KARACHI: The Federal Board of Revenue (FBR) will collect three per cent further sales tax on supply made to a person not an active taxpayer.
(more…)Category: Budget 2022-2023
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FBR starts online monitoring sales of jewelers
KARACHI: The Federal Board of Revenue (FBR) has started online monitoring the sales of jewelers after amendment made through Finance Act, 2001.
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According to tax experts at PwC A. F. Ferguson & Co. said that the scope of definition of the term ‘Tier-1 retailer’ has been enhanced to include a person engaged in supply of articles of jewelry or parts thereof, of precious metal excluding a person whose shop area measures 300 square feet in area or less.
Consequently, such persons are now required to integrate their retail outlets with FBR’s computerized system for real-time reporting of sales to avoid disallowance of input tax by 60 per cent.
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Further, supply of locally manufactured articles of jewelry, or parts thereof, of precious metal or of metal clad with precious metal by such person will be chargeable at 3 per cent subject to the condition that no input tax adjustment shall be allowed.
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Consequently, failure to integrate with Board’s computerized system for real-time reporting of sales will not result in disallowance of input tax since the input tax adjustment is otherwise barred.
However, a penalty up to Rs 1 million will be imposed if business is not integrated and if the non-integration continues after a period of two months, business premises may be sealed till such integration.
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Tax concessions to pilots withdrawn
KARACHI: Tax concessions on income in the shape of total allowances available to pilots of any Pakistani airlines have been withdrawn from July 01, 2022.
The tax concessions have been withdrawn through Finance Act, 2022 by amending provisions of Income Tax Ordinance, 2001.
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According to the amendment, tax concessions on total allowances available to pilots of any Pakistani airlines have been withdrawn. Previously, tax concession was available on allowance exceeding the basic pay chargeable to tax at the rate of 7.5 per cent.
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Through the Finance Act, 2022 the tax concession has been abolished on flying allowance of persons included: flight engineers; navigators of Pakistan Armed Forces, Pakistani Airlines or Civil Aviation Authority; Junior Commissioned Officer; Other ranks of Pakistan Armed Forces. Previously tax concession was available on these persons on income taxable at 2.5 per cent as a separate block of income in case allowance does not exceed basic salary.
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Tax concession on the income from profit on debt from investment in federal government securities has also be abolished in case of person other than a banking or insurance company. Previously, the income was subject to the final tax at 15 per cent.
READ MORE: Finance Act 2022 revises tax rates for salaried persons
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Pakistan grants tax exemption to charitable organizations
KARACHI: Pakistan has granted exemption from tax on income of various charitable organizations through Finance Act, 2022.
The tax exemption has been granted under Second Schedule of Income Tax Ordinance, 2001.
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According to interpretation of Finance Act, 2022 by PwC A. F. Ferguson & Co. the income of following organizations has been exempted from income tax by way of inclusion in Table I of Clause (66):
(i) The Pakistan Global Sukuk Programme Company Limited;
(ii) Karandaaz Pakistan from tax year 2015 onwards;
(iii) Public Private Partnership Authority for tax year 2022 and subsequent four tax years; and
(iv) Hamdard Laboratories (Waqf) Pakistan.
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It is apt to mention here that income derived by The Pakistan Global Sukuk Programme Company Limited was earlier exempted from income tax through Notification SRO 1457(I)/2021 dated November 11, 2021; however, through the Act, such tax exemption has been ratified by the Parliament.
Further, the following Organizations, earlier entitled to tax exemption subject to fulfillment of conditions specified in section 100C of the Ordinance, are now extended unconditional tax exemption as was earlier available to them prior to Finance Act, 2020:
(i) Pakistan Mortgage Refinance Company Limited;
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(ii) Pakistan Sweet Homes Angels and Fairies Place; and
(iii) Dawat-e-Islami Trust.
Further, the following Organizations have been extended tax exemption subject to fulfillment of conditions specified in section 100C:
(i) Burhani Qarzan Hasnan Trust;
(ii) Saifee Hospital Karachi; and
(iii) Safiyah Girls Taalim Trust.
READ MORE: Proposal of final tax regime for commercial importers rejected
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New tax rates on car registration from July 01, 2022
KARACHI: The new rates of advance tax on registration of motor cars have been notified through Finance Act, 2022.
