; whereas, currently in Pakistan the corporate tax rate is 29 percent.

    As such it is imperative that the corporate tax rate after the tax credit is brought down reasonably to compete with the other regional and global countries.

    Therefore, in order to encourage documentation and create a long term positive impact on tax revenue, there should be reduced rates of tax for listed companies compared to unlisted companies.

    The PSX proposed that to encourage documentation of the economy, the corporate tax rate should be permanently lowered for listed companies, by giving tax credit of 20 percent of tax payable for those companies that meet the prescribed requirements including a minimum free float of 25 percent throughout.

    This will be long term positive for tax revenue.