KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended the government to eliminate culture of amnesty schemes as such measures encourage tax evaders.
(more…)Author: Faisal Shahnawaz
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FBR recommended tax exemption to inter-corporate dividend
KARACHI: Federal Board of Revenue (FBR) has been suggested to allow tax exemption to inter-corporate dividend for promoting group formation and consolidation and strengthen the overall corporate structure in Pakistan.
Pakistan Tax Bar Association (PTBA) – the umbrella of tax bars in the country – in its tax proposals for budget 2019/2020, said that through Finance Supplementary (Second Amendment) Act, 2019 a new clause in Part I of the Second Schedule of Income Tax Ordinance, 2001 was inserted, which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed group relief under section 59B, computed according to the following formula:-
A x B/C; Where,
A is the amount of dividend;
B is the shareholding of the company receiving the dividend in the company distributing the dividends; and
C is the total ordinary share capital of the company distributing the dividend.
The PTBA said that pursuant to the provisions of clause (103A) of Part I of the Second Schedule, any income derived from inter-corporate dividend was exempt for group companies entitled to group taxation under section 59AA or group relief under section 59B.
The Finance Act, 2015 then added a condition, that such exemption would only be available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded entities entitled to group relief under section 59B from the exemption entirely.
The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers of taxation on dividends issued by group entities.
This resulted in corporate structures becoming inefficient due to multiple taxation of the same income, on mere distribution within the group, even though no value addition was taking place. This also led to substantial litigation from various groups.
Although, to cater the above problem an exemption has been introduced via the Second Supplementary Act, 2019, it is imperative to note that the newly inserted clause provides a relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually been surrendered between the two entities and even then, only to the extent of the shareholding that the parent entity has in its subsidiary. In effect, this means that:-
— since the provisions of section 59B require listing within a specified period, the relief would not be available to private groups unless they are willing to list;
— the relief would be available only to the entities actually surrendering or receiving the losses, and not all companies within the entire corporate structure;
— based on a literal interpretation, the holding company (i.e. the entity receiving the dividend) may not be able to claim the exemption if the losses under group relief are transferred from one subsidiary to another (i.e. between sister concerns);
— since a company cannot surrender its losses for more than three years, this is not an indefinite relief; and
— the benefit may practically be availed only in specific cases since a company, both receiving dividends and availing group relief in the same year, is normally only possible in structures where a holding company has several subsidiaries.
Overall, this has significantly watered-down relief compared to the demands of the corporate sector, the benefit of which may likely be availed in very few cases that may comply with all the conditions.
It is therefore recommended to exempt inter corporate dividends as it was used to be prior to the amendments brought about by the Finance Act, 2016.
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FBR advised to restore tax credit to sales tax registered persons
KARACHI: Federal Board of Revenue (FBR) has been proposed to restore tax credit to sales tax registered persons for documentation of the economy.
In its tax proposals for budget 2019/2020, the Pakistan Tax Bar Association (PTBA) said that the provisions of this section were applicable in case of sales made to the sales tax registered tax registered person.
The tax credit of 3 percent of tax payable was available to the seller for sales being made to the registered persons, however to promote documentation and registration with tax authorities it was suggested that this incentives should also be made available on purchases from registered persons as well.
“The government abolished this incentive available to the sellers instead of extending this credit to the purchasers as well,” the PTBA said.
It recommended that the application of above tax credit of making 90 percent sales to sales tax registered persons be restored and also be extended to persons making 90 percent of purchases from persons registered under the Sales Tax Act, 1990.
This change would enhance the number of sales tax registered person and documentation of the economy, the PTBA added.
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National Bank declares 14.5 percent decline in after tax profit on imposition of super tax
KARACHI: National Bank of Pakistan (NBP) has declared 14.5 percent decline in after tax profit for the first quarter ended March 31, 2019 due to imposition of super tax.
Meeting of the Board of Directors (BoD) of NBP was held on Wednesday at Bank’s Head Office in Karachi in which the BoD approved the financial statement of the Bank of the quarter ended March 31, 2019.
The after tax profit for the quarter ended March 31, 2019 was at Rs4.2 billion, which was 14.5 percent lower when compared with Rs4.9 billion in the corresponding period of the last year.
The bank attributed the decline in profit to imposition of super tax which was imposed through Finance Supplementary (Second Amendment) Act, 2019 for the tax year 2018 (financial year ended December 31, 2017.
Pre-tax profit of the bank was at Rs8.7 billion for the period under review as against Rs7.6 billion for the corresponding quarter of 2018, registering 14.5 percent increase.
The bank earned mark-up/ interest income amounting to Rs45.8 billion which is 45.9 percent higher than Rs31.4 billion earned during the corresponding period last year.
