Author: Faisal Shahnawaz

KARACHI: Karachi Tax bar Association (KTBA) has sought amendment to withholding on payments to non-resident persons under Section 152(5A) of Income Tax Ordinance, 2001.

The tax bar in its proposals for budget 2022/2023 informed the Federal Board of Revenue (FBR) that in case of payment to non-resident where the payment is not likely to be chargeable to tax, the payer is required to file an intimation to the Commissioner and the Commissioner is required to make an order within 30 days.

READ MORE: FBR urged to allow all tax adjustment in salary income

The period of 30 is on higher side and in certain cases, the non-resident recipient cannot be kept to wait for this long and gets practically in possible. Further, there is no mention in the law that if a Commissioner does not pass an order within 30 days, what should be the outcome.

READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023

The KTBA suggested that the period of 30 days be curtailed to 15 days. Further, a proviso should be inserted that if the taxpayer is not served with an order within 15 days, the notice shall be taken as grant of exemption from withholding tax.

Furthermore, in case of multiple payments of the same nature a formal agreement / approval by the Commissioner for should be treated as enough for all other similar payments.

READ MORE: CGT exemption on private company shares suggested

The desired amendment will save the Commissionerate of the unnecessary administrative hassle, the tax bar added.

It further highlighted payment of Dividend to non-resident persons under Section 152 of the Income Tax Ordinance, 2001.

Section 152 broadly covers withholding tax incidences in the case of non-resident persons. The dividend is excluded from this purview. Bringing withholding tax regime at equity; and entitling non-residents to avail treaty benefits.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

The tax bar proposed that this section should include dividend paid to non-resident which are currently covered under section 150. Dividend to non-residents currently falls in section 150. Though the Board has clarified that DTT rates should apply however amendment in law is required. If fall U/s. 150, reduced treaty rates u/s 152(5) would be applicable for withholding agents for remitting dividend.

KARACHI: The Federal Board of Revenue (FBR) has been urged to allow complete tax adjustment at the time of deduction by employee on the time paid as salary under Section 149 of the Income Tax Ordinance, 2001.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 informed the FBR as per section 149, every person paying salary to employee shall deduct tax from the amount paid at specified rate after making tax adjustment of tax credit U/s. 61, 62, 63 and 64 and other adjustments.

READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023

Complete tax credits though legally available are not adjusted in payroll, the tax bar said.

“This section should include all tax credit under Part X Chapter III as are admissible against salary income,” it suggested.

The current scheme has apparently missed tax credit U/s. 62A. The proposed amendment would cater all the current credits and those to be introduced from time to time.

READ MORE: CGT exemption on private company shares suggested

The tax bar also suggested amendment related to Employer contribution to Provident Fund under Section 12 of the Income Tax Ordinance, 2001.

Under Clause (3), Part I, Sixth Schedule, the employer’s contribution in the recognized provident fund in excess of Rs.150,000 (increased from Rs.100,000 by Finance Act, 2016) is deemed to be income of the employee.

This provision is invalid as the accumulated balance (it includes employer’s contribution) due and becoming payable to an employee participating in a recognized provident fund is totally exempt from tax under Clause (23), Part I, Second Schedule.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

Without prejudice to foregoing, since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution.

Clause (3) Part 1, Sixth Schedule be amended to exempt employer contribution to bring it at par with clause (23) Part 1, Second Schedule.

READ MORE: FBR urged to issue rules for WHT on digital transactions

Alternatively, the threshold be based as Rs 150,000 or 1/10th of the salary whichever is higher.

Since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution, the tax bar said.