Author: Mrs. Anjum Shahnawaz

Rupee ends down on import payment demand

KARACHI: The Pak Rupee ended down by six paisas against dollar on Tuesday due to higher demand for import and corporate payments.

The rupee ended Rs157.38 to the dollar from previous day’s closing of Rs157.32 in interbank foreign exchange market.

The foreign currency market was initiated in the range of Rs157.50 and Rs157.75 against the dollar. The market recorded day high of Rs157.70 and low of Rs157.35 in interbank foreign exchange market.

The exchange rate in open market also witnessed depreciation in rupee value by 20 paisas.

The buying and selling of dollar was recorded at Rs156.70/Rs157.70 from previous day’s closing of Rs156.50/Rs157.50 in cash ready market.

July 9, 2019
FBR not to reduce GST below 17 percent on petroleum products

KARACHI: Federal Board of Revenue (FBR) to maintain general sales tax at 17 percent on all petroleum products in coming months as agreed by the Pakistani authorities with the International Monetary Fund (IMF).

Pakistan has committed with the IMF for taking many steps for curbing powers of authorities in issuing statutory regulatory orders (SROs), eliminating exemptions and maintaining GST on petroleum products at 17 percent.

Through SRO 700(I)/2019 dated June 30, 2019, the FBR notified sales tax at 17 percent on supply of all petroleum products for the month of July 2019. The petroleum products are included: petrol, high speed diesel, kerosene oil and light speed diesel oil.

The Letter of Intent (LoI) presented by Pakistan for IMF loan program, the country assured the fund of eliminate the legal authorization for the executive to grant tax exemptions/concessions through Statutory Regulatory Orders (SROs) without prior National Assembly approval.

“We understand that the use of SRO needs to be subject to greater scrutiny and limited discretion. To that end, we have adopted the necessary revisions and amendments to the various relevant tax ordinances to further limit or eliminate the use of SROs to genuine emergencies, in line with best international practices,” according to the LoI.

The authorities have also assured the Fund of refraining from issuing any SRO reducing the GST rate below 17 percent on petroleum products.

For Modernize the Public Finance Management Framework, Pakistan has adopted an organic budget law that will minimize variance in budget authorizations during the year, which shall also require ex-post parliamentary approval, restrict virements, expand the content of annual budget statements, define accounting standards, and provide the legal basis for a well-defined cash management system and establishment of a treasury single account (TSA).

For Enforcing fiscal discipline, this will include strengthening the enforcement mechanism of the FRDLA through aligning the annual report presented by the Minister of Finance (MoF) to the National Assembly with the content and analysis prescribed in the Act. “Also, we will expand the capacity of the MoF for macro-fiscal work. Moreover, proper identification and monitoring of fiscal risks from SOEs, PPPs, IPPs and development projects will be strengthened through the establishment of a fiscal risk unit in the MoF, which will work in coordination with the PPP Authority.

“We are aware that PPP projects, while bringing great benefits, can also be the source of important risks. Thus, we are committed to strengthening the PPP legal framework. To this end, we are conducting a legal analysis of the current system to determine if amendments to the PPP law are required or, alternatively, whether enacting secondary legislation is sufficient, drawing on the expertise of our development partners.

“We will also make sure that proposed financial vehicles such as the Pakistan Infrastructure Bank is created in line with best international governance standards.”

Pakistani authorities informed the Fund about creating a Treasury office that would conduct sound commitment controls and cash management, closely coordinating with the debt management unit.

“We will strengthen the debt management office and will ensure greater coordination across the different relevant units. Elements of this strategy will include centralizing the issuance and management of public debt and developing a new Medium-Term Debt Strategy. To support our consolidation efforts and reduce our financing requirements, we will lengthen the maturity profile of public debt and will introduce new market instruments to widen the investors’ base, also transparently accounting for all borrowing and contingent liabilities.

“We will ensure that any collateralized public external debt or external arrears would be properly accounted.”

July 9, 2019
Elimination of zero rating, other policy and administrative measures to generate Rs733.47 billion

KARACHI: Federal Board of Revenue (FBR) to generate additional revenue of Rs733.47 billion during current fiscal year after abolishing zero-rating of sales tax and other policy and administrative measures.

Pakistan has outlined its strategy for enhancing revenue collection before the International Monetary Fund (IMF) through eliminating exemptions, distortion and other policy and administrative measures.

These budgetary measures likely enhance tax to GDP ratio by 1.7 in the fiscal year 2019/2020.

