Author: Mrs. Anjum Shahnawaz

Amendments to taxability on payments for goods, services and contracts

KARACHI: The Finance Bill 2020 has proposed changes to taxability on payments made for goods, services and contracts.

According to explanation to amendments made to Section 153 of Income Tax Ordinance, 2001 through Finance Bill 2020 by BDO Pakistan Audit Consultancy and Tax Advisory Firm:

(1a): The bill seeks to include toll manufacturing to be treated as sale of good for the purpose of withholding under this subsection. This inclusion clarifies the taxability of this segment and it will be minimum tax.

(3): The bill seeks to treat taxes withheld at source as minimum tax on payment of goods, services and execution of contracts.

(4): The tax deducted at source is adjustable for the Company being manufacturer and the Public Listed Company registered on stock exchange. This inclusion will result in expansion of tax collection by the board.

The Bill seeks that the Commissioner shall respond to application for the issuance of exemption certificate related to withholding of taxes against goods, services and execution of contracts to facilitate the public listed companies registered in stock exchange, within fifteen days.

Where not responded, the IRIS may issue exemption certificate provided that the advance tax under section 147 was paid by the taxpayer.

The Commissioner retains the power to revoke the automatically issued certificate by IRIS on the basis of reasons to be recorded in writing after providing an opportunity of being heard.

(7) The Bill has sought following amendments in the requirement of the prescribed person defined as withholding agent.

Existing Description:

Individuals and association of person having turnover of fifty million rupees

Proposed Description:

Individuals and association of person having turnover of one hundred million rupees. Persons registered under Sales Tax Act, 1990 only are now required to meet turnover of one hundred million rupees or more in any preceding tax years to qualify as withholding agent.

June 22, 2020
Finance Bill proposes significance amendments to income tax at import stage

KARACHI: The Finance Bill 2020 has proposed significant amendments related to income tax at import stage in Section 148 of Income Tax Ordinance, 2001 as it was described by BDO Pakistan Audit Consultancy and Tax Advisory Firm.

Following are the changes proposed by the Finance Bill, 2020 in Section 148:

148(1): The bill seeks to add expression “in respect of goods classified in Parts I to III of the Twelfth Schedule” in sub-section (1) of the Section 148. The tax advisory firm interprets that earlier rates of advance tax at import stage were classified in the First Schedule now a separate Twelfth Schedule is constituted which specifies goods wise rates.

148(1): The bill seeks to add a new proviso to initiate that the Board [Federal Board of Revenue] may, through a notification in the official Gazette, add a good in any Part or reclassify a good from one Part to another of the Twelfth Schedule. The firm commented that Board [FBR] reserves powers to enter any good in the Twelfth Schedule.

148(7): The Finance Bill seeks to insert the expression “goods on which tax is required to be collected under this section at the rate of 1 percent or 2 percent by an industrial undertaking for its own use” to make tax adjustable. The firm commented that tax at the rate of 1 percent or 2 percent paid by an industrial undertaking for import of goods for its own use shall become adjustable tax.

148(7): The bill seeks to omit the hyphen and clauses “(a), (c), (d). The tax advisory firm commented that the omission results in withdrawal of exemption from advance tax at import stage provided to motor vehicles in CBU condition by manufacturer of motor vehicles and large import houses.

148(8) & 148(8A): The bill seeks to omit sub-section (8) and (8A) of section 148. The firm commented that this will result in end of minimum tax regime for edible oil, packing material and plastic raw material and ships breakers and now tax paid at import stage can be claimed as adjustable tax if industrial undertaking criteria are fulfilled.

148(9): The bill seeks to amend the term “value of goods” by linking it with retail price under the Third Schedule of the Sales Tax Act, 1990, and other than Third Schedule items. The firm commented that for the purpose of collection of advance income tax at import stage, value of goods has been aligned with the enabling provision of the Sales Tax Act 1990, which specifies the value for the purpose of sale tax at import stage.

148A: Tax on local purchase of cooking oil or vegetable ghee by certain persons. The firm commented that earlier this section resulted in manufacture of vegetable ghee or cooking oil to pay 2 percent final tax on local purchase of locally produced edible oil. The Bill seeks to omit this section, which would result such manufacturer and taxing real net income of the taxpayers.

