Category: Budget 2020-2021

Senate committee rejects taxpayers profiling, real-time access to information

ISLAMABAD: The Standing Committee on Finance, Revenue and Economic Affairs, in a meeting, has rejected new clauses of taxpayers profiling and real-time access to information.

The committee strongly rejected the amendments to the taxpayers profile, appeal to appellate tribunal, offences and penalties and power to enter and search premises.

Clauses related to real time access to Information and databases have been disapproved as well, said a statement.

The standing committee meeting was held last week took up the Finance Bill 2020, containing the Annual Budget statement presented in the House on 12 June, 2020. Review of the Income Tax Ordinance, 2001 and Federal, Excise Provisions of Finance Bill, 2020 was completed.

Amendments recommended by the Committee in the Public Finance Management Act 2019 were carried out and shared with the Committee.

Chaired by Senator Farooq Hamid Naek, the meeting was attended by Senator Mohsin Aziz, Senator Zeeshan Khanzada, Senator Musadik Masood Malik, Senator Mian Muhammad Ateeq Sheikh, Senator Senator Talha Mehmood, Senator Ayesha Raza Farooq, and senior officers from the Ministry for Finance, Revenue and Economic Affairs, Ministry of Commerce and Federal Board Revenue.

The Committee deliberated over Restriction on deduction of profit on debt payable to associated enterprises. Agreements for the avoidance of double taxation and prevention of fiscal evasion were discussed as well.

Special concessions have been awarded to items that are essential during COVID 19 Pandemic.

The Committee appreciated the measures taken by the FBR to deal with vast consequences of the Pandemic. Omission of collection of advance tax from dealers, commission agents and arhatis etc., by market committees was welcomed.

This is an important measure to promote agriculture in the country.

Advance tax on education related expenses has been omitted as well.

In an attempt to discourage the use of caffeinated drinks FED has been increased from 13 percent to 25 percent.

Imported cigarettes, cheroots, cigarillos, cigars of tobacco and tobacco substitutes have been subjected to FED at 100 percent.

June 22, 2020
Amendments to taxability on payments for goods, services and contracts

KARACHI: The Finance Bill 2020 has proposed changes to taxability on payments made for goods, services and contracts.

According to explanation to amendments made to Section 153 of Income Tax Ordinance, 2001 through Finance Bill 2020 by BDO Pakistan Audit Consultancy and Tax Advisory Firm:

(1a): The bill seeks to include toll manufacturing to be treated as sale of good for the purpose of withholding under this subsection. This inclusion clarifies the taxability of this segment and it will be minimum tax.

(3): The bill seeks to treat taxes withheld at source as minimum tax on payment of goods, services and execution of contracts.

(4): The tax deducted at source is adjustable for the Company being manufacturer and the Public Listed Company registered on stock exchange. This inclusion will result in expansion of tax collection by the board.

The Bill seeks that the Commissioner shall respond to application for the issuance of exemption certificate related to withholding of taxes against goods, services and execution of contracts to facilitate the public listed companies registered in stock exchange, within fifteen days.

Where not responded, the IRIS may issue exemption certificate provided that the advance tax under section 147 was paid by the taxpayer.

The Commissioner retains the power to revoke the automatically issued certificate by IRIS on the basis of reasons to be recorded in writing after providing an opportunity of being heard.

(7) The Bill has sought following amendments in the requirement of the prescribed person defined as withholding agent.

Existing Description:

Individuals and association of person having turnover of fifty million rupees

Proposed Description:

Individuals and association of person having turnover of one hundred million rupees. Persons registered under Sales Tax Act, 1990 only are now required to meet turnover of one hundred million rupees or more in any preceding tax years to qualify as withholding agent.

June 22, 2020
Finance Bill proposes significance amendments to income tax at import stage

KARACHI: The Finance Bill 2020 has proposed significant amendments related to income tax at import stage in Section 148 of Income Tax Ordinance, 2001 as it was described by BDO Pakistan Audit Consultancy and Tax Advisory Firm.

Following are the changes proposed by the Finance Bill, 2020 in Section 148:

148(1): The bill seeks to add expression “in respect of goods classified in Parts I to III of the Twelfth Schedule” in sub-section (1) of the Section 148. The tax advisory firm interprets that earlier rates of advance tax at import stage were classified in the First Schedule now a separate Twelfth Schedule is constituted which specifies goods wise rates.

148(1): The bill seeks to add a new proviso to initiate that the Board [Federal Board of Revenue] may, through a notification in the official Gazette, add a good in any Part or reclassify a good from one Part to another of the Twelfth Schedule. The firm commented that Board [FBR] reserves powers to enter any good in the Twelfth Schedule.

148(7): The Finance Bill seeks to insert the expression “goods on which tax is required to be collected under this section at the rate of 1 percent or 2 percent by an industrial undertaking for its own use” to make tax adjustable. The firm commented that tax at the rate of 1 percent or 2 percent paid by an industrial undertaking for import of goods for its own use shall become adjustable tax.

