Category: 2019-2020

You can go through stories related to budget 2019-2020. The stories are about changes in taxation, customs, sales tax and federal excise.

2019/2020: Withholding tax rates issued on payment for goods and services

KARACHI: Federal Board of Revenue (FBR) has issued withholding tax rates on payment for goods and services during tax year 2019/2020 under Section 153 of Income Tax Ordinance, 2001.

The FBR said that every prescribed person shall collect withholding tax under Section 153 of Income Tax Ordinance, 2001 from resident persons and permanent establishment in Pakistan of non-resident at the time the amount is actually paid.

Under Section 153(1)(a) for sale of rice, cotton seed oil and edible oil, the tax rate shall be 1.5 percent of the gross amount.

Persons not appearing in the Active Taxpayers’ List : The applicable tax rate is to be increased by 100% (Rule-1 of Tenth Schedule to the Ordinance), i.e. 3 percent of the gross amount

Tax should be collected on supply made by distributors of fast moving consumer goods: two percent of gross amount in case of company; 2.5 percent of gross amount in case of other than company.

Persons not appearing in the Active Taxpayers’ List The applicable tax rate is to be increased by 100% (Rule-1 of Tenth Schedule to the Ordinance), i.e.: 4 percent of the gross amount in case of company; 5 percent of the gross amount in case of other than company.

For sale of any other goods: 4 percent of the gross amount in case of company; 4.5 percent of the gross amount in case of other than company.

Persons not appearing in the Active Taxpayers’ List: The applicable tax rate is to be increased by 100% (Rule-1 of Tenth Schedule to the Ordinance), i.e.: 8 percent of the gross amount in case of a company; 9 percent of the gross amount in case of other than a company.

Goods: No deduction of tax where payment is less than Rs. 75,000/- in aggregate during a financial year [S.153(1)(a)].

The FBR said that it shall be minimum tax for all except in the following cases where it shall not be minimum tax on sale or supply of goods, by:

(i) a company being manufacturers of such goods or

(ii) Public company listed on registered Stock Exchange in Pakistan.

The FBR said that under Section 153(1)(b) the tax rate should be collected at 3 percent in case:

(i) i. Transport services, freight forwarding services, air cargo services, courier services, man power outsourcing services, hotel services, security guard services, software development services, IT Services and IT enabled services as defined in clause (133) of Part I of the Second Schedule, tracking services, advertising services (other than by print or electronic media), share registrar services, engineering services, car rental services, building maintenance services, services rendered by Pakistan Stock Exchange Ltd. & Pakistan Mercantile Exchange Ltd. , inspection, certification, testing & training services.;

Persons not appearing in the Active Taxpayers’ List :The applicable tax rate is to be increased by 100% (Rule-1 of Tenth Schedule to the Ordinance), i.e. 6 percent of the gross amount.

ii. In case of rendering or providing of services other than as mentioned at (i) above;

a) In case of company: 8 percent of the gross amount

b) In any other case: 10 percent of the gross amount

c) In respect of persons making payment to electronic & print media for advertising services: 1.5 percent of the gross amount.

Persons not appearing in the Active Taxpayers’ List : The applicable tax rate is to be increased by 100% (Rule-1 of Tenth Schedule to the Ordinance), i.e.:

a) In case of company: 16 percent of the gross amount.

b) In any other case: 20 percent of the gross amount.

c) In respect of persons making payment to electronic & print media for advertising services: 3 percent of the gross amount.

Services : No deduction of tax where payment is less than Rs. 30,000/- in aggregate during a financial year [S.153(1)(b)].

It shall be minimum cases in mentioned above cases.