June 22, 2020
10pc tax payment mandatory for filing appeal before tribunal

KARACHI: Taxpayers shall require to pay 10 percent of tax demand while filing an appeal before Appellate Tribunal challenging the order of commissioner appeals.

Deloitte Yousuf Adil, Chartered Accountants, said that a new requirement is proposed in the Finance Bill 2020 for filing of appeal before the Appellate Tribunal for challenging the order of Commissioner Appeals.

Proof of payment by the taxpayer of ten percent of the amount of tax upheld by the Commissioner Appeals is required to be submitted along with the appeal documents.

The chartered accountants said that currently, no such payment requirement exists for filing of appeal before the appellate tribunal. No appeal shall be admitted unless 10 percent of amount upheld by the Commissioner Appeals is deposited.

The proposed amendment is against the principle of natural justice and would create cash flow problems for the tax payers considering the illegal tax demands that are generally created through assessment proceedings and are mostly upheld at Commissioner Appeal’s level.

The business community also criticized the proposed change. Overseas Investors Chamber of Commerce and Industry (OICCI) said that the Finance Bill 2020-2021 proposes payment of 10 percent of the tax demand before filing an appeal before the Tribunal.

Currently the provisions of the ITO 2001 allows an appeal to be filed with the Appellate Tribunal Inland Revenue (ATIR) without payment of demand created by the tax officer(s) even if the same is confirmed by Commissioner of Income Tax – Appeals (CIR-A).

This inherent right of appeal is now proposed to be subjected to a mandatory payment of 10 percent of tax demand upheld by the CIR-A.

The proposed amendment will create hardship and cash flow problems for the taxpayer, as in case of exorbitant tax demands 10 percent thereof could be a very significant amount and may impede the exercise of right to appeal by the taxpayer which is a principle of natural justice and fundamental right.

It will also lead to unnecessary litigation since the appellant will approach the Courts by bypassing the forum of ATIR for the stay of recovery, after the CIR-A order confirming the amount of demand.

The proposal is also against decisions of superior courts which have held that recovery of tax demand cannot be forced until the order has been scrutinized by at least one independent forum i.e. ATIR.

June 21, 2020
Car imports fall by 61pc in eleven months

KARACHI: The import of used and old cars witnessed sharp decline of 61 percent during first eleven months (July-May) of current fiscal year due to condition of payment of duty and taxes through foreign exchange imposed by the government.

The import of used and old cars in Completely Built Unit (CBU) condition fell by 61 percent to $84.2 million during July –May 2019/2020 as compared with $216.5 million in the corresponding period of the last year, according data released by Pakistan Bureau of Statistics (PBS).

The commercial import of used or old cars is not allowed under prevailing laws of the country. However, in order to facilitate expatriate Pakistanis the government allows incentives to bring cars into the country.

The Federal Board of Revenue (FBR) has allowed Pakistani nationals residing abroad including dual nationals can import old and used vehicles into Pakistan under these schemes: Personal Baggage; Gift Scheme; and Transfer of Residence.

The cars not older than three years and other vehicles not older than five years can be imported under these schemes, the FBR said.

In the past these schemes were grossly misused and bulk of imported cars brought into the country.

However, the ministry of commerce in February 2019 amended Import Policy Order, 2016 and made it mandatory for clearance of cars through foreign exchange, which should be certified by banks.

Since then the clearance of the cars has come to a standstill. Customs authorities said that a large number of imported cars were at the port but importer had failed to make payment as per procedure prescribed by the ministry of commerce.

However, later in a meeting of Economic Coordination Committee (ECC) decided to allow payment for duty and taxes for customs clearance of imported cars through local resources with condition that if foreign exchange becomes short due to currency fluctuations or change in duty and tax rates.

The overall import of CBU vehicles during first eleven months of current fiscal year fell 48 percent. The import of heavy vehicles including buses and trucks has declined by 27 percent. While import of CBU motorcycles fell by 71 percent.

On the other hand the import of cars as Completely Knocked Down (CKD) condition also fell by 40 percent to $440 million during July – May 2019 as compared with $736 million in the same period of the last fiscal year.

Market sources said that massive depreciation in the local currency during past couple of years had increased the cost of local car manufacturers.

Further, the rates of locally assembled cars for end consumers also jumped up sharply.