According to PwC A. F. Ferguson & Co. the new rates of advance tax on registration of the motor vehicles are as follows:
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Engine Capacity Up to 850cc: old rate Rs. 7,500: new rate Rs. 10,000
Engine Capacity 851cc to 1,000cc: old rate Rs. 15,000: new rate Rs. 20,000
Engine Capacity 1,001cc to 1,300cc: old rate Rs. 25,000: new rate Rs. 25,000
Engine Capacity 1,301cc to 1,600cc: old rate Rs. 50,000: new rate Rs.50,000
Engine Capacity 1,601cc to 1,800cc: old rate Rs. 75,000: new rate Rs. 150,000
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Engine Capacity 1,801cc to 2,000cc: old rate Rs. 100,000: new rate Rs. 200,000
Engine Capacity 2,001cc to 2,500cc: old rate Rs. 150,000: new rate Rs. 300,000
Engine Capacity 2,501cc to 3,000cc: old rate Rs. 200,000: new rate Rs. 400,000
Engine Capacity Above 3,000cc: old rate Rs. 250,000: new rate Rs. 500,000
Where engine capacity is not applicable and value of vehicle is Rs. 5 million or more: old rate Nil: new rate 3 per cent of the import value (as increased by sales tax, customs duty and FED) or invoice value in case of locally manufactured vehicle.
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The Finance Act, 2022 has also imposed advance tax of Rs. 20,000 on transfer of motor vehicles of unspecified engine capacity (e.g. electric vehicles) having value of Rs. 5 million or more. The said rate of Rs. 20,000 shall be reduced by 10 per cent each year from the date of first registration in Pakistan.
For the purposes of tax collection under section 231B, the definition of ‘motor vehicles’ has been amended and now defined to include car, caravan automobiles, jeep, limousine, pickup, sports utility vehicle, trucks, vans, wagon and any other automobile excluding:
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(i) a motor vehicle used for public transportation, carriage of goods and agriculture machinery;
(ii) a rickshaw or a motorcycle rickshaw and
(iii) any other motor vehicle having engine capacity upto 200cc.
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Finance Act 2022 notifies tax rates on disposal of securities
KARACHI: Through the Finance Act, 2022 the tax rates on disposal of securities have been notified for tax year 2023 and onwards.
According to interpretation of PwC A. F. Ferguson & Co. gain on disposal of listed securities (that was previously chargeable to tax at 12.5 per cent irrespective of the holding period) shall now be subject to revised tax rates based on holding period. The revised rates in terms of section 37A of Income Tax Ordinance, 2001 are as under:
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For holding period less than 1 year: the tax rate shall be 15 per cent.
For holding period from 1 year to 2 years: the tax rate shall be 12.5 per cent.
For holding period from 2 years to 3 years: the tax rate shall be 10 per cent.
For holding period from 3 years to 4 years: the tax rate shall be 7.5 per cent.
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For holding period from 4 years to 5 years: the tax rate shall be 5 per cent.
For holding period from 5 years to 6 years: the tax rate shall be 2.5 per cent.
For holding period more than 6 years: the tax rate shall be zero per cent.
For securities (other than future commodity contracts entered into by members of Pakistan Mercantile Exchange):
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(i) the above-referred revised rates shall apply on disposal of securities acquired on or after July 1, 2022; and
(ii) rate of 12.5 per cent shall apply on disposal of those securities which were acquired on or before June 30, 2022 irrespective of holding period.
Previously, in respect of Mutual Fund or Collective Investment Scheme or a REIT scheme, no capital gains tax was deductible if the holding period of the security was more than 4 years.
Through Finance Act, 2022, such holding period has now been increased to 6 years.
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Finance Act 2022 revises tax rates for salaried persons
KARACHI: The federal government has withdrawn the proposal to give concessions to salaried persons and retained the minimum threshold for salary income at Rs600,000.
Through the Finance Act, 2022 the new tax rates on salary income have been implemented from July 01, 2022.
The new tax rates are as follow:
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01. Where the taxable income does not exceed Rs 600,000: the tax rate shall be zero.
02. Where the taxable income exceeds Rs 600,000 but does not exceed Rs 1,200,000: the tax rate shall be 2.5 per cent of the amount exceeding Rs 600,000.
