Pkrevenue.com

Category: Budget 2021-2022

  • FBR urged to issue FTNs against withholding tax deduction

    FBR urged to issue FTNs against withholding tax deduction

    KARACHI: Tax practitioners have urged the Federal Board of Revenue (FBR) to issue Fee Tax Numbers (FTNs) to persons who are not liable for withholding tax.

    In its proposals for budget 2021/2022, the Karachi Tax Bar Association (KTBA) said that Section 49(3) of the Income Tax Ordinance, 2001 has specified that any payment received by the Federal Government, a Provincial Government or a Local Government shall not be liable to any collection or deduction of advance tax.

    No clarification or list of FTN entities to whom this subsection applies, the tax bar said.

    In absence of any SRO or underlying Rules causes unease to the withholding agents to determine proper withholding tax treatment in such case.

    FBR should issue a separate list of Fee Tax Numbers (FTNs), who are not liable to tax withholding as provided under section 49(3) of the Ordinance through a S.R.O.

    The KTBA said that this will assist the withholding agents and save considerable time in deciding whether a respective FTN holder is required to produce exemption certificate or not.

  • KTBA proposes amendments to automatic stay in recovery cases

    KTBA proposes amendments to automatic stay in recovery cases

    KARACHI: Karachi Tax Bar Association (KTBA) has recommended amendments to provisions of the Income Tax Ordinance, 2001 related to automatic stay in recovery notices.

    It is proposals for budget 2021/2022, the KTBA said that Sub-Section (2) of Section 138 if Income Tax Ordinance, 2001 provides that If the amount referred to in the notice issued under sub-section (1) is not paid within the time specified therein or within the further time, if any, allowed by the Commissioner, the Commissioner may proceed to recover from

    — the taxpayer the said amount by one or more of the following modes, namely:

    — attachment and sale of any movable or immovable property of the taxpayer;

    — appointment of a receiver for the management of the movable or immovable property of the taxpayer.

    — arrest of the taxpayer and his detention in prison for a period not exceeding six months arrest of the taxpayer and his detention in prison for a period not exceeding six months

    Provision of automatic stays not all exhaustive.

    The tax bar said that if a person pays ten percent of the disputed demand under section 140 even then the recovery from taxpayers may be made through the modes envisaged under sub-section (2) of section 138 which is harsh and rendered section 140 redundant and superfluous.

    The tax bar proposed that the condition of the payment of ten percent of amount due shall also be made applicable for section 138 to create synchronization between section 138 and 140 of the Ordinance.

    The proposed amendment seeks to address the inequity afforded in the law.

  • Measures proposed to curb under invoicing by commercial importers

    Measures proposed to curb under invoicing by commercial importers

    KARACHI: Pakistan Business Council (PBC) has recommended the authorities to take additional measures to stop massive under invoicing by commercial importers.

    In its proposals for the budget 2021/2022, the PBC said that across the board massive under invoicing and dumping of imported products has been increasing.

    Information regarding values at which various custom check posts clear import consignments is not publicly available.

    This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues.

    There are massive leakages in the Afghan Transit Trade (ATT) and smuggled goods are being openly sold in all major shopping centers of the country.

    Customs however is not willing to act against smuggled products citing lack of cooperation from local authorities.

    The PBC recommended the following:

    a) Values at which import shipments are cleared through PRAL or CARE need to be publicly available.

    b) The Government of Pakistan must insist of Electronic Data Interchange (EDI), for both FTA and non-FTA imports from China. In future the requirement of EDI should be made compulsory for imports from FTA / PTA partner countries.

    c) Depending on industry, the Import Trade Price (ITP) be fixed e.g. on the basis of country of origin, weight, volume etc. after discussion with stakeholders. ITP’s may be fixed for most items prone to mis-declaration such as consumer goods and margins of commercial importers be monitored to assess the value of subsequent supply of imported goods. A certificate to this effect should be issued by auditors of commercial importers.

    d) For items, prone to under invoicing and mis-declaration, FBR should designate one or two ports (including the dry ports) for clearing of import consignments. This will allow better monitoring of the import consignments where chances of mis-declaration are on a higher side.

    e) Additionally, the old Customs General Order 25 needs to be revived with a provision that local manufacturers be given the option to buy at a 15% premium, any consignment which appears undervalued.

    f) Taxes and duties deposited by local manufacturers and commercial importers should be published.

    g) The rate of tax collected from commercial importers be increased by at least by 2%. Presently, tax collected from commercial importers is treated as Final Tax.

