Pkrevenue.com

Category: Budget 2020-2021

  • Bearer bonds, certificates should be stopped to prevent tax evasion

    Bearer bonds, certificates should be stopped to prevent tax evasion

    KARACHI: The government has been recommended to stop all kind of bearer certificates, bonds and other instruments in order to eliminate parking lots for untaxed funds.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 recommended measures to eliminate legally permissible parking lots for untaxed funds.

    The OICCI said that bearer certificates, bonds and other instruments lead to tax evasion.

    Therefore, sale of all kinds of bearer securities, prize bonds, and other such items should be stopped.

    The OICCI further said that despite the revision of real estate values there is still a lot of difference between actual market value and various ‘official’ values of real estate across the country.

    It is proposed that shortcomings in the mode and manner of valuation of immovable properties to be addressed. Registration of sale and purchase of real estate should be on fair market value at the time of the transaction. Necessary information on market value of real estate can be easily obtained.

    In order to broaden the tax base, the OICCI also suggested introduction of books of account and cash registers.

    It said that the Federal Board of Revenue (FBR) does not have any proper shop-wise record of approximately 35 million SMEs, which are mostly sole proprietorship or partnerships, despite the fact that jurisdictions within the tax offices are location centric, especially for small and medium sized businesses.

    The OICCI recommended:

    i. It should be made mandatory for all businesses to maintain books of account and taxes should be levied on ‘net income’ basis only.

    ii. Registration of all retail outlets and electronic cash registers should be made mandatory without any turnover thresholds, which gives rise to tax evasion. The

    iii. installation of these registers should be inspected regularly by tax inspectors.

    iv. FBR should engage with representatives of small manufacturers, wholesalers and retailers and ensure their buy-in for introduction of these documentation measures so that the previous back-tracking on these actions is not repeated.

    v. The book keeping requirements/ outline be regularly upgraded considering the best practices learnt from other neighboring countries in the region with similar business infrastructure.

  • Return, wealth statement be made mandatory for Rs2 million turnover in banking system

    Return, wealth statement be made mandatory for Rs2 million turnover in banking system

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested that persons having annual turnover of Rs2 million through bank accounts should require filing annual returns and wealth statement.

    The OICCI in its proposals for budget 2020/2020, said that Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) should devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of Rs2 million or more during the year, have filed a tax return and wealth statement.

    “This could be done by the financial institutions simply notifying names/ CNIC numbers of such customers to FBR without giving access to bank accounts,” the OICCI added.

    The OICCI recommended the following for broadening of tax base:

    FBR should urgently implement the recommendations of the Tax Reforms Commission (TRC) and also hold regular round table conferences with leading tax and legal experts to review existing laws for increasing the number of tax payers and taxable entities.

    Tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of NADRA database and other documented sources to ensure that all income earners are NTN holders and “Filers”, with submission of annual income tax/ wealth returns and wealth reconciliation statements.

    Art exhibition halls, hospitals where doctors practice, hotels and other public places holding large receptions for fashion houses & designers, sale of branded/designer dresses, airlines, travel agencies, etc should provide names and addresses of the respective persons involved in these business activities to the FBR on a quarterly basis.

    Once the FBR receives the above information, it should be pro-active and pursue potential tax payers by sending them income tax return forms requiring them to file tax returns – rather than waiting for the tax returns to be filed.

    ‘The Protection of Economic Reforms Act, 1992” which has been amended in 2018, should be further reviewed to curb the practice of remitting undeclared income through unofficial channels outside Pakistan and the same being brought into Pakistan through banking channels in Foreign Exchange, thereby “whitening” the unexplained money at a minimal cost.

    Section 111(4) of ITO 2001, which has also been amended in 2018, should be further reviewed to restrict tax free inward foreign remittances to immediate family members only.

    Eliminate culture of Amnesty Schemes as it discourages the honest tax payers. viii. Severe, and visible, penalties should be levied to punish tax evaders, starting with evasions of over Rs 1 million.

    As Pakistan is a signatory to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which became operational from September 2018, regular coordination should be done with relevant authorities of countries, considered as tax heavens for stashing away illegal wealth, for information sharing.

    Appropriate laws should be made to enable the government to seize local assets, in equivalent value, or levy appropriate taxes, if any person holds any kind of assets outside the country for which source of income could not be established.

