Author: Mrs. Anjum Shahnawaz

Collectors’ power to determine customs values withdrawn

KARACHI: The government has withdrawn the power of Collector of Customs in determination of customs value on his own motion through Finance Bill 2019.

The Finance Bill 2019 proposed to withdraw the powers of the collector of customs to determine customs valuations on his motion under Section 25A(1) and Section 25A(3) of Customs Act, 1969.

The collector of customs presently has powers to determine the customs values under Section 25A.

The sub-section 1 of Section 25A states: Notwithstanding the provisions contained in section 25, the Collector of Customs on his own motion, or the Director of Customs Valuation on his own motion or on a reference made to him by any person or an officer of Customs, may determine the customs value of any goods or category of goods imported into or exported out of Pakistan, after following the methods laid down in section 25, whichever is applicable.

The sub-section 3 of Section 25A states: In case of any conflict in the customs value determined under sub-section (1), the Director-General of Customs Valuation shall determine the applicable customs value.

The powers of determining customs values have now been proposed to be available with Director of Customs Valuation.

Analysts said that this proposal in the Finance Bill 2019 would provide relief to import in clearance of consignments. They said that many arbitrary decisions of Collector have created hassles for the importers in the past and consignments were stuck up for a long time.

June 16, 2019
Non-ATL persons to pay double amount of withholding tax on prize bond winning

ISLAMABAD: The government has increased withholding tax by 100 percent on winning of prize bonds for persons not on Active Taxpayers List (ATL).

Through Finance Bill 2019 the government has deleted the term ‘non-filers’ and imposed 100 percent withholding tax on persons not on the ATL, which contains names of persons file their returns by due date of a tax year.

The rate of withholding tax on prize bond, cross-word puzzle and prize on winnings remains unchanged, however, the categorized rates of non-filer are proposed to be abolished.

The amendment proposed through the Finance Bill 2019, the rate of withholding tax on winning of prize bonds and other lottery schemes shall be:

The rate of tax to be deducted under section 156 on a prize on prize bond or cross-word puzzle shall be 15 percent of the gross amount paid.

The rate of tax to be deducted under section 156 on winnings from a raffle, lottery, prize on winning a quiz, prize offered by a company for promotion of sale, shall be 20 percent of the gross amount paid.

For the person winning the prize but not on the ATL shall pay double the amount as withholding tax.

June 16, 2019
Finance Bill 2019: Revised CGT rates on sale of securities

ISLAMABAD: The Finance Bill 2019 has proposed revised rates of Capital Gain Tax (CGT) on sale of securities under Section 37A of the Income Tax Ordinance, 2001.

According to EY Ford Rhodes Chartered Accountants the rate card for levying tax on capital gains arising on sale of securities as referred to in Section 37A is proposed to be replaced, whereby the category for non-filers and the respective slab rates have been removed.

The rates applicable for tax year 2019 are proposed to be further extended to tax year 2020 as under:

June 15, 2019
Finance Bill 2019: severe punishment proposed for offshore tax evasion

ISLAMABAD: The government has proposed severe punishment for tax evasion through Finance Bill 2019.

According to commentary on Finance Bill, 2019 by EY Ford Rhodes Chartered Accountants, the country in the recent past had witnessed a lot of hue and cry in respect of undeclared assets / wealth accumulated and held abroad by resident of Pakistan.

Such non-declaration was exposed to severe criticism both on print and electronic media, ultimately resulting in media trial of persons involved.

“While the existing penalty and prosecution provision may generally cater such tax evasions, the Bill now proposes to severely punish taxpayers involved in offshore tax evasions.”

Although, the term offshore tax evasion has not been particularly defined either by the Bill or the Ordinance, internationally the concept refers to a situation where a taxpayer avoids paying taxes in the home jurisdiction in respect of foreign / offshore assets and income.

Hence, if a Pakistan resident evades paying taxes on its foreign source assets and income, it may be regarded as indulging in offshore tax evasion.

In this back drop following definitions are proposed to be inserted in Section 2 of the Ordinance –

— “Offshore asset” in relation to a person, incudes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan;

— “Offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;

— “Offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioner;

— “specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under the Common Reporting Standard with Pakistan;

— “unspecified jurisdiction” means a jurisdiction which is not a specified jurisdictions.

