KARACHI: The Federal Board of Revenue (FBR) allowed automated issuance of exemption certificate in case commissioner delays in approval.
(more…)Author: Mrs. Anjum Shahnawaz
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SRB notifies sales tax exemption on services provided by restaurants, marriage halls
KARACHI: Sindh Revenue Board (SRB) has notified exemption of 13 percent sales tax on services rendered by restaurants and marriage halls.
The SRB issued working tariff applicable from January 01, 2020.
The service provided or rendered by restaurants and marriage halls are subject to 13 percent sales tax.
The SRB said that services provided or rendered by restaurants shall be exempted from sales tax whose turnover does not exceeds Rs4 million in a financial year:
Provided that the exemption shall not apply in case of restaurants:-
(i) which are air-conditioned on any day in a financial year and which are located within the building or premises of air-conditioned shopping malls or shopping plazas;
The SRB further said that the marriage halls and lawns are also exempt from sales tax at 13 percent, which are located on plots measuring 800 square yards or less.
Provided that the exemption shall not apply in case of marriage halls and lawns:
(i). which are air-conditioned on any day in a financial year;
(ii).located within the building, premises or precincts of a hotel, motel, guest house, restaurant or club whose services are liable to tax;
(iii). as are owned, managed or operated by caterers whose services are liable to tax;’
(iv). which are franchisers or franchisees; and
(v). marriage halls and lawns having branches or more than one hall or lawn in Sindh.
(ii) located within the building, premises or precincts of any hotel, motel, guest house or club whose services are liable to sales tax;
(iii) providing or rendering services in the building, premises, precincts, hall or lawn of any hotel, motel, guest house, marriage hall or lawn or club whose services are liable to sales tax;
(iv) which are franchisers or franchisees;
(v) having branches or more than one outlet in Sindh; and
(vi) whose total utility bills (gas, electricity and telephone) exceed Rs. 40,000/- in any month during a financial year.
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Traders given tax incentives
KARACHI: Federal Board of Revenue (FBR) has allowed tax concession to traders to bring them into tax net.
The tax concessions have been granted through Tax Laws (Second Amendment) Ordinance, 2019.
Tax experts at PwC A F Ferguson Chartered Accountants said that pursuant to the agreement between representatives of federal government and trade bodies on October 30, 2019; certain concessions have been allowed to traders through the Second Amendment Ordinance.
The term ‘trader’ has been defined to mean an individual engaged in business of buying and selling of goods in the same state, including a retailer and a wholesaler but excluding a distributor.
The concessions provided to traders are as under:
(i)The general rate of minimum tax payable (under section 113 of the Income Tax Ordinance 2001) has been reduced from 1.5 percent to 0.5 percent for tax year 2020 for traders having turnover up to Rs100 million.
However, for traders who have filed income tax returns for tax year 2018, the tax liability for tax years 2019 and 2020 should not be less than the tax liability for tax year 2018, to become eligible for reduced rate of minimum tax of 0.5 percent.
(ii)Individual having turnover of Rs. 50 million or more in any of the preceding tax years is liable to deduct tax under section 153 while making payments against supply of goods, services and contracts.
Through the Second Amendment Ordinance, traders being individuals having turnover up to Rs100 million have been exempted from deducting tax under section 153 while making payment against supply of goods, services and contracts.
The board is expected to clarify the year with respect to which turnover of Rs100 million will be calculated by the trader.
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Taxpayers’ declarations to be checked for money laundering
ISLAMABAD: Financial Monitoring Unit (FMU) has been allowed to obtain information of taxpayers from tax authorities to check income tax returns and other declarations for money laundering and terror financing.
The FMU has been granted access to taxpayers’ data through amendment introduced to Section 216 of the Income Tax Ordinance, 2001. The amendment has been brought through Tax Laws (Second Amendment) Ordinance, 2001.
Under Section 216 of the Income Tax Ordinance, 2001, public servants are barred from disclosing any information relating to income tax filings, evidences or proceedings of any taxpayer.