The FBR will generate additional revenue of Rs222.77 billion from measures taken through budget 2019/2020 in the sales tax, which included:

Petroleum products levy increase to 15 PRs (and set as a floor) and

GST rate at 17 percent (set as a floor)

Cancel SRO # 480 and bring steel sector, edible oil and medium to large retailers to 17 percent GST regime

Extend the list of products under the retail price taxation – Third Schedule (home appliances, paint.., currently under SRO # 480)

Cancel SRO#1125 and bring exportable sectors to standard GST regime at 17 percent rate, with immediate cash refund for exported goods only

Remove certain items from exemptions (packaged food), and apply GST tax at 17 percent.

Increase GST on sugar from 8 percent to 17 percent

Redefine the exemption available to Cottage Industry

An additional amount of Rs90.114 billion estimated under Federal Excise Duty (FED) through following measures:

0.2 Increase of FED on cigarettes and remove the third tier.

Introduce FED on cigarettes coming from non tariff areas

Increase/introduce FED on sugary drinks to 13 percent

Increase FED on cement from 1.5 Rs per kg to 2 Rs

Additional amount of Rs324.98 billion estimated through eliminating exemptions and other distortions in Income Tax, such as

Personal Income Tax (PIT): lower the threshold to Rs400,00 and Rs600,000 for non-salaried and salaried individuals respectively, increase tax rates Increase in rate of minimum tax u/s 113 from 1.25 to 1.5 percent

Extend the regime of higher withholding tax rates for non-filers

Resume Telecom withholding rate

Change in income tax regime of Services sector (banks and insurance companies)

Abolish BMR credit incentives

Increase the holding period liable to tax for capital gain tax on immovable properties and securities

Taxation of gifts from unrelated person at standard PIT rate

Aligning value of immovable properties with the market rates

Reduction of number of withholdings and simplification of procedures

Amortization of expenditure in BOT projects over useful life of the project instead of current 10 year amortization

Long term lease hold right may be considered as purchase of property

Taxation of formal agricultural sector within the scope of federal government

Rationalization of tax credit available to Non-profit organizations (NPOs)

An amount of Rs60 billion has been estimated to be generated through measures taken under Customs duty:

Increase in Additional Customs Duty Rate on finished and luxury goods

Withdrawal of exemption on import of LNG and subjected to 5 percent duty

Revenue administrative measures to generate Rs 35.6 billion through following steps:

Implement Track and Trace system for Tobacco Products

Automated monitoring of GST and income at retail (point of sale)

Changes in ADCIR mechanism

Separation of audit & adjudication functions

Making procedure for prosecution easier

Enabling and strengthening FBR field formations

Cleansing of databases and integration to enable effective data mining

Enabling efficient enforcement through investment in FBR

Infrastructure and process reengineering

Taxpayer education and facilitation

July 9, 2019
Prize bonds, bearer instruments to be registered

KARACHI: Pakistani authorities have assured International Monetary Fund (IMF) of registering prize bonds and other bearer instruments to eliminate the use of these instruments in potential illegal activities and tax avoidance.

The IMF issued Pakistan country report on Monday following successful $6 billion loan program.

In order to make the program successful the Pakistani authorities had assured the fund of strengthening governance and the control of corruption.

The priorities include:

Strengthening the effectiveness of anticorruption institutions. A national committee has been established to implement the recommendations from the UNCAC 2017 report.

A task force will review the institutional framework of the anticorruption institutions to enhance their independence and effectiveness in investigating and prosecuting corruption cases.

A study will be conducted on establishing a dedicated AML unit in the Federal Investigation Agency (FIA). Upgrading the financial investigation capacities of law enforcement agencies will be also prioritized.

Moreover, the authorities are pursuing agreements on information exchange with foreign countries to complement efforts to recover unlawful assets.

An Asset Recovery Unit in the Prime Minister’s Office is cooperating with the FBR’s International Taxation Unit in identifying assets abroad owned by Pakistani residents, in line with the OECD Convention on Mutual Administrative Assistance on Tax Matters.

Advancing anti-corruption efforts through the enhanced used of AML tools, including by (i) ensuring that banks and other reporting institutions improve their capacities to identify politically exposed persons and apply enhanced due diligence measures and (ii) providing adequate resources to the Financial Monitoring Unit to improve the dissemination of financial intelligence that can be used to support corruption investigations.

Moreover, asset declarations of high-level public officials will be comprehensive in scope (i.e., assets beneficial owned or located abroad), filed with a central federal agency, electronically searchable, and appropriately verified.

