Author: Faisal Shahnawaz

Integration of federal, provincial sales tax returns suggested

KARACHI: Businesses have suggested the tax authorities for integration of tax laws for filing unified tax returns for sales tax in order to facilitate taxpayers, who are operating more than one jurisdiction.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that presently tax collection/ administration has been split between various authorities at Federal/Provincial level and even small size taxpayers have to deal with more than one tax collecting authority.

Tax compliances for businesses has increased after 18th amendment which has also deteriorated Pakistan’s rating in terms of paying taxes over the years.

While the tax policies will be developed at provincial and Federal level separately, steps should be taken to ensure tax administration and collection through one authority.

This will provide a holistic view to the tax authority on the tax matters whereas simplify the compliance process for taxpayers as well.

The OICCI recommended:

i. Integration of tax data should be ensured at all levels through one return including Federal and Provincial, STRIVE should be implemented at provincial level also and FBR should allow integration with Federal return.

ii. Departure from VAT mode of taxation should be discouraged at all levels. Give examples of ‘not VAT taxation’

iii. FBR IT/Data integration system should be upgraded and all taxes withheld should be auto populated in the portal to the credit of the beneficiary. This will simplify;

a) The reconciliations carried out at the taxpayer’s / FBR’s level,

b) Simplify the tax return submission process.

c) Enhance system based auditing capability of FBR while providing opportunity of self-verification to the beneficiaries and quick tracking of the in-actives.

The data is already available with FBR and it just needs to be available to taxpayers with an up gradation of the system.

The OICCI also suggested following for coordination between federal and provincial legislations:

i. Synchronization of Sales tax rates and policies need to be harmonized across all jurisdiction and sectors and should be closely aligned with the regional benchmark of 12 percent sales tax rate.

ii. The Federal WWF & WPPF law should be updated based on the recent apex court’s judgments, provincial enactments and current minimum wage levels. Currently neither the FBR nor the provincial revenue authorities, like PRA, SRB, are receiving the complete revenue stream under these heads.

a. Sections 60A and 60B should appropriately be amended to allow deduction against provincial laws of WWF and WPPF.

b. Clarity should be inserted in respective laws regarding the basis of allocation of WWF/WPPF charge where the taxpayer is having industrial establishment in more than one province.

iii. One authority to collect all types of federal and provincial taxes for onward transmission to respective revenue authorities within the country without burdening the business entities. Single sales tax return should be filed with FBR instead of separate sales tax returns for each Province.

iv. The provincial taxes should be consolidated specially the labor levies e.g. EOBI/SESSI/WPPF/WWF as mentioned above.

v. Controversies arising as to jurisdiction of authority to charge and collect tax on certain services should be resolved.

vi. Special attention be given to tax implication arising on emerging e-business models and asset-free web service providers who act as coordinator between supplier and buyer. Mechanism for sales tax and income tax application for such models should be in place to promote the industry.

May 9, 2020
Tax refunds should be adjustable against liability recommended

KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended inter adjustment of income tax and sales tax refunds should be made part of the law.

In its recommendations for budget 2020/2021, the representative body of foreign investors and multinational companies working in Pakistan, highlighted the issue of delay and procedural hassle in processing of outstanding refunds.

It said that protracted delays in settlement of tax refunds is one of the biggest contributors in distorting the commercial image of Pakistan in all the perception and ease of doing business surveys and a major factor negatively impacting inflow of Foreign Direct Investment (FDI) in the country.

This has been regularly pointed out at the relevant forums, including to the Prime Minister and Minister of Finance, the OICCI added.

Moreover, through Finance Act, 2019, government has introduced refund bonds for the settlement of long outstanding income tax refunds.

These refunds bonds have maturity of three years with 10 percent simple interest per annum payable at maturity.

“As of February 2020, tax refunds pending of OICCI members aggregated to Rs86 billion, which remained unsettled for a very long time, some of which are pending prior to 2005.”

However the refunds process is still long drawn and refunds of many companies have not been processed for many years although Federal Board of Revenue (FBR) already has information readily available on the system.

Furthermore, despite specific directions in the Income Tax Ordinance, 2001, fair mechanism of issuance of government bonds in lieu of income tax refunds is not provided yet and where issued, these bonds are neither being traded freely in the market nor being discounted by the banks mainly due to low interest versus current prevailing discount rate.

The OICCI recommended following:

All pending tax refund be cleared within next six months in an orderly/ prearranged manner.

Verification process for refunds should start automatically as soon as an application for refund is filed by the taxpayer and tax refunds be cleared within 45 days.