148(7): The bill seeks to omit the hyphen and clauses “(a), (c), (d). The tax advisory firm commented that the omission results in withdrawal of exemption from advance tax at import stage provided to motor vehicles in CBU condition by manufacturer of motor vehicles and large import houses.

148(8) & 148(8A): The bill seeks to omit sub-section (8) and (8A) of section 148. The firm commented that this will result in end of minimum tax regime for edible oil, packing material and plastic raw material and ships breakers and now tax paid at import stage can be claimed as adjustable tax if industrial undertaking criteria are fulfilled.

148(9): The bill seeks to amend the term “value of goods” by linking it with retail price under the Third Schedule of the Sales Tax Act, 1990, and other than Third Schedule items. The firm commented that for the purpose of collection of advance income tax at import stage, value of goods has been aligned with the enabling provision of the Sales Tax Act 1990, which specifies the value for the purpose of sale tax at import stage.

148A: Tax on local purchase of cooking oil or vegetable ghee by certain persons. The firm commented that earlier this section resulted in manufacture of vegetable ghee or cooking oil to pay 2 percent final tax on local purchase of locally produced edible oil. The Bill seeks to omit this section, which would result such manufacturer and taxing real net income of the taxpayers.

June 22, 2020
10pc tax payment mandatory for filing appeal before tribunal

KARACHI: Taxpayers shall require to pay 10 percent of tax demand while filing an appeal before Appellate Tribunal challenging the order of commissioner appeals.

Deloitte Yousuf Adil, Chartered Accountants, said that a new requirement is proposed in the Finance Bill 2020 for filing of appeal before the Appellate Tribunal for challenging the order of Commissioner Appeals.

Proof of payment by the taxpayer of ten percent of the amount of tax upheld by the Commissioner Appeals is required to be submitted along with the appeal documents.

The chartered accountants said that currently, no such payment requirement exists for filing of appeal before the appellate tribunal. No appeal shall be admitted unless 10 percent of amount upheld by the Commissioner Appeals is deposited.

The proposed amendment is against the principle of natural justice and would create cash flow problems for the tax payers considering the illegal tax demands that are generally created through assessment proceedings and are mostly upheld at Commissioner Appeal’s level.

The business community also criticized the proposed change. Overseas Investors Chamber of Commerce and Industry (OICCI) said that the Finance Bill 2020-2021 proposes payment of 10 percent of the tax demand before filing an appeal before the Tribunal.

Currently the provisions of the ITO 2001 allows an appeal to be filed with the Appellate Tribunal Inland Revenue (ATIR) without payment of demand created by the tax officer(s) even if the same is confirmed by Commissioner of Income Tax – Appeals (CIR-A).

This inherent right of appeal is now proposed to be subjected to a mandatory payment of 10 percent of tax demand upheld by the CIR-A.

The proposed amendment will create hardship and cash flow problems for the taxpayer, as in case of exorbitant tax demands 10 percent thereof could be a very significant amount and may impede the exercise of right to appeal by the taxpayer which is a principle of natural justice and fundamental right.

It will also lead to unnecessary litigation since the appellant will approach the Courts by bypassing the forum of ATIR for the stay of recovery, after the CIR-A order confirming the amount of demand.

The proposal is also against decisions of superior courts which have held that recovery of tax demand cannot be forced until the order has been scrutinized by at least one independent forum i.e. ATIR.

June 21, 2020
Tax credit limit reduced by 50pc on charitable donations

ISLAMABAD: The limit of tax credit has been reduced by 50 percent on amount paid in cash or in kind to charitable donations, sources in Federal Board of Revenue (FBR) said.

The sources said that under the existing provisions of the last a person is entitled to tax credit on account of charitable donation paid in cash or in kind.

Currently such credit is allowed to the extent of lesser of: total amount donated in the year, including fair market value of any property given; or where the person:

(i) an individual or association of person, 30 percent of the taxable income of the person the year; or

(ii) a company, 20 percent of the taxable income of the person the year.

Deloitte Yousuf Adil, Chartered Accountants, said that the Finance Bill 2020 proposed to reduce the limit of credit by 50 percent in case of donations made to an associate as under:

(a) Total amount donated in the year, including fair market value of any property given; or

(b) Where the person:

(i) an individual or association of person, 15 percent of the taxable income of the person for the year; or

(ii) a company, 10 percent of the taxable income of the person for the year.

June 21, 2020
Caffeinated energy drinks are health hazard; FED enhanced to 25pc

ISLAMABAD: The federal government has increased federal excise duty from 13 percent to 25 percent on consumption o f caffeinated energy drinks on both local supplies and import of such drinks.

Hammad Azhar, Federal Minister for Industry and Production, while presenting the federal budget 2020/2021 on June 12 on floor of the house said that caffeinated energy drinks are health hazard, hence to reduce the consumption of such drinks it is proposed that the FED may be increased from 13 percent to 25 percent both at import and at local supply.

It may be noted that aerated waters are already subject to FED at 13 percent.

Further, FED on imported cigarettes, cheroots, cigarillos, cigars and other tobacco substitutes is being enhanced from 65 percent to 100 percent in line with WHO (World Health Organization) standards.