“Registering prize bonds and other bearer instruments to eliminate their use in potential illegal activities/tax avoidance,” the report said.

July 9, 2019
Key points of Pakistan’s revenue driven fiscal consolidation

KARACHI: The International Monetary Fund (IMF) has highlighted points of Pakistan’s budget 2019/2020 which envisaged a substantial revenue driven fiscal consolidation.

“The FY 2019/20 budget envisages a substantial fiscal consolidation. The primary deficit is expected to decline to 0.6 percent of GDP, from estimated 1.8 percent of GDP in FY 2018/2019,” the IMF said in the country report on Pakistan issued on Monday after a successful $6 billion loan program for the country.

The report said that the envisaged fiscal consolidation will be largely revenue driven:

a) Sales tax measures are mostly focused on simplifying the system by eliminating numerous exemptions and preferential rates and enhancing the sales tax of petroleum products. In particular, exemptions granted to four export-oriented sectors for domestically sold products will be eliminated, together with non-essential food related products exemptions.

Moreover, preferential rates related to sugar, steel sector, edible oil, medium and large retailers will also be eliminated and aligned with the standard 17 percent sale tax rate.

b) Income tax measures will aim at widening the tax base and closing the loopholes that are fostering tax avoidance.

The income tax threshold will be reduced for salaried and non-salaried individuals to PRs 600,000 and PRs 400,000 respectively, and the tax rate at the top of income distribution increased.

The collection of withholding tax on telecom services that had been stalled in the court will be resumed, and tax credit available for machinery investment and to non-profit organizations will be rationalized.

The FBR will also align the value of immovable properties with market rates and specify conditions under which the long-term lease hold will be considered as the purchase of property.

In addition, the minimum tax rate will increase and taxation of gifts from unrelated persons will be introduced.

c) Federal excise duties on certain products will be introduced or increased (cigarettes, sugary drinks, cement); while

d) custom duty measures will eliminate the exemptions on import of liquified natural gas and increase the additional custom duty for finished and luxury goods.

e) Revenue administration measures will support policy implementation. The emphasis will be given to the modernization and digitalization of FBR functions, improvement of the database and the streamlining of legal procedures.

To strengthen the collection of excises on cigarettes and eliminate illicit trade, the track-and-trace system will we implemented in the second quarter of the year.

July 9, 2019
Pakistan assures IMF of strengthening taxation on real estate, agriculture income

KARACHI: Pakistan has assured International Monetary Fund (IMF) of removing distortion in taxation system and strengthening taxation on real estate and agriculture income.

The IMF on Monday issued country report on Pakistan after successful $6 billion loan program.

The report said that a large deficit would require aggressive revenue collection.

A multi-year effort will aim to revamp tax policy and tax administration. With less than 1.5 million taxpayers filing tax returns and tax compliance generally very low, tax policy and tax administration measures will center on broadening the tax base while maintaining a low tax rate, aiming to ensure progressivity of the tax system.

The country has agreed to increase additional 4 to 5 percent tax to the GDP by end of 3-year IMF program in order to bring Pakistan tax ratio in line with peer Emerging Markets.

Key measures include:

— Tax policy reforms

In the near term, measures include removing exemptions and preferential treatment to reduce distortions in the tax system and broaden the tax base.

These include the removal of General Sales Tax (GST) exemptions and preferential rates, except for basic food and medicines, a measure that will significantly improve revenues.

Greater inter-provincial harmonization and coordination of GST will also simplify filing procedures and increase compliance.

Overtime, the Pakistani authorities are committed to taking steps to transform the GST into a broad-based VAT and making the PIT fairer and more progressive by raising the upper-end of the PIT structure and consider eliminating Personal Income Tax (PIT) tax credits and deductions for the higher income brackets.

In addition, other tax policy measures include:

(i) further strengthening taxation on real estate and on agricultural turnover or income by provinces;

(ii) ensuring equivalent taxation of all sources of income; and

(iii) eliminating distortionary withholding taxes.

The report said that the tax administration reforms to bolster the authorities’ efforts to collect taxes.

“Implementation of a full, risk-based audit framework will be facilitated by the recent reversal4 of legal provisions limiting the use of tax audits and will be supported by an increase in legal penalties for noncompliance.

Moreover, licenses for the track-and-trace system for excises on cigarettes will be issued by end-September 2019 (structural benchmark), with a system roll out by end-March 2020.