— “asset move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion; Corresponding penalties, in respect of offshore tax evasion have also been proposed as under:

— Where an offshore tax evader is involved in offshore tax evasion, a penalty of Rs100,000 or an amount equal to 200 percent of the tax which the person sought to evade, whichever is higher, would be applicable.

— Where, in the course of any transaction or declaration made by a person, an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion, a penalty of Rs300,000 or an amount equal to 200 percent of the tax which was sought to be evaded, whichever is higher, would be applicable.

— Any person, who is involved in the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion, from one specified territory to an un-specified territory, shall pay a penalty of Rs100,000 or an amount equal to 100 percent of the tax whichever is higher.

In addition to the above penal exposures, in order to deter the concealment of offshore assets and to maintain effective monitoring of offshore tax evasion, the Bill also proposes to prosecute the tax evader, as provided for under the newly proposed Sections 192B and 195B.

In terms of Section 192B, any person who fails to declare an offshore asset or furnishes inaccurate particulars of an offshore asset where the financial impact of such concealment or furnishing of inaccurate particulars is Rs100,000 or more, the same shall be treated as an offence, punishable on conviction with imprisonment up to 7 years or a fine up to 200 percent of the amount of tax evaded, or both.

Similarly, through Section 195B, the Bill seeks to hold any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in an offshore tax evasion, the same will be treated as an offence punishable on conviction with imprisonment for a term not exceeding 7 years or with a fine up to Rs5 million or both.

The Bill further proposes to insert a new Sub-section in Section 145 of the Ordinance in terms of which the Commissioner is empowered to freeze any domestic asset of a person including any asset beneficially owned by him, where he has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any such asset.

The asset frozen can be held by the Commissioner for a period of one hundred and twenty days or till the finalization of proceedings including but not limited to recovery proceedings under the Ordinance whichever is earlier.

Finally, the Bill proposes to insert Sub-sections (6B) and (6C) in Section 216 of the Ordinance whereby FBR is empowered to publish the names of offshore evaders and offshore enablers in the electronic and print media.

June 15, 2019
Finance Bill 2019: CGT on immovable properties revamped

ISLAMABAD: The capital gain tax on the immovable properties has been revamped through Finance Bill 2019 in order to streamline taxation on gains at the time of sale of immovable properties.

According to commentary of EY Ford Rhodes Chartered Accountants on changes brought in Income Tax Ordinance, 2001 through Finance Bill 2019, the taxation of capital gains arising from disposal of capital assets is governed by Section 37 of the Ordinance.

After the introduction of Eighteenth Amendment in the Constitution of Pakistan, 1973, the Finance Act, 2012 introduced a significant amendment inserting Sub-section (1A) in Section 37 of the Ordinance providing for taxation of capital gains arising from disposal of immovable properties.

The rates of tax on such capital gains were applicable depending on the holding period of immovable properties ranging from 5 percent to 10 percent.

However, if the immovable property was disposed of after holding period of three years, the rate of tax is prescribed at zero percent.

“The Bill proposes to revamp the taxation of capital gains from disposal of immovable properties.”

Accordingly, it is proposed to omit Sub-section (1A) from Section 37 along with Division VIII of Part I of the First Schedule which contains rates of tax on such capital gains.

In its place, a new Sub-section (3A) is proposed to be inserted which contains separate mechanisms for computation of capital gain on disposal of (i) open plot, and (ii) constructed property.

The effect of the proposed amendment is that such capital gain (worked out by subtracting cost of the asset from the consideration received) will not be considered as a separate block of income liable to tax at reduced rates of 5 percent, 7.5 percent or 10 percent.

It will instead forms part of total income of the person and therefore, be taxed at the normal rates of tax applicable as per the First Schedule.

The capital gain will, however, be reduced by 25 percent depending on the holding period of the immovable property disposed of.

The reduction of 25 percent will apply if the holding period of open plot exceeds one year but does not exceed ten years and for constructed property from one year to five years.

Where the immovable property is disposed of after holding period of ten years and five years respectively, the capital gain will be taken to be zero.

An interesting outcome of this mode of taxation is that where the capital gain becomes zero depending upon the holding period as discussed above, super tax under Section 4B of the Ordinance will not apply for, there would not be any income recognizable for the purpose of computation of super tax.

The reduction of 50 percent of tax payable in respect of capital gains on disposal of immovable property on the first sale of immovable property acquired or allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or serving personnel of Federal and Provincial Governments, being original allottees of the immovable property, duly certified by the allotment authority remains intact as for this purpose Clause (9A) is also proposed to be inserted in Part III of the Second Schedule to the Ordinance.