These factors have reduced the productions of locally manufactured cars and subsequently reduced the import of cars in CKD condition.

The overall import of vehicles in CKD fell by 40 percent to $675 million during first eleven months of 2019/2020 as compared with $1.128 billion in the corresponding period of the last fiscal year.

June 21, 2020
Tax credit limit reduced by 50pc on charitable donations

ISLAMABAD: The limit of tax credit has been reduced by 50 percent on amount paid in cash or in kind to charitable donations, sources in Federal Board of Revenue (FBR) said.

The sources said that under the existing provisions of the last a person is entitled to tax credit on account of charitable donation paid in cash or in kind.

Currently such credit is allowed to the extent of lesser of: total amount donated in the year, including fair market value of any property given; or where the person:

(i) an individual or association of person, 30 percent of the taxable income of the person the year; or

(ii) a company, 20 percent of the taxable income of the person the year.

Deloitte Yousuf Adil, Chartered Accountants, said that the Finance Bill 2020 proposed to reduce the limit of credit by 50 percent in case of donations made to an associate as under:

(a) Total amount donated in the year, including fair market value of any property given; or

(b) Where the person:

(i) an individual or association of person, 15 percent of the taxable income of the person for the year; or

(ii) a company, 10 percent of the taxable income of the person for the year.

June 21, 2020
Caffeinated energy drinks are health hazard; FED enhanced to 25pc

ISLAMABAD: The federal government has increased federal excise duty from 13 percent to 25 percent on consumption o f caffeinated energy drinks on both local supplies and import of such drinks.

Hammad Azhar, Federal Minister for Industry and Production, while presenting the federal budget 2020/2021 on June 12 on floor of the house said that caffeinated energy drinks are health hazard, hence to reduce the consumption of such drinks it is proposed that the FED may be increased from 13 percent to 25 percent both at import and at local supply.

It may be noted that aerated waters are already subject to FED at 13 percent.

Further, FED on imported cigarettes, cheroots, cigarillos, cigars and other tobacco substitutes is being enhanced from 65 percent to 100 percent in line with WHO (World Health Organization) standards.

Necessary changes are also proposed to be made in Table 1 of the First Schedule pertaining to aforesaid items to cover for tobacco substitutes as well as E-cigarettes, the minister said.

Filter rod is a basic input material for cigarette manufacturing. Present rate of FED is Rs.0.75 per filter rod. To enhance the effect of monitoring and enforcement on tobacco consumption and tax management, it is proposed that the existing rate be enhanced to Rs.1 per filter rod.

FED structure is already in place for both local and imported motor cars and SUVs excluding auto rickshaw falling under the PCT heading 87.03.

Double cabin pick up which is currently classified as goods transport vehicle is being reclassified as passenger transport vehicle, which will bring it in the ambit of FED at 7.5 percent ad valorem in case of locally manufactured vehicles and at 25 percent in the case of imported ones.

Sales tax is charged on standard rate of 17 percent on import and local supply of Potassium Chlorate and in addition to that Rs 70 per kg is also collected. On the recommendation of the Match manufacturers association the rate of Rs. 70 per kg is being enhanced to Rs. 80 per kg. Provided that rate of rupees 70/80 per kilogram is not applicable on imports made by and supplies made to organizations under the control of Ministry of Defense Production.

June 21, 2020

CGT on immovable properties reduced by 50 percent

ISLAMABAD: The capital gain tax on (CGT) disposal of immovable properties has been reduced by 50 percent in order to promote investment in construction industry.

According to Deloitte Yousuf Adil, Chartered Accountants, the Finance Bill 2020 proposed reduction in tax rates by 50 percent on capital gains arising on disposal of immovable property.

This is in line with the Government’s vision to promote construction industry and to provide stimulus for the growth in economy as construction sector provide employment to a number of sub-sectors.

S. No.	Amount of gain	Rate of tax
		Existing	Proposed
1.	Where the gain does not exceed Rs.5 million	5%	2.5%
2.	Where the gain exceeds Rs.5 million but does not exceed Rs.10 million	10%	5%
3.	Where the gain exceeds Rs.10 million but does not exceed Rs.15 million	15%	7.5%
4.	Where the gain exceeds Rs.15 million	20%	10%

A person responsible for registering, recording, or attesting transfer of immovable property is required to collect advance tax from seller of such property.