This growth is attributed to the increase in discount rate, as well as a volumetric growth in both investment and advances, YoY.
Also, the Bank’s non mark-up / interest income increased by 40.2 percent YoY and amounted to Rs8.3 billion.
The bank’s unconsolidated pre-provision profit amounted to Rs10.98 billion which is 45.2 billion higher than Rs7.6 billion for the corresponding period o the last year.
Earnings per share amounted to Rs1.97 as against Rs2.30 for the corresponding quarter ended March 31, 2018.
The total assets of the bank as at March 31, 2019 stood at Rs2,401.8 billion as compared with Rs2,798.6 billion as on December 31, 2018, registering decline of 14.2 percent.
Gross advances of the bank amounted to Rs1,046.1 billion which is slightly lower than Rs1,059.5 billion as on December 31, 2018.
However, YoY, total advances registered increase by Rs176.6 billion or 20.3 percent as compared to Rs869.5 billion as of March 31, 2018.
Total deposits of the bank as on March 31, 2019 amounted to Rs1,778.7 billion, lower by Rs232.7 billion (11.6 percent) as against Rs2,011.4 billion as of December 31, 2018. The drop was observed due to withdrawal of deposits by certain financial institutions. Customer deposits that from the core of bank’s funding pool however remained stable.
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SBP raises record Rs3,100 billion through MTBs auction at cut-off yield higher than key policy rate
KARACHI: The State Bank of Pakistan (SBP) has raised record huge amount of Rs3,100.71 billion through an auction of Market Treasury Bills (MTBs) at a cut-off yield much higher than the key policy rate of 12.25 percent.
The central bank on Wednesday received bids in 3- and six-month treasury bills worth Rs3,176.56 billion at face value of Rs3,268.59 billion. The SBP has not received bids for 12-month treasury bills.
The SBP accepted bids of Rs3,100 billion at face value of Rs3,190 billion. The central bank accepted Rs3,099 billion against three-month MTBs at face value of Rs3,188.99 billion at cut-off yield of 12.7495 percent. For benchmark six-month treasury bills an amount of Rs1.41 billion were accepted at face value of Rs1.5 billion and at cut-off yield of 12.80 percent.
The amount raised was much higher than the target set for this auction. The central bank had set Rs600 billion target for the auction.
Market analysts said that banks were still anticipating further increase in interest rate in next monetary policy announcement.
In the recent monetary policy the SBP increased the key policy rate by 150 basis points to 12.25 percent for next two months starting May 21, 2019.
The SBP conducts auction of securities for the government to meet budgetary deficit. The fiscal deficit has been increased to 5 percent during July – March 2018/2019, which is already cross the target of 4.9 percent for full fiscal year.
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FBR issues Urdu version of Tax Amnesty Scheme – 2019
ISLAMABAD: Federal Board of Revenue (FBR) on Wednesday issued Urdu version of presidential ordinance for Tax Amnesty Scheme – 2019.
The FBR said that the Urdu translated version had been issued for the facilitation of people to understand the scheme and participate/avail proactively.
However, the FBR said that the translated version can not be referred anywhere and English version will be treated as authentic document.
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New petroleum policy to offer incentives to foreign E&P companies: Imran Khan
ISLAMABAD: Prime Minister Imran Khan has said that the government is working on a new petroleum policy, which will offer incentives to foreign exploration and production (E&P) companies.
The prime minister said this at a meeting with Chief Executive Officer Kuwait Petroleum Shaikh Nawaf Saud Al-Sabah, along with his delegation, which called on Prime Minister Imran Khan at Prime Minister’s Office on Wednesday.
The prime minister said that in order to capitalize the existing potential of the sector, the fovernment was working on a new petroleum policy offering incentives to foreign exploration and production (E&P) companies and removing impediments in way to undertaking smooth and profitable business ventures.
Minister for Energy Omar Ayub Khan, Minister Energy Punjab Dr. M. Akhtar Malik, Secretary Petroleum Mian Asad Hayauddin and senior officers were also present during the meeting.
Shaikh Nawaf Saud Al-Sabah briefed the Prime Minister about Kuwait Petroleum’s business ventures in Pakistan since 1980s in the area of exploration.
He evinced keen interest in further expanding business activities in the country.
The prime minister welcomed Shaikh Nawaf Saud Al-Sabah and his delegation to Pakistan and assured Government’s continued support to the company in their smooth business operations.
The prime minister highlighted various steps that the present Government has taken for improving ease of doing business and facilitation of foreign investment.
The prime minister observed that exploration remained a neglected area in past.
Imran Khan appreciated company’s contribution towards imparting training to the local manpower in E&P sector.
Minister Energy Punjab Dr. M. Akhtar Malik also briefed the meeting about various initiatives being taken by Punjab Government in Petroleum sector.