A timely settlement of the determined refunds should be made, and if there is a liquidity issue then issuing marketable Government bonds/securities be considered.

Amend current fixed interest rate of 10 percent to floating interest rate linked with KIBOR.

May 9, 2020
FBR directs officers to submit asset declarations

ISLAMABAD: Federal Board of Revenue (FBR) has directed officers of BS-18, who are in promotion zone, to submit their assets declarations of past five years.

The FBR in an official memorandum issued on Friday directed all BS-18 officers of Inland Revenue Service (IRS), Pakistan Customs Service (PCS) and ex-cadre, who are in promotion zone, to forward their declaration of assets for the last five years up to June 30, 2019 by May 15, 2020.

FBR sources said that as per promotion rules the officials had been required to submit their asset declaration besides providing performance evaluation reports (PERs).

The sources said that a large number of officers had not submitted their assets declarations.

They said that in case the officials failed to submit the asset declaration the FBR would initiate departmental proceedings.

May 8, 2020
Rupee gains 25 paisas against dollar

KARACHI: The Pak Rupee gained 25 paisas against dollar on Friday owing to expectations of improved economic activities after ease in lockdown.

The rupee ended Rs159.97 to the dollar from previous day’s closing of Rs160.22 in interbank foreign exchange market.

Currency analysts said that the decision of the government to ease lockdown from May 09 improved the sentiments in the market.

They said that the rupee also improved with shrinking trade deficit.

The trade deficit shrank by 25.68 percent to $19.49 billion during July – April 2019/2020 as compared with the deficit of $26.23 billion in the same period of the last fiscal year.

The exports in first ten months (July – April) 2019/2020 also fell by four percent to $18.41 billion as compared with $19.16 billion in the corresponding period of the last fiscal year.

On the other hand the import bill fell by 16.5 billion to $39.9 billion in the first ten months of current fiscal year as compared with $45.4 billion in the corresponding period of the last fiscal year.

May 8, 2020
FBR exempts various properties from attachment for tax recovery

ISLAMABAD: Federal Board of Revenue (FBR) has exempted various properties from attachment for recovery from tax defaulters.

The FBR issued SRO 353(I)/2020 through which the tax officials have been restrained from attaching certain movable properties of a defaulter for recovery of due taxes.

According to the notification, the FBR officials may not attach assets for recovery, which included the necessary wearing apparel, cooking vessels, beds and bedding of the defaulters, his wife and children, and such personal ornaments, as, in accordance with religious usage, cannot be parted with by any women.

The tax official further barred from attaching assets for recovery, which included tools of artisans, and where the defaulter is an agriculturist, his implements of husbandry and such cattle and seed grain as may be necessary to enable him to earn his livelihood.

The FBR also explained the assets, which cannot be attached by the tax officials for recovery. This will include houses and other buildings (with the materials and the sites and the land immediately appurtenant) belonging to an agriculturist and occupied him.

The FBR said that the tax officials may also not attach included: books of account; a mere right to sue for damages; and any right of personal service.

The amendment to sales tax rules also prohibited the tax officials to attach all compulsory deposits and other sums in or derived from fund to which the Provident Fund Act, 1925, for the time being applies in so far as they are declared by the Act not to be liable to attachment.

May 6, 2020
FBR orders food outlets to display tax amount

ISLAMABAD: Federal Board of Revenue (FBR) has made it mandatory for food outlets to display tax amount along with retail price in menus.

The FBR on Wednesday issued SRO 353(I)/2020 to make it mandatory for all the restaurants, bakeries, caterers and sweetmeat shops supplying prepared foods, foodstuff and sweetmeat to show prices and amount of tax separately on menu cards for menu board displayed in their outlets for the end consumers.

The FBR has made this requirement for tier-I retailers, who are required to integrate their point of sales with the FBR’s online system.

The FBR also made amendment through notification and made it mandatory for all the retailers to show prices and amount of tax separately on the price tags attached with finished fabric and locally manufactured finished articles of textile and textile made-ups leathers and artificial leather.

The FBR made these changes in order to ensure revenue generation from the retail sector. The FBR recently allowed input tax adjustment to Tier-1 retailers in order to attract more retailers into this segment.

May 6, 2020
Share market ends down 265 points on selling pressure

KARACHI: The share market fell by 265 points on Wednesday owing to selling pressure in major scrip witnessed during the day.

The Index closed at 33,728 points as against 33,993 points showing a decline of 265 points.