Such advance tax is not collected where the immovable property is held for a period exceeding 5 years.

The Bill proposes to reduce this time limit of 5 years to 4 years.

June 20, 2020

Automated scrutiny of tax returns to end universal self assessment scheme

The Federal Board of Revenue (FBR) has introduced a significant policy shift through the Finance Bill 2020, proposing the automated scrutiny of all income tax returns, which may signal the end of the Universal Self-Assessment Scheme (USAS) in Pakistan.
(more…)

June 20, 2020
Weekly Review: Positive sentiments may prevail

KARACHI: Trading activities likely witness positive sentiments during upcoming week as political uncertainty may settle down, analysts said.
(more…)

June 20, 2020
KTBA advises FBR to suspend notices amid alarming rise in COVID cases

KARACHI: Karachi Tax Bar Association (KTBA) has advised Federal Board of Revenue (FBR) to suspend notices for various tax matters with immediate effect considering the alarming increase in cases of COVID-19 in the country.

The KTBA in a letter to FBR chairperson sent on Friday, informed that the bar members were receiving notices issued by the tax officials right in the month of June when the COVID-19 pandemic was in its worst phase in the country, and the city of Karachi is passing through its hardest times.

The grim situation at hand, in terms of helplessness and number of deaths of both taxpayers and the tax officers, cannot possibly be remained devoid of any mindful sight.

It is rather what today has the fullest attention of everyone concerned and the FBR as the tax regulator cannot simply be an exception. It cannot keep shooting notices mindlessly to the taxpayers for tax compliance when the taxpayers or their counselors cannot even reach their offices these days. The Bar equally feels compassionately about officers. “You must be aware of the deaths of tax officials posted at LTU, Karachi and at Regional Tax Office, Karachi due to Coronavirus.”

Around 160,000 coronavirus positive cases have been registered in the country out of which, almost 55,000 are in Sindh. Among the cities of Sindh, Karachi is at the top with 45,000 plus cases.

Keeping the above in view, the number of notices being issued these days is beyond ones comprehension. The members, like other service providers (shops, markets and manufacturing units are an exception), are largely not operating from their offices and are working from home, which has its own limitations. As such, in these testing times, it is not humanly possible for our members to respond to the notices issued for various proceedings discuss below.

Even otherwise responding to these notices is not possible without provision of details/ information by clients/ taxpayers who are also suffering from the short comings discussed above. On the other hand, IRIS still has its own limitations.

Any assignment created especially in ‘completed tasks’ cannot be replied via IRIS. Even if a notice can be responded to via IRIS, attachments containing details beyond a specific size are not acceptable by IRIS i.e. not every notice can be responded to via IRIS.

This would mean that bar members have to come to the tax office for making the compliance. Under the present scenario of infections (tax offices are not immune from this), this poses a great threat for the visitors.

What has been observed that as a matter of fact, the notices, which are being issued can broadly been categorized under the following categories:

(i) Audit notices for the Tax Years 2015 to 2019

(ii) Audit notices for the TY 2014 including notices for making amendment under section 122(5) of the Income Tax Ordinance, 2001

(iii) Monitoring of withholding tax

(iv) Set-aside proceedings

(v) Appeal effect proceedings

For Audit notices relating to the Tax Years 2015 to 2019, the bar is of the view that there should not arise any issue of getting barred due to any time limitation. As such, these proceedings can well be taken up at a later stage as well, say after two to three months when gravity of the spread of Coronavirus will be subsided.

The notices for monitoring of withholding tax are again not poised with any time limitation issue.

As for the notices related to the set aside and appeal effect proceedings, it would be advisable to seek an advice from the Ministry of Law as to any possible waiver from the application of calculation of limitation period under the Income Tax Ordinance, 2001 read with Section 4 of the Limitation Act, 1908 for these extra ordinary days; alternatively, some moratorium should be asked for. This will be in utter necessity for saving precious lives from any jeopardy due to any insensitivity.

The tax bar urged the FBR to suspend the notices at least till the end of July 2020. Further that no adverse action would be taken on the notices already issued.

This is acutely necessary to defuse the tension in the atmosphere and for instilling the much-needed confidence in the taxpayers of the country towards the single most pivotal federal tax regulator of the country.

June 20, 2020