Certain exceptions to this general prohibition are also contained in the said section whereby information may be disclosed to specified persons, organizations or authorities.
By way of an amendment made through the Second Amendment Ordinance, Financial Monitoring Unit (FMU) established under the Anti-Money Laundering Act, 2010 has been included in the list of such exceptions which do not fall within the ambit of confidentiality clause contained in Section 216, tax experts at PwC A F Ferguson Chartered Accountants said.
This amendment is intended to enable FMU to better implement anti-money laundering procedures by directly obtaining necessary information from public servants.
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PTBA demands probe into fake FBR’s date extension letters
LAHORE: Pakistan Tax Bar Association (PTBA) has approached law enforcement agencies to probe circulation of fake/forged circulars related to date extension in income tax return filing.
The PTBA – the apex trade body of the country – in an application for lodging FIR against culprits on Saturday informed Federal Investigation Agency (FIA) about the circulation of forged/fake circulars through WhatsApp groups and on Facebook (FB) regarding extension of date for filing of income tax return for tax year 2019.
The said that the last date for filing of income tax returns for tax year 2019 was extended till December 16, 2019 through Circular No. 16/2019 dated November 29, 2019. The date was further extended till December 31, 2019 through circular No. 17/2019 dated December 16, 2019 but a forged /fake circular with similar signature of a government official was circulated in different WhatsApp groups on December 16, 2019 around 2:15pm and TV channels have also broadcasted the same news without verification, whereas the original circular No. 17/2019 dated December 16, 2019 was uploaded on FBR’s official portal around at 5:15pm.
The tax consultants/taxpayers were busy in filing for returns 2019 on December 12, 2019 because of last date for filing returns but suddenly at 3:45pm another forged / fake circular 18/2019 dated December 12, 2019 showing extension till January 31, 2020 was again circulated approx at 8:55 pm in WhatsApp groups, whereas the original circular No. 18/2019 dated December 12, 2019 was uploaded on FBR portal at around 10:55pm.
The PTBA provided fake letters and screenshots of TV channels to the FIA authorities.
“The fake circulars created miserable situation for tax consultants, FBR and taxpayers,” the PTBA said and also suggested media should on air such new after confirmation with relevant authorities,
The PTBA complained that due to such criminal activities the reputation of FBR as well as of tax bars was tarnished.
It is also matter of due consideration that leakage of confidential information affects the goodwill of an institution and it also against the constitution of Pakistan.
The tax bar said that such act of a person circulating the forged/fake extension circular attracts various offences under Prevention of Electronic Crime Act, 2016 as well as offences under Pakistan Penal Code, 1860.
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Weekly Review: Equity market to move with escalating Middle East tension
KARACHI: The stock market likely to move with the development in mounting tension in the Middle East following killing of Iranian leader in US air strike.
Analysts at Arif Habib Limited said that market to remain in the green zone next week. Oil scrips may manage to attract the limelight following renewed tension in the Middle East which is likely to fuel international oil prices.
Additionally, fresh portfolio allocations and inflow of funds with the advent of the New Year should support the momentum. The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 7.4x (2020) compared to Asia Pac regional average of 12.5x and while offering DY of ~6.4 percent versus ~2.7 percent offered by the region.
Overall optimism in the equity markets continued this week. Investors welcomed the New Year with a spectacular two-day rally of 1,746 points on the first two days of the New Year.
Abu Dhabi Crown Prince’s one day visit and continuously improving macros with further improvement in SBP reserves (+5.5 percent WoW) helped to sustain the bullish run of the KSE-100 Index.
Albeit, the last trading day witnessed profit taking in the wake of a US strike in Iraq to kill a key Iranian army commander. Inflation reading for Dec’19 settled at 12.63 percent YoY, declining 0.34 percent MoM. The KSE-100 Index settled at 42,323 points, up 1,475 points WoW.