June 15, 2019
Finance Bill 2019: Money withheld of persons not appearing on ATL to be treated as unexplained

ISLAMABAD: The government has taken harsh stance against persons having taxable income but not on the tax roll.

In this regard the law has been introduced under which persons not appearing on the Active Taxpayers List (ATL) and their amount withheld on transactions will be treated as unexplained.

Commissioners of Inland Revenue, Federal Board of Revenue (FBR) have been empowered to make assessment of income of such persons and issue notices.

A budget commentary issued by EY Ford Rhodes Chartered Accountants said that the concept of filers and non-filers was introduced in the Ordinance through the Finance Act, 2014.

Through this concept a distinction was created between person who duly filed their tax returns and the remaining persons who were considered non-filers.

The basic intention of the legislature was to obtain documentation and compel the non-filers to become registered tax filers.

Over the years, major distinction was introduced in the rates of tax withholding under various sections of the Ordinance to make the non-filers suffer heavy withholding of tax so that they may be compelled to ultimately come within the tax net and file proper declaration of their tax returns with FBR.

However, over the last five years, it has been observed that the percentage of increase in tax filers has not been significant and the numbers of tax filers is still quite low as compared to other comparable economies.

The present government has been talking about broadening of the tax base more strongly and the Prime Minister himself has on many occasions indicated his strong desire to significantly broaden the tax base.

It is now proposed to enact a separate schedule in the Ordinance to deal with persons who are not on the ATL i.e. who are not in the tax net and are not filing their declaration so far.

In this connection, Section 100BA has been proposed which governs the collection or deduction of advance income tax, computation of income and tax payable by such persons.

The Tenth Schedule generally provides that where ever tax is required to be deducted or collected under any provisions of the Ordinance from a person whose name is not appearing in the ATL, the rate of withholding will be doubled in case of deduction or collection from such persons.

However, the schedule provides exception in case of the following payments –

(1) Salary;

(2) Payment to non-residents other than on account of royalty, fees for technical service, insurance premium

(3) Payment to a Permanent Establishment in Pakistan of a non-resident person other than on account of providing services or contract or any general payment to a non-resident.

(4) Payment on account of exports

(5) Tax deductions from payment of rent

(6) Tax deductions from withdrawal of balance from pension funds

(7) Tax collection from cash withdrawal from a bank

(8) Tax collection on banking transactions

(9) Collection of tax by NCCPL

(10) Collection of tax on domestic or commercial electricity consumption

(11) Tax collection from steel melters

(12) Purchase of air tickets

(13) Functions and gatherings

(14) Cable operators

(15) Educational institutions

(16) Dealers and commission agents

(17) Purchase of international air tickets

(18) Non-cash banking transactions

(19) Payment for use of machinery and equipment

(20) Remittance of education related expenses

(21) Extractions of minerals

(22) Tobacco

The Schedule seeks to provide a mechanism where a withholding agent is satisfied that the person not appearing in the ATL is not required to be a tax filer and hence the deduction of tax should not be attracted from payments to such persons.

In such a situation, the payer would be required to furnish an application to the Commissioner in writing electronically providing the details of the person from whom he intends not to collect tax, giving details about the payee and the nature of payment and the basis on which he is not liable to be a tax filer.

The Commissioner on such application would decide the matter within 30 days and direct the payer accordingly.

Assessment of such person

— The Schedule requires the Commissioner to undertake a provisional assessment of the person from whom tax has been withheld under the Schedule but he has failed to file the return of income within the prescribed time or extended time.

— The provisional assessment is proposed to be carried out within 60 days of the due date of filing of return. The income of such person in such a case shall be imputed on the basis of tax that has been withheld at source and shall be treated as un-explained income.

— Once the provisional assessment has been finalized and served on such person, he can file a return of income within 45 days of the service of the provisional order. In which case the provisional assessment shall stands abated.

— If a return of income is not filed within 45 days of service of order of provisional assessment, then such assessment is to be treated as final assessment order. In such a case the Commissioner is also proposed to be empowered to pass an order within 30 days of finalization of assessment for imposition of penalty on account of non-furnishing of return and concealment of income.

— The Schedule also seeks to empower the Commissioner to amend an assessment on the basis of definite information from an audit or otherwise.