  • Independent appellate recommended to boost taxpayers’ confidence

    Independent appellate recommended to boost taxpayers’ confidence

    KARACHI: Business community has recommended to establish an independent tax appellate system in the country to boost taxpayers’ confidence and discourage irrational assessments.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its budget proposals for fiscal year 2020/2021 recommended to establish the independent tax appellate system to boost taxpayer’s confidence and discourage irrational assessments by the tax authority driven by revenue collection targets.

    Due to immense delays in conclusion of disputes by the appellate authorities and fear of financial exposure arising from recovery proceedings by FBR, taxpayers have to resort to the High court to cover their financial exposure.

    The first appellate authority Commissioner Appeals come under the direct administrative control of FBR whereas the second appellate authority Appellate Tribunal Inland Revenue comes under the administrative control of the Ministry of Law.

    There is a need of major reforms in the tax appellate process to expedite resolution and ensure fairness in the process.

    The OICCI recommended:

    i. Tax appellate forums should come under the direct supervision of High courts and should be independent of FBR.

    ii. Professional Tax adjudicators should be appointed in the process with clear tasks of rapid disposal of cases.

    iii. Recovery proceedings should not be initiated until tax assessments have passed at least one independent forum.

    iv. Decision should be made within 60 days of the filing of the response.

  • 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.”

  • 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 chief rules out reducing sales tax rate to single digit

    FBR chief rules out reducing sales tax rate to single digit

    KARACHI: Nausheen Javaid Amjad, Chairperson of Federal Board of Revenue (FBR) has ruled out reducing sales tax rate to single digit and said such move would bankrupt the economy of the country.

    However, she hinted at reducing the further sales tax rate in the upcoming budget 2020/2021.

    A press release issued by Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Friday quoted FBR chairperson as saying. She made these comments while a meeting with the office bearers of the apex trade body.

    The chairperson said that refunds are fully automated under FASTER; amendment in Annexures-F and H should be identified by the exporters for FBR consideration; tax on machinery would be abolished.

    The FBR chairperson further highlighted proposals to be incorporated in the Finance Bill 2020 which included that tax on distributors would be uniformed; tax rates including minimum tax rates would be reviewed for reduction; withholding tax paid would be appeared on IRIS w.e.f June, 2020; Exemption Certificate Law would be amended and rationalized; option would be given to remain in presumptive tax regime or opt for normal tax regime ; greenfield industry issue would be resolved in consultation with Engineering Development Board (EDB).Regarding CNIC condition the Chairperson, FBR said that agreement has been made with the traders and cannot be reversed.

    In response to the customs issues raised by the FPCCI, she replied regulatory duty on tyre would be considered to abolish in the next budget.

    She proposed to hold second round of the meeting to discuss the FPCCI Proposals in detail for consideration and incorporation in the forthcoming Federal Budget 2020-21.

  • Foreign investors urge controlling Afghan transit trade

    Foreign investors urge controlling Afghan transit trade

    KARACHI: Foreign investors have urged the authorities to control Afghan Transit Trade to avoid incidence of smuggling and protect local industry.

    (more…)
  • OICCI suggests harmonization of sales tax on goods, services

    OICCI suggests harmonization of sales tax on goods, services

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended harmonization of sales tax on goods and services and should be set at 13 percent as applicable in Sindh province.

    The OICCI in proposals for budget 2020/2021, said that the sales tax rate in Pakistan, at 17 percent, is the highest in Asia. Our analysis shows an average of less than 12 percent in Asia, with a range of 6 percent to 17 percent.

    Moreover different rates of sales tax on goods and services i.e. standard, reduced, specified etc. prevailing in the country lead to a number of issues for business organizations operating all over the country.

    Sales tax rates (federal and provincial), both on goods and services, should be harmonized throughout the country and be aligned to 13 percent charged in Sindh.

    Moreover only one Tax return should be filed with FBR.

    The OICCI highlighted the issue of admissibility of Input sales tax on civil work and other equipment and materials.

    Adjustability of input sales tax restricted under section 8(1)(h) & (i) of Sales Tax Act, 1990 and SRO 490(I)/2004 on building material, office equipment, furniture & fixtures, vehicles & their parts used for taxable activity purposes has increased the cost of doing business for all documented sectors, and encourages procurement from un-registered sector whereby 17 percent sales tax cost is mitigated with only 5 percent sales tax withholding.