Sector-wise positive contributions came from i) Commercial Banks (261 points), ii) Fertilizer (218 points), iii) Oil & Gas Exploration Companies (208 points), iv) Power Generation (184 points), and v) Cement (171 points). Whereas, negative sector-wise contribution came from Tobacco (27). Scrip-wise positive contributions were led by HUBC (138 points), LUCK (124 points), ENGRO (102 points), OGDC (85 points) and PSO (79 points).
Foreign selling continued this week clocking-in at USD 7.3 million compared to a net sell of USD 2.9 million last week. Selling was witnessed in Commercial Banks (USD 4.7 million) and Fertilizer (USD 1.4 million).
On the domestic front, major buying was reported by Mutual Funds (USD 8.6 million) and Banks/DFI (USD 4.2 million). Average Volumes settled at 282 million shares (up by 23 percent WoW) while average value traded clocked-in at USD 69 million (up by 29 percent WoW).
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FBR empowered for closure of automatic audit selection
ISLAMABAD: Federal Board of Revenue (FBR) has been empowered to conclude cases which were automatic selected for audit.
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Massive tax relief announced for foreign investment in debt securities
KARACHI: The government has announced massive tax relief to foreign investment in debt securities considering the attractive environment due to higher interest rate in the country.
The foreign investment in domestic debt market including government securities including Market Treasury Bills and Pakistan Investment Bonds, is around $1.5 billion during first six month (July – December) of 2019/2020 and in total it is around $2 billion when investment included in the equity market.
Through Tax Laws (Second Amendment) Ordinance, 2019, the government facilitated the foreign investment by making significant changes to Income Tax Ordinance, 2001.
A commentary released by Pwc A F Ferguson Chartered Accountants on the tax ordinance 2019 explained the tax relief on the foreign investment through changes brought into the main statute.
The chartered accountancy firm said that foreign investors particularly foreign institutional investors invest in Pakistan’s capital market through Foreign Portfolio Investment (FPI) scheme, which allows such investors to invest in equity and debt securities (including Government Bonds, Term Finance Certificates, Pakistan Investment Bonds) without any physical presence.
The FPI scheme makes it mandatory for foreign investors to open Special Convertible Rupee Account (SCRA).
The requirement for non-residents to open SCRA is provided in Chapter 20 of the Foreign Exchange Manual issued by the State Bank of Pakistan (SBP).
The funds available in SCRA can be transferred outside Pakistan or credited to a foreign currency account of non-resident investor maintained in Pakistan at any time without prior approval of SBP.
Such non-resident corporate investors not having a Permanent Establishment in Pakistan are hereinafter referred to as NRI.
The tax incidence applicable on NRI on return from their investment in equity instruments, either as dividend or capital gains, is largely aligned and same (being 15 percent).
However, tax incidence applicable on return from investment in debt securities by NRI is not aligned. Interest income from debt investment is subject to final tax upon tax withholding at 10 percent whereas capital gains from disposal of debt instruments are taxable at corporate rate of tax which is presently 29 percent.
The Second Amendment Ordinance has aligned and rationalized the tax incidence through following amendments, apart from relieving NRI from certain compliances:
(i) Banking company / financial institution maintaining SCRA of NRI is now required to deduct tax from capital gains arising on disposal of debt instruments and Government securities (including Treasury Bills and Pakistan Investment Bonds) @ 10 percent.
Such tax deduction constitutes final tax on such capital gains. It appears that tax withholding is required to be made at the time when proceeds from disposal are accounted for in the SCRA and also that no adjustment for any capital loss may be made by the Banking company / financial institution while deducting tax @ 10 percent from capital gains earned by NRI on disposal of debt securities.
(ii) The requirements to obtain tax registration [under Section 181 of the Income Tax Ordinance, 2001 (‘ITO 2001’)] and also to file statement of final taxation [under Section 115(4)] will no longer apply, in case capital gains or profit on debt is earned from investments made through SCRA (maintained with a banking company or financial institution) in debt instruments & Government securities (including treasury bills and Pakistan investment bonds).