Analysts at Arif Habib Limited said that the market opened on a positive note today with +114 points but could not sustain selling pressure, which brought the index down in negative territory and witnessed a decline of 317 points.

The index made some recovery by the end of session and closed -264 points.

Banks, Cement and E&P stocks weathered selling pressure regardless of international crude oil prices.

Fertilizer stocks traded no different than the rest and saw decline in stock prices.

Among Banks, HBL saw low prices due to MSCI rebalancing and concerns among investors about a possible exit.

Technology stocks managed to post the highest volumes with 28.9 million shares, followed by O&GMCs (28.2 million) and Cement (24.1 million).

Among scrips, HASCOL topped with 23.8 million shares, followed by UNITY (20.4 million) and TRG (14.5 million).

Sectors contributing to the performance include Banks (-99 points), Cement (-53 points), E&P (-39 points), Fertilizer (-34 points), Power (-34 points).

Volumes declined from 261 million shares to 208.9 million shares (-20 percent DoD). Average traded value also declined by 22 percent to reach US$ 45.1 million as against US$ 57.6 million.

Stocks that contributed significantly to the volumes include HASCOL, UNITY, TRG, MLCF and PIBTL, which formed 36 percent of total volumes.

Stocks that contributed positively to the index include NESTLE (+9 points), TRG (+8 points), BAFL (+6 points), SHEL (+6 points) and ANL (+6 points).

Stocks that contributed negatively include MCB (-56 points), HBL (-42 points), HUBC (-36 points), LUCK (-24 points), and FFC (-18 points).

May 6, 2020
Fiscal deficit contracts at 3.8pc in first nine months

ISLAMABAD: The fiscal deficit has contracted at 3.8 percent during first nine months of current fiscal year. The budget deficit was 5 percent in the same moths of the last fiscal year.

Analysts at Topline Securities said that importantly, the primary balance during the period clocked in at 0.4 percent of GDP or Rs194 billion (last year was -1.2 percent of GDP or -Rs463 billion), close to the initial target of 0.6 percent set by the IMF.

IMF is likely to review these targets going forward because of the implications of COVID-19 outbreak, the analysts said.

In the 3QFY20, the fiscal deficit came in at 1.6 percent of GDP compared to 2QFY20’s fiscal deficit of 1.6 percent of GDP and 1QFY20’s fiscal deficit of 0.7 percent of GDP.

All the four provinces recorded a budgetary surplus during the first nine months of current fiscal year, while only Punjab recorded a budgetary deficit in 3QFY20.

During the 9MFY20, Total Revenues increased by 31 percent YoY, where the improvement was led by 14 percent YoY higher Tax Revenues (Mar-2020 revenues partially affected by COVID-19) and 160 percent YoY higher Non-Tax Revenues.

Looking into further breakup of revenues, government collected 15 percent YoY higher Direct taxes, 18 percent YoY higher Sales Tax and 40 percent YoY higher Petroleum Levy during 9MFY20. In 3QFY20, the same were down by 16 percent QoQ, 16 percent QoQ and 17 percent QoQ, respectively.

The government hugely benefitted from 360 percent YoY higher profits from State Bank of Pakistan (SBP) in 9MFY20 (down 13 percent QoQ in 3QFY20), which is around 1.4 percent of GDP.

On the expenditures front, Total Expenditure increased by 16 percent YoY. Current Expenditures increased by 17 percent YoY, where Mark-up Payments were up 29 percent YoY and Defense Expenditures were up 4 percent YoY. Excluding these items, government’s own expenses increased by 14 percent YoY during 9MFY20.

The decline in interest rates helped the government reduce the interest bill by 16 percent QoQ during 3QFY20.

The Development Expenditure remained steady, where growth of 14 percent YoY was witnessed in 9MFY20. In 3QFY20, the same declined by 6 percent QoQ.

In the wake of COVID-19, government’s expenses on Social Protection during the 3QFY20 clocked in at Rs13.9bn (vs. Rs701mn in 2QFY20 and Rs547mn in 1QFY20).

Pakistan’s fiscal deficit to clock in at 9.0 percent of GDP in FY20 due to implications of COVID-19 on both revenues and expenditures, the analysts estimated.

May 6, 2020
Rupee falls by 41 paisas against dollar

KARACHI: The Pak Rupee depreciated by 41 paisas against dollar on Wednesday owing to hope of escalation in demand.

The rupee ended Rs160.06 to the dollar from previous day’s closing of Rs159.65 in interbank foreign exchange market.

Currency experts said that positive sentiments were prevailed in the markets on reports of ease in lockdown.