Necessary changes are also proposed to be made in Table 1 of the First Schedule pertaining to aforesaid items to cover for tobacco substitutes as well as E-cigarettes, the minister said.

Filter rod is a basic input material for cigarette manufacturing. Present rate of FED is Rs.0.75 per filter rod. To enhance the effect of monitoring and enforcement on tobacco consumption and tax management, it is proposed that the existing rate be enhanced to Rs.1 per filter rod.

FED structure is already in place for both local and imported motor cars and SUVs excluding auto rickshaw falling under the PCT heading 87.03.

Double cabin pick up which is currently classified as goods transport vehicle is being reclassified as passenger transport vehicle, which will bring it in the ambit of FED at 7.5 percent ad valorem in case of locally manufactured vehicles and at 25 percent in the case of imported ones.

Sales tax is charged on standard rate of 17 percent on import and local supply of Potassium Chlorate and in addition to that Rs 70 per kg is also collected. On the recommendation of the Match manufacturers association the rate of Rs. 70 per kg is being enhanced to Rs. 80 per kg. Provided that rate of rupees 70/80 per kilogram is not applicable on imports made by and supplies made to organizations under the control of Ministry of Defense Production.

June 21, 2020

CGT on immovable properties reduced by 50 percent

ISLAMABAD: The capital gain tax on (CGT) disposal of immovable properties has been reduced by 50 percent in order to promote investment in construction industry.

According to Deloitte Yousuf Adil, Chartered Accountants, the Finance Bill 2020 proposed reduction in tax rates by 50 percent on capital gains arising on disposal of immovable property.

This is in line with the Government’s vision to promote construction industry and to provide stimulus for the growth in economy as construction sector provide employment to a number of sub-sectors.

S. No.	Amount of gain	Rate of tax
		Existing	Proposed
1.	Where the gain does not exceed Rs.5 million	5%	2.5%
2.	Where the gain exceeds Rs.5 million but does not exceed Rs.10 million	10%	5%
3.	Where the gain exceeds Rs.10 million but does not exceed Rs.15 million	15%	7.5%
4.	Where the gain exceeds Rs.15 million	20%	10%

A person responsible for registering, recording, or attesting transfer of immovable property is required to collect advance tax from seller of such property.

Such advance tax is not collected where the immovable property is held for a period exceeding 5 years.

The Bill proposes to reduce this time limit of 5 years to 4 years.

June 20, 2020

Automated scrutiny of tax returns to end universal self assessment scheme

The Federal Board of Revenue (FBR) has introduced a significant policy shift through the Finance Bill 2020, proposing the automated scrutiny of all income tax returns, which may signal the end of the Universal Self-Assessment Scheme (USAS) in Pakistan.
(more…)

June 20, 2020
Highlights of tax relief announced by Khyber Pakhtunkhwa for 2020/2021

PESHAWAR: The Khyber Pakhtunkhwa government announced tax relief package in order to mitigate the adverse impact of coronavirus.

Key points of the tax incentives to be granted during the next fiscal year.

i. Sales tax on services (STS) will be reduced for over 27 categories. This will be an allencompassing reduction for sectors where the economic activity has dampened and directly impacted cash flow and liquidity. These sectors include business support services, construction sector, oil and gas exploratory services, hospitality sector, bargain centers etc.

ii. Entertainment and Hotel Tax will be removed from Excise and Taxation department’s portfolio, to encourage recreation and entertainment during these testing times for the economy.

iii. Professional Tax will be phased out to Khyber Pakhtunkhwa Revenue Authority dovetailed with tax breaks and concessions for a year to remove duplicity of taxes and provide relief for more than 15 professions involved including Doctors, Lawyers, Retailers etc.

iv. To promote and incentivize the tourism sector, a special concession will be introduced for the hotels and restaurants located in hilly areas. Coupled with a reduced rate, a clause of tax hypothecation will be included to ensure that the tax collected from this sector is invested into the same regions’ growth and prosperity.

v. Rates for the Urban Immovable Property Tax will be rationalized, and compliant taxpayers will be offered a rebate of 35%. This is directly intended to promote compliance, provide direct relief, encourage construction and comfort the taxpayers during this economic slump.

vi. Urban Immovable Property Tax under the Excise and Taxation Department will be introducing special discounts or pending arrears. Under this scheme, special concessions will be introduced for those who volunteer to clear arrears, intention is to lend a helping hand to the construction sector during this liquidity crises.

vii. Board of Revenue will reduce both Capital Value Tax and Stamp duty for the construction sector, under the Federal Amnesty Scheme. This concession will be amalgamated with a complete digitization of the system with reduced discrepancies.

June 20, 2020
Khyber Pakhtunkhwa presents Rs923 billion tax free budget for 2020/2021

PESHAWAR: The Khyber Pakhtunkhwa Government on Friday presented budget 2020/2021 with total outlay of Rs 923billion. The budget is a tax free and with an amount of Rs104 billion allocated for Annual Development Plan (ADP) for the next fiscal year.
(more…)

June 20, 2020