Despite not appearing on Active Taxpayers List (ATL), they will not be subjected to higher tax withholding under the Tenth Schedule on interest income and capital gains relating to such securities.
(iii) Advance tax under section 147(5B) will also be not payable in respect of capital gains arising on investment made through SCRA (maintained with a banking company or financial institution) in debt instruments and Government securities (including treasury bills and Pakistan Investment Bonds).
(iv) Tax withholding applicable on banking transactions by those not appearing on ATL (under section 236P) will not apply to SCRA. This is a blanket exemption for companies maintaining SCRA regardless of whether investment is made in equity or debt securities.
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SBP issues procedure for loan disbursement to unemployed youth
KARACHI: State Bank of Pakistan (SBP) on Friday issued procedure for disbursement of loan to unemployed youth under Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme (PMKJ-YES).
In a circular issued to all chief executives of banks and development financial institutions, the SBP said that executing agencies (EAs) shall evaluate loan applications of unemployed youth as per parameters of PMKJ-YES approved by the Federal Cabinet and circulated by the State Bank of Pakistan to all banks vide its IH&SMEFD Circular No. 08 of 2019 dated July 11, 2019.
The loan facility for a borrower shall be sanctioned and disbursed by the EA after completion of documentation formalities.
These loans shall be entitled for service charges subsidy and credit losses subsidy. No further evaluation on eligibility of borrowers would be conducted by the SBP.
The government has launched PM Kamyab Jawan Youth Entrepreneurship Scheme (PMKJ-YES) to provide concessional loans to youth for establishing or extending business enterprises thereby promoting entrepreneurship and reducing unemployment and poverty in Pakistan.
The SBP has issued necessary instructions to all banks through IH&SMEFD Circular No. 08 dated July 11, 2019. All loans disbursed under PMKJ-YES shall be reported to SBP under Small Enterprise Financing category.
Under the Scheme, loans are segregated into two tiers i.e. Tier 1 (T1) loans from Rs. 100,000 to Rs. 0.5 million and Tier 2 (T2) loans – above Rs 0.5 million and up to Rs 5 million.
The loans will be provided through the banking system at service charges of 6 percent per annum. for TI loans and 8 percent p.a. for T2 loans, while the rate of return for banks working as EAs for PMKJ-YES would be KIBOR (6- Months offer) + 500 bps for T1 loans and KIBOR (6- Months offer) + 400 bps for T2 loans with KIBOR to be reset bi-annually.
The government shall absorb the difference between the rate of return for EAs and end user rate as service charges subsidy, the SBP said.
Besides, GOP will also bear credit losses (principal portion only) on the disbursed portfolio of the banks up to 50 percent in case of T1 loans and up to 10 percent in case of T2 loans.
As per SBP’s Prudential Regulations for Small Enterprise Financing, loans are classified as loss on objective basis (time based criteria) when default period is 18 months or more or on subjective basis.
Hence, for determination of admissible credit losses against EA’s total PMKJ-YES disbursed portfolio at the end of each quarter, only loan cases classified under loss category as per SBP SME Financing PRs will be considered.
The SBP said that the payment of service charges subsidy to EAs will be made through SBP’s operational arm viz Development Finance Support Department (DFSD), SBP BSC Head Office Karachi.
The EAs shall prepare and submit claims to DFSD for receiving government service charges subsidy on outstanding principal amount of their regular PMKJ-YES portfolio up to expiry of each individual loan.
In case of a loan becoming non-performing, no service charges subsidy will be paid after being classified as ‘Loss’ as per SBP PRs for SME Financing.
The EAs claims shall contain particulars of each individual loan along with calculations of subsidy based on relevant six months KIBOR used. The service charges subsidy claim should be duly vetted by internal audit department of the EA. The audited claim along with a certificate from EA relating to eligibility of borrower for PMKJ-YES and correctness of the subsidy amount shall be submitted to DFSD within 15 working days after the end of respective quarter for payment of service charges subsidy.
