KARACHI: Pakistan Stock Exchange (PSX) has proposed to reduce the rate of withholding tax in the gross income earned on margin financing transactions to 2.5 percent from existing 10 percent.
(more…)Author: Faisal Shahnawaz
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Exemption on agriculture income should be withdrawn
KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested that exemption on agriculture income should be withdrawn and bring all income into tax net.
The OICCI in its proposals for budget 2020/2021, recommended withdrawal of exemption of agriculture income and also proposed amending Section 41 of Income Tax Ordinance, 2001.
The OICCI said that the GDP includes some sectors which are exempt from income tax. The biggest exempted sector is agriculture which does not make any contribution to the national exchequer, despite the fact that over 65 percent of Pakistan’s population is directly or indirectly linked with the agricultural sector.
The original rationale of keeping agriculture out of tax net was to facilitate the small agriculturists.
However due to non-implementation of land reforms the benefit of the tax exemption is being availed by big landowners earning huge incomes.
Unscrupulous elements also transfer their income and wealth to businesses fronting as agriculture sector.
The OICCI recommended:i. Exemption given to agriculture income should be withdrawn and agriculturists should file income tax returns and wealth statements.
ii. Suitable provisions should be incorporated in Income Tax Ordinance 2001 to enable tax authorities to implement the requirement of filing of income tax returns and wealth statements, effectively.
iii. All incomes should be taxed and as a general rule exemptions be given only for attracting FDI and for under privileged and poor sections of society or, in exceptional circumstances, as motivation to encourage the registration of individuals and all legal entities.
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Various tax laws discouraging investment: PBC
KARACHI: Pakistan Business Council (PBC) has detected that various tax laws are discouraging investment in the country. The council recommended measures for promoting industrialization, growth and job creation.
The PBC in proposals for budget 2020/2021 said that at present, new local/foreign investors are reluctant to invest in manufacturing industry of Pakistan due to various impediments including collection of sales tax (10 percent upfront plus 3 percent minimum value addition plus 7 percent Postdated cheques) and income tax 5.5 percent at import of plant and machinery/ spare parts in addition to various other taxes and levies thereafter.
The PBC proposed new entry number 1(viii) be inserted in column number 2 of the Table specifying rate of tax at import stage as given in Part-II of the 1st Schedule to the Income Tax Ordinance, 2001 as follows:
“(viii) industrial undertakings importing Plant and Machinery and spare parts”
The PBC further said that the current rate of minimum tax is 1.5 percent, this tax on turnover is impacting the sustainability of industries especially in the light of current crises.
The provision under which the minimum turnover tax is charged, both for manufacturing and services sectors should be suspended for at least the next two financial years.
As income of SEZ entity (Zone Enterprise or operator) is exempt from income tax for a period of 10 years, there should not be any withholding of Income tax at source at any stage for Zone Enterprises and under any provisions of ITO till such time exemption is available to the Zone Enterprise.
However currently exemption is not granted under Income Tax Ordinance, 2001 Section 113, 147, 148, 153, 236K, 236W etc., from collection of income tax.
Since income of Zone enterprise is exempt from income tax under clause 126E, it is proposed that exemption be granted to Zone enterprises and operators from all withholding and tax collection provisions as these will lead to refunds.
The PBC recommended necessary insertion be made in clause 11A of Part IV of the Fourth schedule to the Income Tax Ordinance to exempt Zone operator and Entity from minimum tax under section 113.
Import of raw material by Export Oriented sector is subject to income tax withholding of 1 percent whereas on the other hand, import of Plant & Machinery by these sectors is subject to 5.5 percent income tax withholding.
Entry no. 1(iv) in column number 2 of the Table specifying rate of tax at import stage as given in Part-II of the 1st Schedule to the Income Tax Ordinance, 2001 be amended as follows:
“Manufacturers covered under Notification No. S.R.O. 1125(I)/2011 dated the 31st December, 2011 and importing items covered under S.R.O. 1125(I)/2011 dated the 31st December, 2011, Plant & Machinery and Spare parts;”
Greenfield Industries –
Through the Tax Laws (Second Amendment) Ordinance, 2019, the term Greenfield industries has been defined in the Income Tax and Sales Tax laws to make it identical to “Pioneer Industry”.
Therefore it is recommended: “Delete condition no. “(iv)” of the definition of Greenfield industry to make it distinct from Pioneer industry, otherwise the purpose of growth through investment would not be achieved.”
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Weekly Review: market likely remain range bound
KARACHI: The stock market likely to stay range bound in coming week owing to ease in lockdown.
Analysts at Arif Habib Limited said that the market to remain range bound in the coming week.
With standard operating procedures in place, lockdown will be easing off next week, business community and economy will get a sigh of relief.
Whereas, given foreign reserves clocking-in at USD 18.8 billion, up by USD 292 million WoW, Pak Rupee is expected to remain stable against the greenback (which is a major positive for foreign investment).
The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 7.0x (2020) compared to Asia Pac regional average of 10.2x and while offering DY of ~8.4 percent versus ~3.1 percent offered by the region.
Market commenced on a negative note this week, with investors resorting to profit taking.
With a massive fall in exports by 54 percent YoY in last month followed by a fall in cement dispatches by 24 percent YoY in April 2020 amid lockdown weak sentiment prevailed.
Furthermore, IMF’s prediction regarding total foreign reserves depletion by USD 1.9 billion in the coming 15 months added fuel to this decline.
Moreover, 12 month T Bill cut off yield climbed up by 28 basis points. Meanwhile, Federal Govt.’s decision to ease off lockdown from Saturday and onwards was not received well given alarming jump in COVID-19 cases on day-on-day basis.
Whereas, announcement of reduction in RLNG prices for the month of May 2020 cushioned the dip.
The KSE-100 index settled at 33,268 points, shedding 884 points (down by 2.5 percent) WoW.
Sector-wise negative contributions came from i) Commercial Banks (231 points), ii) Cement (211 points), iii) Power Generation & Distribution (156 points), iv) Fertilizer (148 points) and Oil & Gas Exploration Companies (99 points).
Meanwhile, sector-wise positive contribution came from i) Oil and Gas Marketing Companies (76 points), Food & Personal Care Products (34 points) and Technology & Communication (21 points). Scrip-wise negative contributions were led by HUBC (126 points), LUCK (102 points), HBL (82 points), FFC (76 points) and MCB (74 points).
Foreign selling continued this week clocking-in at USD 17.8 million compared to a net sell of USD 11.6 million last week.
Selling was witnessed in Exploration & Production (USD 7.1 million) and Commercial Banks (USD 5.1 million).
On the domestic front, major buying was reported by Individuals (USD 20.3 million) and Companies (USD 5.7 million).
Average Volumes settled at 190 million shares (up by 7 percent WoW) while average value traded clocked-in at USD 46 million (down by 5 percent WoW).
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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.
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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.
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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.
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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.
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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.
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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.