    In order to avoid burdening of genuine commercial importers, we would recommend that the income tax collected at import stage be treated as an advance tax.

    h) In order to allow commercial importers to claim adjustment of taxes deducted at import stage, commercial importers should be asked to present certificate from auditors that at least 70% of imported items have been exported or sold to registered manufacturers. This will also help increase the overall tax base.

    i) Monthly sales declared by commercial importers should be matched with sales declared in annual income tax return as well as the credit entries in all business bank accounts. In case of any discrepancy, a reconciliation with justifiable reasons should be submitted by the commercial importers

    j) Online CREST system must be amended in a way to trace sales along with value addition thereon of person to whom supplies were made by Commercial importers.

  • Massive rise in withholding tax rates proposed for non-filers

    Massive rise in withholding tax rates proposed for non-filers

    KARACHI: The concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy. However, no efforts were made to increase the tax base.

    Pakistan Business Council (PBC) in its proposals for budget 2021/2022 submitted to the Federal Board of Revenue (FBR), said that though large amounts are being collected from non-filers, no effort has been made to increase the tax base.

    “The non-filers for the most part have built the cost of this government levy into pricing and passed it on to their customers.”

    In order to broaden the tax base and to achieve increase in overall tax collection without burdening existing tax payers, the policy to increase tax on non-filers / unregistered persons should be implemented specifically in the following cases:

    a) unregistered industrial / commercial entities (not having STRN) having bill amount in excess of Rs. 20,000 per month, extra sales tax should be increased from 5 percent to 20 percent

    b) After collection of extra tax as referred above for a continuous period of 6 months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.

    c) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs.2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non-compliance, utility companies be directed to disconnect utility connections.

    d) Moreover, in order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies. In case of failure to provide NTN, electricity connection should be disconnected. Considering the fact that all industrial / commercial connections will be linked with NTN, the tax department will then be in a better position to assess the electricity consumed by commercial / industrial users and corroborate the same with amount of sales / production etc. reported in sales tax / income tax return.

    e) In order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with them. Thereafter, such commercial/industrial consumers without NTN should be charged advance income tax @ 30 percent (from existing 12 percent) on their utility bills. Those with NTN but non-filer status be charged at 20 percent WHT.

    f) Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs.1.2 million per year or levy advance income tax withholding of 20 percent.

    g) All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers so that exempt income is also reported and wealth is reconciled.

    h) Withholding tax on International business class tickets under section 236L is same Rs. 16,000 for filer and non-filer, it should be increased to Rs. 50,000 for non-filers.

    i) Withholding tax @ 5 percent or Rs. 20,000, whichever is higher, is applicable under section 236D on all functions organized by filers as well as non-filers. Rate of withholding be increased for non-filers to Rs. 100,000 as minimum and no WHT from filer

    j) Function halls withholding tax on electric bills should be 30 percent which can be adjusted against tax liability by providing proof of tax deducted from their customers.

    k) Withholding income tax on interest income u/s 151 is 15 percent for filer and 30 percent for non-filer. Rate should be increased to 50 percent for non-filers in case interest income is more than Rs.2,000,000/-

    l) Annual private motor vehicle tax u/s 234 for non-filers is Rs. 9,000 for 1600cc-1999cc and Rs. 20,000 for 2000 cc and above. Rate for non-filers should be increased to Rs. 50,000 for 1600cc-1999cc and Rs. 200,000 for 2000 cc and above

    m) Advance income tax is collected on sales of immovable property under section 236C, which is 1 percent for both filers and non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more

    n) Holding of land by non-filers should be made more expensive by asking those authorities collecting property tax (cantonment boards / societies / registrar) to collect adjustable advance income tax, from non-Filers, on behalf of the Federal Government as follows:

    o) Rs. 500,000 per year for 800 yards or more but less than 1800 yards

    p) Rs. 1 million per year for 1800 yards and above.

  • FBR collection target may be fixed at Rs5,829 billion for 2021/2022

    FBR collection target may be fixed at Rs5,829 billion for 2021/2022

    ISLAMABAD: The government likely to fix Rs5,829 billion as revenue collection target for next fiscal year 2021/2022, sources said on Wednesday.

    The tax target for the next fiscal year is around Rs134 billion less than the projected revenue collection by the International Monetary Fund (IMF).

    The IMF has projected an amount of Rs5,963 billion as tax collection by the Federal Board of Revenue (FBR) during the next fiscal year.