Under Section 153(1)(c), the tax rates shall be:

Execution of Contracts

i) In case of sportsperson: 10 percent

ii) In the case of Companies: 7 percent

iii) In the case of persons other than companies: 7.5 percent

Persons not appearing in the Active Taxpayers’ List: The applicable tax rate is to be increased by 100% (Rule-1 of Tenth Schedule to the Ordinance), i.e.:

i) In case of sportsperson: 20 percent

ii) In the case of Companies: 14 percent

iii) In the case of persons other than companies: 15 percent

Minimum Tax for all whereas it will remain adjustable where payments are received on account of execution of contracts by Public Company listed on registered Stock Exchange in Pakistan.

August 5, 2019
FBR issues withholding tax rates on cash, online banking transactions

KARACHI: Federal Board of Revenue (FBR) has issued withholding tax card for tax year 2019/2020 and prescribed the rate of withholding income tax to be deducted/collected on transactions made through banking system either by cash or online transfers.
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August 4, 2019
FBR explains federal excise duty on edible oils

The Federal Board of Revenue (FBR) has released detailed explanations regarding the revised implementation of the federal excise duty (FED) on ghee and cooking/edible oils, as introduced through the Finance Act, 2019.
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August 3, 2019
Threshold amount to purchase immovable properties removed for withholding tax collection: FBR

ISLAMABAD: Federal Board of Revenue (FBR) has removed threshold amount to purchase of immovable properties for collection of withholding tax.

The FBR issued Income Tax Circular No. 09 dated July 30, 2019 and said that through the Finance Act, 2019, the rate of tax on purchase of immovable property under Section 236K of Income Tax Ordinance, 2001 has been reduced to 1 percent from 2 percent.

Prior to the Finance Act, 2019, no tax was collected under Section 236K on purchase of property where the value of property up to Rs4 million.

“Through the Finance Act, 2019, the threshold of Rs4 million for collection of tax has been removed. Now tax on purchase of property will be collected on all transactions irrespective of the value of immovable property,” the FBR said.

The FBR said that tax under section 236C is collected from the seller or transfer at the rate of one percent of the gross amount of consideration received.

Prior to the Finance Act 2019, this tax was not collected if the property was held for a period exceeding three years.

Through the Finance Act, 2019, the period of three years has been extended to five years which means that tax under section 236C shall be collected if the immovable property is held for a period up to five years.

The FBR further explained that as per section 236W read with clause (c) of sub-section (4) of Section 111, every person responsible for registering, recording or attesting transfer of any immovable property was required to collect tax at the rate of 3 percent of the difference between the FBR value of property and the value recorded by the authority registering or attesting the transfer in cases where FBR value was greater than the recorded value.

So by paying three percent on the difference, the purchaser was not required to explain the source of difference of amount between FBR value and the recorded value.

Through Finance Act, 2019, section 236W as well as clause (c) of sub-section (4) of Section 111 have been omitted. Consequently, the purchasers are not required to explain the source of investment of property up to the FBR value of property whereas previously such purchasers were required to explain the source of investment to the extent of recorded value of property.

July 31, 2019
Persons not appearing in ATL will pay 100 percent increased withholding tax rate: FBR

KARACHI: Persons whose names are not appearing in the Active Taxpayers List (ATL) will be subjected to hundred percent increased rate of withholding tax, Federal Board of Revenue (FBR) said in a circular issued to explain changes made in Income Tax Ordinance, 2001 through Finance Act, 2019.

The FBR issued Circular No. 19 of 2019 and said that prior to Finance Act, 2019 a concept of non-filer existed in the Ordinance whereby higher tax rates of withholding were prescribed for persons who were non-filers.

Such non-filers could claim adjustment of the higher tax collected at the time of filing of income tax returns. The aim was to compel the non-filers to file their returns of income. “However, it was observed that the non-filers, even though subjected to higher withholding rates, still had a propensity not to file their returns,” the FBR said.

This proved detrimental to exercise of expansion or tax base. This was due to the absence of an explicit provision specifying a standard procedure for action against such persons.