Consequent to the proposed enactment of the Schedule, to withdraw concept of filers and non-filers from various provisions of the Ordinance, several amendments have been proposed in various withholding provisions to remove reference to Filer and non-Filer.

Similarly the restrictions introduced on purchase of immovable property and moveable property on Non-filers in Section 227C are also proposed to be abolished.

June 15, 2019
Finance Bill 2019: Law prohibits FBR officials from taking action against amnesty declarants

ISLAMABAD – The Federal Board of Revenue (FBR) has formally restricted its officials from initiating any proceedings against individuals who availed the Tax Amnesty Scheme under the Assets Declaration Act, 2019.
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June 15, 2019
Remittances grow to $20.19 billion in 11 months

KARACHI: Overseas Pakistanis workers have sent $20.19 billion during July – May 2018/2019 as compared $18.28 billion in the same period of the last fiscal year, showing growth of 10.42 percent, State Bank of Pakistan (SBP) on Friday.

The central bank said that during May 2019, the inflow of worker’s remittances amounted to $2315.74 million, which is 30.17 percent higher than April 2019 and 28.36 percent higher than May 2018.

The country wise details for the month of May 2019 show that inflows from Saudi Arabia, UAE, USA, UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries amounted to US $493.73 million, $476.57 million, $346.81 million, $387.09 million, $237.76 million and $70.61 million, respectively compared with the inflow of $432.05 million, $373.85 million, $290.26 million, $269.11 million, $178.96 million and $60.34 million respectively in May 2018.

Remittances received from Malaysia, Norway, Switzerland, Australia, Canada, Japan and other countries during May 2019 amounted to $303.17 million together as against $199.51 million received in May 2018.

June 14, 2019
Customs initiates examining exporters to check under-invoicing, mis-declaration

KARACHI: Pakistan Customs has initiated examination of exporters’ profiles to check mis-declaration and under-invoicing for plugging revenue leakages.

A statement said on Friday that the chairman of Federal Board of Revenue (FBR) Shabbar Zaidi had directed to identify the extent of mis-invoicing in export declarations in order to ascertain the suspected items or sectors and destinations for such mis-declaration, and to categorize exporters on the basis of risk profiling by segregating compliant exporters from those engaged in mis-invoicing.

The Customs Operations wing has tasked the Director General Customs Valuation to submit a report in this regard.

It has been further directed to develop a risk based system to intercept this trend without compromising export facilitation. Punitive action shall be taken against unscrupulous exporters under the proposed Section 32 C of the Customs Act, 1969 and the allied laws.

This initiative has arisen in the backdrop of reports indicating mis-invoicing in exports, which includes under-invoicing resulting in loss of remittance of forex and over-invoicing used to transfer excessive funds abroad.

Under-invoicing could be used also possibly as a mechanism for trade-based money laundering. One of the suspected methods used in under-invoicing in exports is through the medium of via port cargo.

Export cargoes are mis-declared by under-invoicing the values of export commodities, and shipped to a via port wherein new declaration with actual values are re-shipped for a final destination.

As a consequence, lesser amount of foreign exchange is remitted to Pakistan and a major portion of export proceeds is retained in the other country.

June 14, 2019
SECP holds consultation session to review Bancassurance regulations

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has organized a stakeholders’ consultations session to review the changes in insurance regulatory framework governing Bancassurance, a statement said on Friday.

Bancassurance has been contributing towards the growth of the insurance sector by increasing insurance penetration and addressing financial inclusion in the Pakistan.

SECP has in the past issued guideline in 2010 and subsequently Bancassurance Regulations, 2015.

Due to the recent bearish performance of the stock market, the insurance policyholders have suffered short term losses due because most of the products sold to bancassurance is unit linked in nature.

Therefore to provide impetus to development of insurance market, particularly the Bancassurance, the SECP has developed amendments in the Bancassurance Regulations, 2015 and holds a stakeholders’ consultation session on June 12, 2019 at Karachi.

The session was attended by the State bank of Pakistan (SBP), insurance companies, Federal Insurance Ombudsman (FIO) and members of the Small Dispute Resolution Committees.

The participants thoroughly discussed the proposed changes and appreciated the SECP for taking such initiatives.

However, the industry participant placed emphasis that SECP should give due consideration to the market development aspects as well as increasing regulatory controls for protection of the policyholders’ interest.

The participants stated that under the current economic conditions SECP should also give consideration to ease of doing business.

June 14, 2019