    The sources said that the revenue collection by the FBR during the current fiscal year 2020/2021 has been projected at Rs4,961 billion against the actual revenue target of Rs4,963 billion.

    With the current projection of the revenue collection for the current fiscal year, the FBR would need to increase the collection by 24.26 percent to achieve the projected collection target for fiscal year 2021/2022.

    The sources said that the revenue collection target for Inland Revenue would be Rs5,044 billion during the next fiscal year as against project revenue collection of Rs3,991 billion during the outgoing fiscal year.

    The collection targets for fiscal year 2021/2022 under different heads have been projected as: Income Tax Rs2,182 billion; Sales Tax Rs2,506 billion; Federal Excise Duty Rs356 billion; and Customs Duty at Rs785 billion.

  • FED cut for beverage industry in budget likely

    FED cut for beverage industry in budget likely

    KARACHI: The government is seriously considering to bring down federal excise duty (FED) from existing 13 percent to 11.5 percent in the upcoming budget 2021/2022.

    According to sources the tax authorities had received instructions to finalize proposals regarding beverage industry for reducing the rate of FED from 13 percent to 11.5 percent.

    The FED rate on aerated waters, containing added sugar or other sweetening matter or flavored was increased to 13 percent from 11.5 percent through Finance Act, 2019.

    It is interesting to note that Finance Minister Shaukat Tarin in a meeting last week with the delegation of the representatives of the Beverage Industry of Pakistan, said although he is supportive of adopting measures that can boost the industrial development, generate employment and help in expansion of businesses; any decision, regarding the taxation/ relief provided to any industry which has direct linkages with general well being and health of the public, will be taken after a careful analysis of all the facts and arguments.

    The Diabetic Association of Pakistan (DAP) in a recent press conference presented alarming rise of diabetic patients in the country due to growing demand for sugar.

    Therefore, the association demanded the authorities to double the taxes on sugar-sweetened beverages (SSBs) in the coming budget 2021/2022.

    It said diabetes is growing at an alarming rate in Pakistan, which has the 4th highest burden of type 2 diabetes worldwide with more than 19 million cases.

    The association demanded the government to increase the FED to 20 percent in the upcoming budget in order to discourage use of beverages.

    “Unfortunately, beverages are becoming an increasingly essential part of household food consumption with more than a 10 per cent point increase in the last few years along with a gradual increase in production and decrease in the price,” according to a letter sent to the FBR by the association.

    Health experts warned that diabetes was growing at an alarming rate in the country, and as per 2nd National Diabetes Survey of Pakistan 2016-17, every 4th Pakistani adult is suffering from type 2 diabetes.

    “Overweight and obesity are key risk factors leading to early development of diabetes. According to the Non-communicable Disease (NCDs) Steps Survey (2014-15), more than four out of ten adults of Pakistan are obese or overweight, while 37 per cent have hypertension,” according to the survey.

    WHO and the World Bank also recommended Pakistan for increasing taxes on beverages to reduce obesity and related diseases like diabetes.

    The association demanded increase in FED to 20 percent, and create a category of beverages to include sugary drinks beyond aerated water (juices, energy drinks, flavored milk, iced tea, nectars etc.) to impose minimum of 20 per cent excise tax.

  • Cut in tobacco tax under consideration

    Cut in tobacco tax under consideration

    KARACHI: The government is considering to reduce the federal excise duty on cigarettes in order to discourage duty evasion and stop smuggling.

    Sources said that proposals had been invited from stakeholders to rationalize the duty structure on tobacco industry.

    The sources said that the authorities were considering to reduce the FED rate by 10 percent in the upcoming budget 2021/2022.

    They said that a strong lobby was behind pressure for reduction in the rate for tobacco industry. It is learnt that the duty rate was proposed to cut because of large volume of smuggled cigarettes available in the market.

    Interestingly, the health ministry had proposed to increase the levy in order to discourage the use of cigarettes.

    The sources said that after the proposed reduction on the tobacco industry, the country would become having the lowest amount of taxes on the cigarettes use.

    For the last two years the government was raising the duty rate on the tobacco industry. However, the stakeholders were demanding to reduce the rate in order to stop the smuggling.

    The sources said that total revenue collection from tobacco industry was around Rs130 billion. Meanwhile, the tobacco industry assured that with the proposed reduction in duty the revenue would ultimately increase.

    To some estimates, the country was losing around Rs77 billion due to smuggled cigarettes.