They said that the announcement of allowing import of petroleum products also deteriorated the rupee value.

However, the trade deficit shrank by 25.68 percent to $19.49 billion during July – April 2019/2020 as compared with the deficit of $26.23 billion in the same period of the last fiscal year.

The exports in first ten months (July – April) 2019/2020 also fell by four percent to $18.41 billion as compared with $19.16 billion in the corresponding period of the last fiscal year.

On the other hand the import bill fell by 16.5 billion to $39.9 billion in the first ten months of current fiscal year as compared with $45.4 billion in the corresponding period of the last fiscal year.

May 6, 2020

SBP introduces credit risk sharing mechanism to support employment

KARACHI: Ministry of Finance and State Bank of Pakistan (SBP) introduce risk-sharing mechanism to support bank lending to SMEs and small businesses to avail SBP’s Refinance Facility to Support Employment.

Taking cognizance of the SMEs finding difficulties in arranging adequate collateral and banks’ risk averseness in taking exposures for such lending under the SBPs Refinance Scheme to Support Employment and Prevent Layoff of Workers, Ministry of Finance has stepped forward to shoulder risk sharing with banks. Accordingly, the Federal Government has allocated Rs30 billion under a credit risk sharing facility for the banks spread over four years to share the burden of losses due to any bad loans in future. Under thisrisk sharing arrangement, Federal Government will bear 40% first loss on principal portion of disbursed loan portfolio of the banks.

This facility will incentivize banks to extend loans to collateral deficient SMEs and small corporates with sales turnover of upto Rs2 billion to avail financing under SBP refinance scheme.

Under the SBP’s Refinance Scheme to Support Employment and Prevent Layoff of Workers due to the impact of COVID-19, businesses that commit to not lay off workers in the next three months can avail credit through banks for the three months of wages and salaries expenses at a concessional mark-up rate.

The risk-sharing mechanism being introduced today, that is expected to increase the banks’ incentive to lend to SMEs and small corporate under this scheme, was developed on the basis of feedback received from relevant stakeholders and in collaboration between MOF and SBP.

Ministry of Finance’s swift approval of the subsidy to provide risk coverage to banks has made it possible for the SBP to launch this credit risk sharing facility for which relevant circular has been issued today.

SBP will continue to monitor the implementation of the scheme.

With a view to incentivize banks/DFIs for financing to SMEs and small corporates under above mentioned schemes, Government of Pakistan has approved budgetary allocation for ‘Risk Sharing Facility for State Bank of Pakistan (SBP) Refinance Scheme to Support Employment and Prevent Layoff of Workers’.

Accordingly, the risk sharing facility is being provided with immediate effect, with following key features.

S.No	Particulars	Key features
1	Eligibility	The financing extended to businesses with maximum sales turnover of Rs 2 billion, under SBP refinance scheme to support employment and prevent layoff of workers is eligible for Risk Sharing Facility by the GOP.
2	Risk Coverage	GoP will bear 40% first loss on disbursed portfolio (principal portion only) for eligible borrowers. Note: In case of non-repayments, after being classified as ‘Loss’ (as per the classification criteria laid down under respective SBP Prudential Regulations, credit loss subsidy claim will be paid by the GOP).
3	Security Requirements	Security arrangements will be as per executing agency’s own credit policy after taking into account the factor of this risk sharing facility. Hence, banks are encouraged to facilitate collateral deficient borrowers. In any case, banks will not be asking for additional collaterals over and above 60% of the principal amount and markup thereon.
4	Executing Agency	Banks and DFI assigned limits under SBP scheme will be eligible Executing Agencies (EAs).
5	Additional Measures	EAs shall develop and implement robust mechanism to ensure that the loans are utilized for intended purpose only.
6	Administration	Development Finance Support Department (DFSD), SBP BSC will manage operational aspects of the risk sharing facility. DFSD will submit data under the risk sharing facility on quarterly basis to the Finance Division.
7	Subsidy Payment	EAs shall submit credit loss subsidy claims to DFSD on quarterly basis within 15 working days after the end of each quarter. DFSD after scrutiny of the claims shall submit the same to Finance Division, GOP. FD will release payment against submitted claims within 15 working days. Upon receipt of subsidy from GOP, SBP BSC Karachi will credit the account of EAs with the subsidy amount.

The banks/DFIs are advised to ensure immediate implementation of ‘Risk Sharing Facility for SBP Refinance Scheme to support employment and prevent layoff of workers’ and facilitate the eligible businesses to avail financing under this facility.

May 6, 2020