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FBR chairman warns unregistered industrial, commercial consumers of penal action
ISLAMABAD: Syed Muhammad Shabbar Zaidi, Chairman, Federal Board of Revenue (FBR) Wednesday warned industrial and commercial consumers of gas and electricity to get registered with sales tax authorities, otherwise penal action will be initiated from July 01, 2019.
Addressing a press conference, he said that currently there were around 341,174 industrial electricity connection and 7000 industrial gas connections, however compared to this the sales tax registration of industry was just 38,937, which he said was a huge gap.
“It is my request to all industrial consumers to take advantage of the scheme before June 30 and may be it (the scheme) do not remain in the same shape after July 1st,” so the people using industrial utility connections should take advantage, the Chairman added.
He said that there were possibilities that these industrial consumer connections might include some connections that come under cotton industry under law, however, added that there was dire need to check this huge difference.
“It would be our desire that under the special clause placed in Asset Declaration Scheme, the industries falling in the category pay two percent to clear past liabilities,” the chairman added.
He said that after July 1st, the FBR would make necessary legislation to get these industries and manufacturers registered and would also take actions.
He urged the industrialists and manufacturers to take advantage of the Asset Declaration Scheme and clear their past sales tax liabilities by paying just two percent tax till June 30, 2019 or the law would take its due course after the expiry of the data.
“A special clause has been included in the Asset Declaration Scheme, which was not included in it earlier, which is that if anybody is having sales tax liability he or she may clear these by paying just two percent tax,” the Chairman FBR, Muhammad Shabbar Zaidi said while addressing a press conference at FBR house here.
He urged the media to sensitize people on the issue so that those avoiding to clear their past sales tax liabilities might realize this gap and get registered with FBR by taking advantage of the Asset Declaration Scheme.
He said that the FBR would try its best to make it voluntary and do not indulge in harassment, as it wanted to create environment for the businesses.
To a question, the FBR Chairman said that there were around 3.1 million commercial consumers, however added that the strategy on how to get the unregistered consumers to get registered with FBR would be shared with media.
To another questions, the Chairman FBR said that there were over one lack companies registered with the Securities and Exchange Commission of Pakistan (SECP), however just 50,000 were filing their returns.
He said that it was high time for those having industrial connections to get registered with FBR and take benefit of the Tax Declaration Scheme.
It is pertinent to mention here that the government last week had announced Asset Declaration Scheme, providing one more opportunity to all Pakistani citizens to declare and legalize undisclosed assets inside and outside the country by paying just four percent taxes on all assets other than real estate.
The scheme would be applicable till June 30, and all Pakistan citizens, other than those holding public offices or their dependents, would be able to take benefit from it.
The basic purpose of the scheme was to document economy and make the dead assets functional to promote economy by encouraging businessmen to participate in the legal economy.
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Stock market recovers 1195 points on hopes of state fund buying
KARACHI: The stock exchange recovered around 1195 points on Wednesday on the hope of buying through state fund.
The benchmark KSE-100 index closed at 34,637 points as against 33,442 points showing an increase of 1195 points.
Analysts at Arif Habib Limited said that the market is showing signs of a bull run in the wake of the State Fund that will likely buy scrips of State owned listed entities.
On the whole, market shot up by 1256 points during the session, and closed +1195 points. Majority stocks hit upper circuit including index blue chips OGDC, PSO, SNGP, NBP and otherwise traded in green zone throughout the session.
Volumes maintained the healthy stride of 150M plus for the third consecutive session and today crossed 200 million shares mark. Banking sector led the volumes table with 44 million shares, followed by Technology (32 million) and Power (19 million) Sectors.
Among banking sector BOP marked hefty volume of 25 million shares, followed by WTL (20 million) in Technology Sector.
Sectors contributing to the performance include E&P (+269 points), Fertilizer (+219 points), Banks (+216 points), Power (+116 points) and Cement (+96 points).
Volumes increased significantly from 153.6mn shares to 203.5mn shares (+32 percent DoD). Average traded value, however, increased by 1 percent merely to reach US$ 35.2 million as against US$ 34.9 million the other day.
Stocks that contributed significantly to the volumes include BOP, WTL, KEL, PIBTL and UNITY, which formed 40 percent of total volumes.
Stocks that contributed positively include OGDC (+93 points), PPL (+93 points), HUBC (+73 points), ENGRO (+66 points) and HBL (+65 points). Stocks that contributed negatively include BAFL (-8 points), INDU (-5 points), JLICL (-4 points), ICI (-2 points) and COLG (-2 points).
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Rupee maintains level against dollar after significant decline
KARACHI – The Pakistani Rupee displayed resilience on Wednesday, maintaining its level after a series of continuous declines against the US Dollar in the interbank foreign exchange market.
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