The authorities are also considering options to make Pakistan’s tax administration less fragmented and more business friendly, including through the creation of a new semi-independent national tax authority to collect the main revenue sources.

Finally, the country has committed to not granting further tax amnesties (continuous structural benchmark).

July 8, 2019
FBR urged to allow filing amnesty scheme declarations

KARACHI: Federal Board of Revenue (FBR) has been urged to allow those persons to file their declarations who have paid duty and taxes under amnesty scheme 2019 by due date.
(more…)

July 8, 2019
FBR rescinds 42 non-operational sales tax general orders

ISLAMABAD: Federal Board of Revenue (FBR) on Monday rescinded 42 non-operational Sales Tax General Orders (STGOs).

The FBR issued STGO 101/2019 and rescinded the following STGOs being non-operational, transposed to Sales tax Act, 1990 or Sales Tax Rules, 2006, with immediate effect:

01. STGO No. 03/2004, Dated 12th June, 2004 related to consolidation of STGOs; desirable provisions being transposed to the Sales Tax Rules, 2006.

02. STGO No. 04/2004, Dated 4th September, 2004, Amendment in STGO 3/2004

03. STGO No. 01/2005, Dated 2ist April, 2005, e-filing of Sales Tax return at LTU, Karachi and Lahore – Redundant STGO

04. STGO No. 02/2005, Dated 15th August, 2005, Amendment in STGO 1/2005.

05. STGO No. 03/2005, Dated 1st September, 2005, Repayment of Sales Tax to Duty Free Shops on locally manufactured goods.

6 STGO No. 04/2005, Dated 29th September, 2005, Special Procedure for collection and payment of S.T. on vehicles.

07. STGO No. 01/2006 Dated 5th June, 2006, procedure for payment of S.T. against advance receipt.

08. STGO No. 03/2006 Dated 28th July, 2006, issues relating to steel sector

09. STGO No. 06/2006 Dated 8th September, 2006, Amendment in STGO 3/2006.

10 STGO No. 01/2007 Dated 10th January, 2007, Mitigating the hardships of Islamabad based taxpayers.

11. STGO No. 02/2007 Dated 6th February, 2007 Refund claims relating to local supply made by the five export oriented zero-rated sectors.

12. STGO No. 03/2007 Dated 30th July, 2007 issues relating to Commercial Importers.

13. STGO No. 04/2007 Dated 21st August, 2007 procedure for e-filing of ST returns.

14. STGO No. 05/2007 Dated 25th August, 2007, payment of S.T. by Steel Melters and re-rolling mills operating on self-generation basis.

15. STGO No. 06/2007 Dated 28th August, 2007, transfer of jurisdiction of collectorate of S.T. & FE now RTO, Rawalpindi to RTO, Islamabad.

16. STGO No. 22/2008 Dated 26th June, 2008, revision of S.T. Rate, printing of retail price.

17. STGO No. 32/2008 Dated 8th July, 2008 issues relating to solvent extraction units.

18. STGO No. 1/2010 Dated 20th January, 2010 Fiscal relief to rehabilitate the economic life in NWFP, FATA, installment in arrears.

19. STGO No.3/2010 Dated 27th January, 2010 Refund of Sales Tax by Customs Collectorate.

20. STGO No. 11/2010 Dated 30th March, 2010, Delivery of sales tax registration certificates to registered persons of Gilgit Baltistan.

21. STGO No. 18/2010 Dated 10th May, 2010, Input tax adjustment to Pakistani registered person against their purchases from AJK registered persons.

22. STGO No. 19/2010 Dated 13th May, 2010 Filing and processing of expeditious refunds by IT system of FBR.

23. STGO No.20/2010 Dated 1st July, 2010 Revision of Sales Tax rates w.e.f. 1st July, 2010 printing of retail price.

24. STGO No.35/2010 Dated 23rd September, 2010 revision of Sales Tax rates w.e.f. 1st July, 2010 printing of retail price.

25. STGO No.37/2010 Dated 24th September, 2010 Establishment of CSTRO.

26. 26 STGO No.49/2010 Dated 30th November, 2010 revision of Sales Tax rates w.e.f. 1st July, 2010 printing of retail price.

27. STGO No.50/2010 Dated 23rd December, 2010 revision of Sales Tax rates w.e.f. 1st July, 2010 printing of retail price.

