Category: Budget 2021-2022

KARACHI: Federal Board of Revenue (FBR) has been urged to amend laws to exclude manufacturers of fast moving consumer goods (FMCGs) from application of withholding tax under Section 236G and 236H on Income Tax Ordinance, 2001.

Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2021/2022, stated that manufacturers of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam etc., collect advance tax at 0.1 percent for persons appearing on Active Taxpayers List (ATL) and 0.2 percent for non-ATL and 0.5 percent for ATL and 1 percent for non-ATL of gross of amount of sale to distributors, dealers, wholesalers and retailers.

Most of the goods mentioned above are not fast moving consumer goods. The only FMCG is beverages on which the section 236 G & H are unjustly applied.

This tantamount to discrimination for beverage manufacturers being the only manufacturer of FMCGs manufacturer class liable to above tax.

It is not practically possible for manufacturer of FMCGs to collect income tax from dealers, distributors, wholesalers and retailers and it adds to the cost of consumer products.

The KCCI proposed that the section may be appropriately amended to exclude the manufacturers of FMCGs from being collecting agents under section –236 G & H of the Ordinance.

The chamber said that it would relieve the unjust burden of tax on consumer goods and enable manufacturers of FMCGs to pass the benefit to end-consumers.

KARACHI: The Federal Board of Revenue (FBR) has been suggested to abolish multiple provisions of audit under Income Tax Ordinance, 2001 and simplify procedure for ease of doing business.

Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2021/2022 said that presently audit proceedings can be started u/s 177 as well as through balloting u/s 214C and like-wise enquiries can also be made by the Commissioner u/s 122(5A). There is a concept of a special audit panel u/s 177(11) as well.

Sub-Section 7 is ambiguous and provides the Commissioner and his sub ordinates with a tool to harass, extort and victimize any taxpayer at will.

The Commissioner can re-open the Audit of any person or firm at will on unsubstantiated grounds. SEC.177 SUB-SECTION 4: Any person employed by a firm to conduct audit function may be authorized by the Commissioner to exercise powers under sections 175 and section 176.

The KCCI said that revenue collection through such recovery proceedings is hardly Rs.92.0 Billion whereas the costs due to litigation, involvement of entire tax collection machinery and declining number of tax filers, is far more than the collection.

Multiple audits under various provisions have eroded the trust of tax-payers in the FBR. RTOs and LTUs. Audit functions under various Provisions have created confusion and complexity in Tax regime.

Such provisions are also prone to misuse and a source of harassment.

The chamber proposed that all audit functions should be brought under one provision of Income Tax Ordinance rather than various over-lapping provisions with clear and well defined parameters. Audit Parameters should be transparent and open to taxpayers.

Further, Sub-Section 7 may be deleted.

Powers of the Commissioner and sub-ordinate officials should be curtailed to restore the trust of Tax Payers and encourage broadening of tax-base.

Such Audits should be restricted to specific queries or objections and call for relevant document only rather than opening and re-opening a comprehensive audit every time.

Giving rationale the KCCI said that bring transparency and clarity to audit functions and rules governing the same.

Prevent harassment to tax payers and abuse of powers by Inland Revenue officials. This will also help in broaden tax base by restoring confidence in the system.

KARACHI: Federal Board of Revenue (FBR) has been urged to restrict its powers of tax recovery from bank accounts on unregistered persons.

In its proposals for budget 2021/2022, Karachi Chamber of Commerce and Industry (KCCI) pointed out Section 140 of Income Tax Ordinance, 2001 that is related to recovery of tax from persons holding money on behalf of a taxpayer.

According to the law for the purpose of recovering any tax due by a taxpayer, the Commissioner may, by notice, in writing, require any person –

(a) owing or who may owe money to the taxpayer; or

(b) holding or who may hold money for, or on account of the taxpayer;

The chamber said that this provision and further access to information on bank accounts under other provisions of law, have been counter-productive and led to a flourishing cash economy. Many innovative ways have been evolved by businesses similar to block-chain and a local hundi system. Such provisions only affect the documented businesses while the entire undocumented sector is immune from such laws.

The KCCI said that access to bank accounts may only be limited to accounts of unregistered persons with unusually high amounts of transactions.

Commissioner should only be authorized to obtain information about the funds in accounts and to seek clarification as to the nature of transactions and sources of funds. Such persons may be brought into the tax-net.

The chamber said that it will:

1. Relief to the registered persons and restore confidence in banking system. Encourage official transactions.

2. Bring unregistered persons into the tax-regime.

3. Stimulate economic activities and growth. Increase bank deposits which may be used for lending to industry.

KARACHI: Federal Board of Revenue (FBR) has been urged to withdraw the mandatory requirement of Computerized National Identity Card (CNIC) on buying and selling under Sales Tax Act, 1990 till the time a sufficient number gets register for sales tax.

Karachi Chamber of Commerce and Industry (KCCI) has highlighted the issue as by amendment to Section 8 (Sub-Sec.1, Clause M) of Sales Tax Act, and addition of 10th Schedule, it is mandatory to provide CNIC number of Unregistered person in the invoice. Similar statute has been added U/S.19A of Federal Excise Act, Sec.216A to ITO and Sec.156A of Customs Act.

Moreover 3 percent further tax is also charged on sales to unregistered buyers even if the CNIC number is provided, which is totally unjust and tantamount to penalizing the registered persons who have to bear the burden of 3 percent further tax.

The chamber said that rather than generating more revenue, this provision has resulted in proliferation of undocumented cash transactions.

With hardly 45000 registered entities in Sales Tax Regime, it is very hard to find a registered buyer. This has affected the entire supply chain including manufacturers, importers and traders in Documented Sector and has led to greater advantage for smugglers and undocumented sectors as they do not have to face any such condition. Many registered person are now forced to issue flying invoices to registered persons to overcome CNIC condition and avoid 3 percent Further Tax.

The chamber recommended that requirement of CNIC should not be mandatory till the time that number of registered persons in Sales Tax regime has substantially increased.

Providing CNIC number should be optional and may be treated at par with STRN if provided in the Sales Tax Return.

Further Tax on supplies to unregistered buyer should not be charged if CNIC number is provided in Sales Tax Return.

In case CNIC number of unregistered buyer of Raw Materials is not provided, VAT may be charged at 1.7 percent on sellers of Raw Material.

Giving rationale, the chamber said that it will discourage cash economy and encourage documentation by placing the trust in registered persons.

Discourage Fake and Flying invoices which are issued to avoid 3 percent further tax.

Enhance business transactions through banking channels and promote growth.