Through Finance Act, 2019 the concept of non-filers has been done away with and a new concept regarding persons not appearing in the active taxpayers list has been introduced. This concept is a m ore paradigm shift from the erstwhile non-filer higher tax regime in that it not only penalizes those persons not appearing in the ATL but also introduces an effective mechanism for enforcing returns from such persons.

In this regard a new section 100BA to Income Tax Ordinance, 2001 has been introduced which provides that collection or deduction of advance income tax, computation of income and tax payable thereon shall be determined in accordance with the rules in the newly introduced ‘The Tenth Schedule’ which envisages the entire path to be adopted by the Inland Revenue Department to enforce returns from persons who make financial transactions yet choose not to file their returns of income.

The FBR said that the persons whose names are not appearing in the ATL will be subjected to 100 percent increased tax rate.

The FBR further said that where a withholding agent is of the opinion that 100 percent increased tax is not required to be collected on the basis that the person was not required to file return, the withholding agent shall furnish a notice to the commissioner having jurisdiction over withholding agent setting out –

a. The name, CNIC or NTN and address of the person not appearing in the ATL

b. The nature and amount of the transaction on which tax is required to be collected or deducted; and

c. Reason on the basis of which it is considered that the person was not required to file return or statement, as the case may be.

July 31, 2019
Unexplained foreign remittances will be subject to tax: FBR

ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday said that unexplained foreign remittances will be subject to income tax.
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July 30, 2019
FBR sets 200pc penalty for offshore tax evasion

ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday said the amended income tax law attract 200 percent penalty amount of tax evaded in cases of undeclared offshore assets.

The FBR issued income tax circular to explain the changes brought through Finance Act, 2019 regarding offshore assets and tax evasion.

The FBR said that through the Finance Act, 2019, the term “offshore Assets” has been defined by inserting a new clause (38AA) in section 2 of Income Tax Ordinance, 2001, which includes any movable or immovable assets held, any again, profit or income derived, or any expenditure incurred outside Pakistan.

The term “offshore evader” has been defined by inserting a new clause (38AB) in section 2 and it means a person who owns, possesses, control, or is the beneficial owner of an offshore assets and dos not declare, or under declares or provides inaccurate particulars of such assets to the Commissioners.

Penalty has also been provided in serial No. 22 in sub section (1) of section 182 that where an offshore tax evader is involved in offshore tax evasion in the course of any proceedings under this Ordinance before any Income Tax authority or the appellate tribunal, such person shall pay a penalty of Rs100,000 or an amount equal to 200 percent of the tax sought to be evaded, whichever is higher.

Prosecution for concealment of an offshore assets has been provided by inserting a new section 192B according to which any person who fails to declare an offshore assets to the Commissioner or furnishes inaccurate particulars of an offshore assets and the revenue impact of such concealment or furnishing of inaccurate particulars is ten million rupees or more shall commit an offence punishable on conviction with imprisonment up to three years or with a fine up to Rs. 500,000, or both.

A new sub-section (5) has been added in section 145 as per which the Commissioner may freeze any domestic assets of a person where on the basis of information received from an offshore jurisdiction, the Commissioner has reason to believe the such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any assets.

The Commissioner may freeze any domestic assets of the person including any assets beneficially owned by such person for a period of 120 days or till the finalization of proceedings including recovery proceedings and any other proceeding under the Ordinance, whichever is earlier.

The term “offshore enabler” has been defined by inserting a new clause (38AC) in section 2 to include any person who enables, assist, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore assets, which has resulted or may result in tax evasion.

Penalty has been provided in serial no.23 of sub-section (1) of section 182 that where in the course of any transaction or declaration made by a person an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion in the course of any proceedings under the Ordinance, such person shall pay a penalty of Rs 300,000 or an amount equal to 200 percent of the tax which was sought to be evaded, whichever is higher.

Prosecution for enabling offshore tax evasion has been provided by inserting a new section 195B to the effect that any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in offshore tax evasion, shall commit an offence punishable on conviction with imprisonment for a term not exceeding seven years or with a fine up to five million rupees or both.