  • Rs5000 banknote proposed to withdraw from circulation

    Rs5000 banknote proposed to withdraw from circulation

    KARACHI: A former chairman of Federal Board of Revenue (FBR) has recommended the government to stop the circulation of Rs5000 banknote and phase out in circulation the banknote within one year.

    Syed Shabbar Zaidi, former FBR chairman, submitted his proposals for budget 2021/2022 to Prime Minister Imran Khan.

    “There has to be gradual evaporation of Rs5000 banknote. A time limit be prescribed up to which Rs5000 note will be valid say June 30, 2022 and in the meantime the same can be exchange with bank. This is completely different from Indian Scheme.”

    Shabbar Zaidi served the FBR as chairman during May 10, 2019 to January 06, 2020. Being a FBR chairman from private sector, he had taken major decisions during his stay despite bureaucratic hurdles.

    The suggestion to stop Rs5000 banknote from legal tender has importance because Prime Minister Imran Khan had on many occasion lauded Shabbar Zaidi.

    The proposal for withdrawal of Rs5000 banknote was not new as it had been submitted time to time for stopping corruption and black economy.

    Sources said that the office of the prime minister had forwarded the proposals of Shabbar Zaidi to the finance ministry for further consideration to make part of final proposals for budget 2021/2022.

  • FBR urged to allow CGT exemption to private companies

    FBR urged to allow CGT exemption to private companies

    KARACHI: Tax practitioners have demanded the Federal Board of Revenue (FBR) to allow capital gain tax (CGT) exemption to private companies in order to encourage corporatization in the country.

    The Karachi Tax Bar Association (KTBA) in its proposals for budget 2021/2022, pointed out that as per section 37, gain on sale of shares of private companies shares is taxed at corporate tax rate.

    “This gain is reduced by 25 percent in case the holding period is more than one year,” the tax bar said.

    In case of gain on disposal of immovable property, the gain is exempt in case the holding period is more than 4 years.

    In case of capital gain on securities under section 37A, the gain is exempt on securities acquired before 1 July 2012.

    “Hence, investment in shares of private companies stands at comparative disadvantage,” the KTBA added.

    It is proposed that the gain on sale of private company shares should also be allowed exemption in case if the holding period is 10 years or more.

    The proposal has been submitted in order to encourage and benefit corporatization of business.

    The tax bar also highlighted that as per definition of dividend the distribution made by a company to its shareholders on reduction of capital shall be deemed dividend.

    This situation is generally referred to as buy-back of shares. On the other hand, under Rule 13P of the Income Tax Rules, 2002, the shares buy-back transaction is treated as Capital Gains.

    Thus, there exists a contradiction among the provisions of Ordinance and Rules.

    Contradictory provisions in law that needs to be corrected, the KTBA suggested. It is proposed that following exclusion after clause (f) in subsection (19) of section 2 be inserted:

    “Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 88 of the Companies Act, 2017 (XIX of 2017)”.

  • Tax on property income should be made final

    Tax on property income should be made final

    KARACHI: The Federal Board of Revenue (FBR) has been urged to rationalize rental income from property and individuals or Association of Persons (AOPs) should be taxes as full and final discharge of tax liability.

    Karachi Tax Bar Association (KTBA) in its proposals for budget 2021/2022 said that the rental income from property, AOP or individual and company (taxable as separate block of income) should be taxed at a uniform rate of 15 percent of the gross rent as full and final discharge of tax liability.

    The tax bar said that at present for every person except companies the income from property is chargeable to tax at the rate specified in Division (VIA) of Part-I of the First Schedule, which is considered to be their final tax liability and they are not allowed any expenditure against gross rent, except option provided under sub-section (7) of section 15A of the Income Tax Ordinance, 2001.

    The companies are required to pay normal tax (current at 29 percent) on such income after adjustment of admissible expenditure out of gross rent.

    The tax rate on rental income has been gradually increased from 20 percent to 35 percent for individuals and AOPs vide the Finance Act, 2019.

    Apart from that the lessor is also required to pay Sindh Sales Tax at 3 percent to SRB. It makes the total tax impact very unfair and exorbitant.

    The current taxation framework makes the total tax impact on property income very unfair and exorbitant.

    The KTBA further suggested that rental income taxable under normal tax regime should be allowed to be adjusted against business loss. The restriction imposed through Finance Act, 2013 needs to be reconsidered.

    The impact of taxes (direct and indirect) on rental income will be rationalized. Investors will be encouraged to declare their genuine rental income.