28. STGO No. 1/2011 Dated 8th January, 2011 filing and processing of expeditious refund by IT system of FBR.

29. STGO No.3/2011 Dated 24th June, 2011 Revision of Sales Tax rates w.e.f. 1st July, 2011 printing of retail price.

30. STGO No.4/2011 Dated 27th June, 2011, monitoring committee for the steel sector.

31. STGO No.9/2011 Dated 26th August, 2011 Monitoring committee for the steel sector.

32. STGO No. 10/2011 Dated 26th August, 2011 Monitoring committee for the steel sector.

33. STGO No.28/2013 Dated 5th July, 2013 Revision of Sales Tax rates w.e.f. 13th June, 2013 Printing of retail price.

34. STGO No.34/2013 Dated 16th August, 2013 Uniform procedure for action under sub-section (4) of Section 21 of the Act.

35. STGO No.27/2014 Dated 18th March, 2014 Levy of 2 percent extra tax on the supply of auto parts and accessories, tyres and tubes etc.

36. STGO No.66/2014 Dated 21st July, 2014 Collection of Sales Tax from retailers in terms of sub-section (9) of section 3 of the Act, read with SRO 608(I)/2014.

37. STGO No.68/2014 Dated 11th August, 2014 Clarification regarding persons liable to be registered but not actually registered in terms of rule-2(3)(ii) of the Sales Tax Special Procedure (Withholding) Rules, 2007.

38. STGO No. 117/2015 Dated 14th July, 2015 Procedure for issuance of STGOs for grant / withdrawal and rejection of zero-rating on electricity and gas to RPs falling under SRO 1125(I)/2011.

39. STGO No. 18/2016 Dated 9th February, 2016 Procedure for adjustment of S.T. by Steel melters under sub-rule-2C of rule-58H.

40. STGO No. 107/2016 Dated 20th September, 2016 Procedure for issuance of STGOs for grant / withdrawal and rejection of zero-rating on furnace oil, diesel oils and coal to RPs falling under SRO 1125(I)/2011.

41. STGO No. 130/2016 Dated 2nd November, 2016 Processing of application of exemption under sr.no. 48 of table-1 of 6th schedule of the Act.(Grant in aid).

42. STGO No. 144/2018 Dated 12th July, 2018 Procedure for adjustment of S.T. by Steel melters under sub-rule-2C of rule-58H.

July 8, 2019
Share market plunges by 447 points on massive selling in energy scrips

KARACHI: The share market plunged by 447 points on Monday owing to massive selling in energy scrips.

The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) closed at 33,742 points as against 34,190 points showing a decline of 447 points.

Analysts at Arif Habib Limited said that the market shed points heavily again, after a brief respite of +40 points earlier during the session.

Concerns over release of Rs. 200 billion Sukuk for O&GMCs, and Power sector saw major bearing on these very sectors and aggressive selling was observed in both SNGP, PSO and HUBC.

Traded volumes remained anemic today, ending the session just below 60 million mark at 59.5 million shares.

Power Sector posted highest traded volumes at 10 million shares (mainly contributed by KEL with 7.4 million shares), however, HUBC impact the index more with 2.5 million shares traded at the bourse. Cement sector ranked second with 9.3M shares, mainly contributed by MLCF (4.4 million).

Sectors contributing to the performance include Bans (-120 points), E&P (-77 points), O&GMCs (-556 points), Power (-37 points) and Cement (-30 points).

Volumes increased slightly from 51 million shares to 59 million shares (+16 percent DoD). Average traded value increased by 26 percent to reach US$ 15 million as against US$ 11.9 million.

Stocks that contributed significantly to the volumes include KEL, MLCF, TRG, BOP and DGKC, which formed 37 percent of total volumes.

Stocks that contributed positively include FFC (+2 points), SYS (+2 points), THALL (+2 points), APL (+2 points) and MARI (+1pt). Stocks that contributed negatively include HBL (-53 points), PPL (-38 points), OGDC (-26 points), PSO (-25 points) and SNGP (-21 points).

July 8, 2019
Rupee falls by 37 paisas against dollar

KARACHI: The Pak Rupee fell by 37 paisas against dollar on Monday owing to higher demand for import and corporate payments.

The rupee ended Rs157.32 to the dollar from last Friday’s closing of Rs156.95 in interbank foreign exchange market.

The foreign currency market was initiated in the range of Rs157.00 and Rs157.50. The market recorded day high of Rs157.75 and low of Rs157.25 in interbank foreign exchange market.

The exchange rate in open market also witnessed depreciation in the local currency value,

The buying and selling was recorded at Rs156.50/Rs157.50 from last Saturday’s closing of Rs156.00/Rs157.00 in cash ready market.

July 8, 2019