Pkrevenue.com

Author: Faisal Shahnawaz

  • Stock market trades in narrow range

    Stock market trades in narrow range

    KARACHI: The stock market gained 16 points on Monday while trading in narrow range.

    The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) closed at 33,284 points as against 33,268 points showing an increase of 16 points.

    Market traded in a narrow range between +48 points and -142 points, closing the session +16 points. Banking sector traded in the negative zone, and similar activity was observed in Cement and E&P.

    All eyes are set on MSCI rebalancing and Monetary Policy rate cut, of which MSCI is scheduled to announce decision on May 12, whereas SBP is also expected to take the decision on Policy rate during the ongoing week. Side board scrips came in the limelight today and contributed to the volumes, including WTL, HUMNL, UNITY and TRG.

    Pharma stocks, FEROZ and SEARL also reacted to possible non-exclusive engagement with Gilead for manufacturing Coronavirus drug Remdesivir and performed well on the bourse.

    Technology stocks contributed 94.2 million shares to the index, followed by O&GMCs (16.5 million) and Vanaspati (15.1 million). Among scrips, WTL topped with 62.4 million shares, followed by TRG (15.8 million) and UNITY (15.1 million).

    Sectors contributing to the performance include Pharma (+23 points), Technology (+12 points), Insurance (+8 points), Power (-10 points) and E&P (-10 points).

    Volumes increased from 88 million shares to 198.2 million shares (+125 percent DoD). Average traded value also increased by 15 percent to reach US$ 27.4 million as against US$ 23.9 million.

    Stocks that contributed significantly to the volumes include WTL, TRG, UNITY, HASCOL and HUMNL, which formed 56 percent of total volumes.

    Stocks that contributed positively to the index include SEARL (+12 points), SNGP (+10 points), TRG (+7 points), AICL (+6 points) and GLAXO (+6 points). Stocks that contributed negatively include HUBC (-12 points), PPL (-7 points), HBL (-4 points), PSO (-4 points), and OGDC (-4 points).

  • Rupee falls by 10 paisas against dollar

    Rupee falls by 10 paisas against dollar

    KARACHI: The Pak Rupee fell by 10 paisas against dollar Monday amid higher demand import payment, dealers said.

    The rupee ended Rs160.07 to the dollar from last Friday’s closing of Rs159.97 in interbank foreign exchange market.

    Currency analysts said that the market opened after weekly holiday which increased the demand for import payment.

    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.

  • FBR proposed to eliminate distortion in withholding tax on dividends from equity investments

    FBR proposed to eliminate distortion in withholding tax on dividends from equity investments

    KARACHI: Federal Board of Revenue (FBR) has been proposed to rationalize of withholding tax on dividends as higher rate from equity investments discourage investment in the capital market.

    Pakistan Stock Exchange (PSX) in its proposals for budget 2020/2021 submitted to Federal Board of Revenue (FBR) said that withholding tax on profit from debt instruments is currently charged a lower rate compared to the withholding tax charged on dividend from equity investments.

    The difference ranges between 2.5 percent – 5 percent. This reduces the incentive to invest in the equity market.

    Tax treatment on various asset classes should not be the primary driver of investment decisions, the PSX said, adding that the profit on debt and dividends should receive the same tax treatment.

    At present, it is observed that corporate profits are first taxed at company level, and subsequently, the resulting profits which are distributed as dividends are taxed at the individual level.

    This is essentially a form of double taxation, and result in the misallocation of capital in an economy by giving an upper hand to fixed income investments.

    To remove this discrepancy, the government should introduce a mechanism to eliminate the distortion on the tax charged on dividends, and make the effective tax rate equal to that on debt.

    Tax rate on investmentsProfit paid is more than rupees five hundred thousandProfit paid is rupees five hundred thousand or less
    Profit on Debt u/s 15115 percent10 percent
    Sukuk-holder (individual or an association of person), if the return on investment is more than one million U/S 150A12.5 percent
    Sukuk-holder (individual and an association of person), if the return on investment is less than one million U/S 150A10 percent
    Dividend U/S 150 & 236S15 percent

    The PSX submitted following proposals:

    i. Government should introduce a mechanism to remove the double taxation of company’s profits – once in the hands of the company, and once in the hands of shareholders as dividends – such that the effective tax rate on dividends is on par with profit on debt.

    ii. Rationalize the current tax rate on dividends to make it equal to the tax rate on profit from debt.

    Provided that there should be no withholding tax on dividend up to Rs100,000 per annum.

    Giving rationale to the proposals, the PSX said that a similar tax treatment on dividend from equity investment and debt instrument will provide a level playing field to equities and attract higher inflows in the stock market. Further, it would lead to increase in numbers of UINs.

    The PSX proposed following proviso should be inserted in section 150 and Section 236S to the Income Tax Ordinance, 2001:

    “Provided that there should be no withholding of tax where amount does not exceed Rs100,000 per annum.”

    Clause (b) Division-I, Part III, First Schedule to the Income Tax Ordinance, 2001, for the word ’15 percent’ shall be substituted by ’10 percent.’

  • PSX proposes reduction of withholding tax on margin financing transactions

    PSX proposes reduction of withholding tax on margin financing transactions

    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.

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  • Exemption on agriculture income should be withdrawn

    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.

  • Various tax laws discouraging investment: PBC

    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.”

  • Weekly Review: market likely remain range bound

    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).

  • Integration of federal, provincial sales tax returns suggested

    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.

  • Tax refunds should be adjustable against liability recommended

    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.

  • FBR directs officers to submit asset declarations

    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.