The term “asset move “has been defined by inserting a new clause(5C) in section 2 and it means the transfer of non offshore assets to an unspecified jurisdiction by or an behalf of a person who owns, possesses, controls or is the beneficial owner of such offshore asset for the purpose of tax evasion.

An unspecified jurisdiction means a jurisdiction which has not committed to automatically exchange information under the Common Reporting Standard with Pakistan. The term “specified jurisdiction “has been defined by inserting a new clause (60A) in section 2 and it means any jurisdiction which has committed to automatically exchange information under Common Reporting Standard with Pakistan.

Penalty has also been provided in serial 24 of sub-section (1) of section 182 that any person who is involved in asset move from specified to un-specified territory shall pay a penalty of Rs. 100,000 or an amount equal to 100 percent of the tax, whichever is higher.

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FBR makes mandatory purchase of immovable property through banking channel

July 30, 2019
FBR makes mandatory purchase of immovable property through banking channel

ISLAMABAD: Federal Board of Revenue (FBR) has made mandatory the purchase of immovable property of fair market value above Rs5 million through banking channel.

The FBR issued explanation to the Finance Act, 2019 on Tuesday regarding purchase of assets through banking channel under Section 75A of Income Tax Ordinance, 2001.

The FBR said that a new section 75A has been introduced in the Ordinance which requires that no person shall purchase immovable property having fair market value greater than Rs.5,000,000 or any other asset having fair market value more than Rs.1,000,000 otherwise than by a crossed cheque drawn on a bank or through crossed demand draft or crossed pay order or any other crossed banking instrument showing transfer of amount from one bank account to another bank account.

Fair market value of immovable property shall be the value notified by the Board under sub-section (4) of section 68 or the value fixed by provincial authority for the purpose of stamp duty, whichever is higher.

In case the transaction is not through banking channel as specified above,-

(a) such person cannot claim deductions mentioned in sections 22,23,24 & 25 on such assets. Hence, no deduction for depreciation, initial allowance, intangibles and pre-commencement expenditure shall be allowable for assets purchased otherwise than through banking channel as specified above;

(b) the amount of purchased through cash which was required to paid through banking channel as stated above, shall not be treated as cost as per section 76 for computation of any gain in sale of such asset.
Further, any person purchasing immovable property having fair market value greater than five million through cash or bearer cheque shall pay a penalty of 5% of the value of property determined by the Board under sub-section (4) of section 68 or the value determined by the provincial authority for the purposes of stamp duty, whichever is higher.

The above provisions of law are illustrated through the following examples.

Example 1

Mr A is deriving income from business and has declared taxable income as under.

Sale: 100,000,000.

Cost of sales: 70,000,000.

Breakup of cost of sale

Initial depreciation on machinery: 10,000,000.

Normal depreciation of machinery: 6,000,000.

Salaries: 40,000,000.

Fuel and utilities: 14,000,000.

Gross profit: 30,000,000.

Admin & distribution expenses: 10,000,000

Taxable income: 20,000,000

Mr. A had bought machinery of Rs40 million for the year through cash. As per section 75A, business deduction under section 22 & 23 pertaining to initial depreciation of Rs10,000,000 and normal depreciation of Rs6,000,000 shall not be admissible. Hence, Rs16,000,000 will be added in taxable income resulting in taxable income of Rs36,000,000.

Mr. A subsequently sells the machinery after three years at Rs12,000,000. For the purpose of computing gain, the cost of the asset has to be deducted from the sale price but in this case, the machinery was purchased through cash, hence, the cash amount cannot be treated as cost. Resultantly, Rs12,000,000 will be treated as gain chargeable to tax under the head “income from business”.

Example 2.

Mr. B derives income from salary only. He has purchased immovable property through cash and the FBR value of the property is Rs8,000,000 but the DC value of property for the purpose of stamp duty is Rs6,000,000. As per serial No. 21 of section 182, penalty at 5 percent of FBR value of property of DC value, whichever is higher, is to be imposed. In this case, the FBR value of property is greater than DC value, hence penalty shall be imposed at 5 percent of Rs8,000,000 at Rs400,000.