DFSD, SBP BSC shall scrutinize subsidy claim of EAs within 15 working days after receipt of complete information from EAs.
DFSD shall ascertain that calculations of EAs subsidy claim are correct and applicable KIBOR rate has been used by the EAs.
Thereafter, DFSD shall submit scrutinized claims to Finance Division for release of funds. After receiving funds from GoP, DFSD will advise SBP BSC Karachi for crediting the subsidy amount in respective EA’s account maintained at SBP BSC Karachi.
Banking Inspection Department of State Bank during regular inspection of the EAs shall conduct inspection of their PMKJ-YES portfolio on sampling basis using its own sampling techniques.
SBP inspectors shall randomly select credit files and review them from the perspective of eligibility of borrowers under the Program, status of loan (regular or NPL) and GOP subsidy claim.
The BID inspection report section on PMKJ-YES shall be used as an important input for reviewing the Scheme and assessing its effectiveness in fulfilling the government objective of promoting youth entrepreneurship in the country.
On behalf of government, payment of credit losses subsidy to EAs will be made up to 50 percent in case of TI loans and up to 10 percent in case of T2 loans on their disbursed portfolio under the Scheme on quarterly basis through Development Finance Support Department (DFSD), SBP BSC Head Office Karachi.
EAs shall prepare claims for submission to DFSD, SBP BSC for receiving payment on account of credit losses subsidy from the government on their disbursed PMKJ-YES portfolio. The list containing details of individual loans classified as loss as per SBP SME PRs and calculation of credit loss subsidy based on total disbursed PMKJ-YES portfolio of EAs at the end of respective quarter shall be submitted to DFSD. EAs claim in this respect should be duly vetted by their internal audit department. The audited claim along with a certificate from EA relating to correctness of the claimed amount shall be submitted to DFSD within 15 working days after the end of respective quarter.
DFSD, SBP BSC shall scrutinize credit loss subsidy claim of EAs within 15 working days after receipt of complete information from EAs and ascertain that calculations of EAs loss claim are correct.
Thereafter, DFSD will forward admissible claims of EAs to Finance Division, GoP, for release of funds. After receiving funds from Finance Division, DFSD will advise SBP BSC Karachi office for crediting the approved subsidy claim in respective EAs account maintained at SBP BSC Karachi Office.
EAs will return excess amount arising, if any, to DFSD, in case movement in their PMKJ-YES portfolio causes amount of credit loss to be less than/falls below 50 percent in case of T1 loans and 10 percent in case of T2 loans of total disbursed portfolio of EA at the end of reporting Quarter.
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Procedure for making correction in cash payment receipt issued
ISLAMABAD: Federal Board of Revenue (FBR) has notified procedure for making correction in computerized payment receipt (CPR).
The FBR issued a circular on Friday stating that the electronic procedure for correction of CPR had been updated in IRIS software and following e-procedure would be followed for the correction of CPR of income tax, sales tax and federal excise duty.
The FBR said that the scope of changes would be restricted to the following ares:
a. Change of name, address, National Tax Number (NTN)/Computerized National Identity Card (CNIC).
b. Change in tax year/tax period
c. change in payment code/payment section.
The FBR said that online application for the changes should be submitted through Iris software. An applicant is required to provide documents, included: copy of CPR; in case of mistake made by withholding agent, letter from withholding agent and affidavit from the taxpayer on stamp paper that amendment may be made in CPR; for correction of NTN/CNIC in CPR, affidavit from the person on whose name the payment has been deposited mistakenly.
The FBR said that the chief commissioner shall designate an officer in his office for such purpose. In case, where scope of correction falls in different territorial jurisdiction, the chief commissioner to who such application has been made shall forward such application electronically to the chief commissioner where such CPR was recorded incorrectly.
Change in CPR will only take place in the system of FBR for all accounting purpose and the taxpayer will be entitled to take such credit accordingly.