    The OICCI recommended that Sub-Section (1)(h) and (i) of section 8 of STA 1990 should be deleted.

    SRO 490(I)/2004 which is in contradiction with section 8 should also be rescinded.

    The overseas chamber pointed out the issue of sales tax be applied at the time of delivery, instead of Earlier of Receipt of Payment or Delivery of Goods.

    It said that prior to amendment made in section 2(44) of Sales Tax Act, 1990, vide Finance Act, 2013, sales tax was levied at the time of actual delivery of goods regardless of time of payment.

    Application of sales tax on advances causes serious operational issues and also leads to unnecessary reconciliations resulting in hardships to taxpayers.

    The OICCI recommended that sales tax be applied at the time of actual delivery for ease of doing business, rather than earlier of receipt or delivery.

    The OICCI said that as per serial no. 1 and 2 of Eleventh Schedule of Sales Tax Act, 1990, Government departments/ bodies/ authorities and Companies as defined in ITO 2001 are required to withhold sales tax against supplies made by registered and active sales taxpayers. This is only creating hardship for registered sales tax persons as Government departments are not making withholding sales tax payments through FBR web-portal system and deductions made by Companies like leasing companies, Modarabas, etc who are not registered in STA 1990 and FBR does not allow any manual entry of such withholding sales tax.

    After implementation ‘STRIVe’ from July 2016 onwards, no mismatch arises between input and output tax for transactions with registered sales tax persons.

    Therefore, withholding sales tax on purchases made by Government departments/ bodies/ authorities or unregistered taxpayers, etc. from registered sales tax persons being active taxpayer is only creating hassles and unnecessary documentation for tax payers.

    It is recommended to abolish serial no. 1 and 2 of Eleventh schedule of STA 1990.

    Sales tax SRO’s are issued so frequently that it is very difficult to keep oneself updated with respect of different SRO’s and it’s also difficult to identify the current applicable SRO.s

    All active SRO’s should be made part of the Act. Subsequently in every budget, SRO’s issued during the previous year, should also be made part of the Act.

    Joint and several liability of registered persons in supply chain where tax remains unpaid.

    As per section 8A of Sales Tax Act, 1990 a registered person purchasing goods is jointly and severally liable if the sales tax is not paid by the seller of the goods. It is quite unjustified to punish a genuine buyer for an offense committed by corresponding supplier. This section is also inequitable as payments are made after verifying the seller status on the FBR portal at the time of purchase.

    It is recommended that Section 8A of the Sales Tax Act, 1990 should be abolished.

    As per section 8B a registered person is not allowed to adjust input tax in excess of 90 percent of the output tax for that period in STA 1990.

    It is recommended that section 8B of the STA 1990 should be abolished for registered taxpayers. Most industries have long term import contracts with international suppliers. Due to current COVID pandemic situation, sales of companies have reduced significantly and resultantly, input tax is getting accumulated as full adjustment of input taxes against output tax is not possible.

  • Reviewing withholding tax on profit on debt suggested

    Reviewing withholding tax on profit on debt suggested

    KARACHI: The tax authorities have been suggested to review withholding tax rates on profit on debt in forthcoming budget.

    Overseas Investors Chamber of Commerce and Industry (OICC) in proposals for budget 2020/2021 said that through Finance Act, 2019, multiple withholding tax rates of profit on debt were introduced which are based on the profit threshold and active /in-active status of taxpayer (i.e. Profit less than Rs0.5 million is subject to tax at the rates 10 percent and 20 percent for active and in-active respectively.

    Whereas, profit greater than Rs 0.5 million is subject to tax at the rates 15 percent and 30 percent for active and in-active filer respectively).

    It has been provided that minimum tax rate on profit on debt is 15 percent as prescribed under section 7B of Income Tax Ordinance, 2001.

    So, there is no need to tax the profit at reduced rate (i.e. 10 percent), if the person has to discharge his final tax liability on such higher rate i.e. 15 percent.

    The OICCI suggested that prescribed threshold of withholding tax on profit should be deleted and there should be only two rates, for active and inactive taxpayers respectively.