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FBR allows reduced duty rates for import of certain CBU vehicles

July 30, 2019
CNIC condition not applicable on purchases below Rs50,000

KARACHI: The condition of providing CNIC details is not applicable on purchases up to Rs50,000 by a person, said Zeeshan Merchant, former vice president of Karachi Tax Bar Association (KTBA).
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July 11, 2019
Elimination of zero rating, other policy and administrative measures to generate Rs733.47 billion

KARACHI: Federal Board of Revenue (FBR) to generate additional revenue of Rs733.47 billion during current fiscal year after abolishing zero-rating of sales tax and other policy and administrative measures.

Pakistan has outlined its strategy for enhancing revenue collection before the International Monetary Fund (IMF) through eliminating exemptions, distortion and other policy and administrative measures.

These budgetary measures likely enhance tax to GDP ratio by 1.7 in the fiscal year 2019/2020.

The FBR will generate additional revenue of Rs222.77 billion from measures taken through budget 2019/2020 in the sales tax, which included:

Petroleum products levy increase to 15 PRs (and set as a floor) and

GST rate at 17 percent (set as a floor)

Cancel SRO # 480 and bring steel sector, edible oil and medium to large retailers to 17 percent GST regime

Extend the list of products under the retail price taxation – Third Schedule (home appliances, paint.., currently under SRO # 480)

Cancel SRO#1125 and bring exportable sectors to standard GST regime at 17 percent rate, with immediate cash refund for exported goods only

Remove certain items from exemptions (packaged food), and apply GST tax at 17 percent.

Increase GST on sugar from 8 percent to 17 percent

Redefine the exemption available to Cottage Industry

An additional amount of Rs90.114 billion estimated under Federal Excise Duty (FED) through following measures:

0.2 Increase of FED on cigarettes and remove the third tier.

Introduce FED on cigarettes coming from non tariff areas

Increase/introduce FED on sugary drinks to 13 percent

Increase FED on cement from 1.5 Rs per kg to 2 Rs

Additional amount of Rs324.98 billion estimated through eliminating exemptions and other distortions in Income Tax, such as

Personal Income Tax (PIT): lower the threshold to Rs400,00 and Rs600,000 for non-salaried and salaried individuals respectively, increase tax rates Increase in rate of minimum tax u/s 113 from 1.25 to 1.5 percent

Extend the regime of higher withholding tax rates for non-filers

Resume Telecom withholding rate

Change in income tax regime of Services sector (banks and insurance companies)

Abolish BMR credit incentives

Increase the holding period liable to tax for capital gain tax on immovable properties and securities

Taxation of gifts from unrelated person at standard PIT rate

Aligning value of immovable properties with the market rates

Reduction of number of withholdings and simplification of procedures

Amortization of expenditure in BOT projects over useful life of the project instead of current 10 year amortization

Long term lease hold right may be considered as purchase of property

Taxation of formal agricultural sector within the scope of federal government

Rationalization of tax credit available to Non-profit organizations (NPOs)

An amount of Rs60 billion has been estimated to be generated through measures taken under Customs duty:

Increase in Additional Customs Duty Rate on finished and luxury goods

Withdrawal of exemption on import of LNG and subjected to 5 percent duty

Revenue administrative measures to generate Rs 35.6 billion through following steps:

Implement Track and Trace system for Tobacco Products

Automated monitoring of GST and income at retail (point of sale)

Changes in ADCIR mechanism

Separation of audit & adjudication functions

Making procedure for prosecution easier

Enabling and strengthening FBR field formations

Cleansing of databases and integration to enable effective data mining

Enabling efficient enforcement through investment in FBR

Infrastructure and process reengineering

Taxpayer education and facilitation

July 9, 2019