03. Where the taxable income exceeds Rs 1,200,000 but does not exceed Rs2,400,000: the tax amount shall be Rs 15,000 + 12.5 per cent of the amount exceeding Rs 1,200,000.
04. Where the taxable income exceeds Rs2,400,000 but does not exceed Rs 3,600,000: the tax amount shall be Rs 165,000 + 20 per cent of the amount exceeding Rs 2,400,000.
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05. Where the taxable income exceeds Rs 3,600,000 but does not exceed Rs 6,000,000: the tax amount shall be Rs 405,000 + 25 per cent of the amount exceeding Rs 3,600,000.
06. Where the taxable income exceeds Rs 6,000,000 but does not exceed Rs 12,000,000: the tax amount shall be Rs 1,005,000 + 32.5 per cent of the amount exceeding Rs 6,000,000.
07. Where the taxable income exceeds Rs 12,000,000: the tax amount shall be Rs 2,955,000 + 35 per cent of the amount exceeding Rs 12,000,000.
Earlier, through Finance Bill, 2022 following rates of tax proposed for salaried person:
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01. Where taxable income does not exceed Rs. 600,000: the tax rate was zero.
02. Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000: the tax rate was Rs100
03. Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,400,000: the tax rate was 7 per cent of the amount exceeding Rs. 1,200,000.
04. Where taxable income exceeds Rs. 2,400,000 but does not exceed Rs. 3,600,000: the tax amount was Rs. 84,000 + 12.5 per cent of the amount exceeding Rs. 2,400,000.
05. Where taxable income exceeds Rs. 3,600,000 but does not exceed Rs. 6,000,000: the tax amount was Rs. 234,000 + 17.5 per cent of the amount exceeding Rs. 3,600,000.
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06. Where taxable income exceeds Rs. 6,000,000 but does not exceed Rs. 12,000,000: the tax amount was Rs. 654,000 + 22.5 per cent of the amount exceeding Rs. 6,000,000.
07. Where taxable income exceeds Rs. 12,000,000: the tax amount was Rs. 2,004,000 + 32.5 per cent of the amount exceeding Rs. 12,000,000.
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Proposal of final tax regime for commercial importers rejected
KARACHI: The National Assembly of Pakistan has rejected a proposal to grant final tax regime for commercial importers.
The proposal was made part of Finance Bill, 2022 under which the government proposed to bring commercial importers under the ambit of final tax regime.
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Previously, PTI government after consultation with manufacturers and other stakeholders brought the importers into minimum tax regime through Finance Act, 2019.
The importers were brought into the minimum tax regime after arguments that the importers were misusing the tax incentives as the final tax regime was not subject to audit and returns. The importers are required to file a statement only under the FTR.
The Finance Bill, 2022 proposed to make amendment in sub-section 7 of Section 148 of the Income Tax Ordinance, 2001 to substitute the word ‘minimum’ with the word ‘final’.
However, the national assembly rejected the proposal of final tax regime for commercial importers is withdrawn. Consequently, commercial importers will remain under minimum tax regime.
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Tax experts at PwC A. F. Ferguson & Co. said that previously, in case of goods imported by an industrial undertaking for own use, the advance tax on imports did not constitute minimum tax if the same were subjected to advance tax collection at 1 per cent or 2 per cent.
There were various items which were in the nature of raw material but were subjected to standard rate of 5.5 per cent.
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The tax authorities were misinterpreting these provisions to deny the adjustability of tax collected at 5.5 per cent.
This regime has been amended and now the advance tax on raw materials imported by an industrial undertaking for own use will not be minimum tax irrespective of the applicable rate.
However, advance tax on import of following items will be treated as minimum tax in respect of income arising from such imports:- a) Edible oil; b) Packaging material; c) Paper and paper board; or d) Plastics.
READ MORE: Pakistan expands tax exemptions under foreign treaties
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Mechanism revamped for tax dispute resolution
KARACHI: The mechanism of alternative dispute resolution (ADR) has been revamped through Finance Act, 2022 and same has been implemented from July 01, 2022.
According to explanation to the Section 134A of the Income Tax Ordinance, 2001 amended through Finance Act, 2022, analysts at PwC A. F. Ferguson & Co. said that under the revamped procedure for ADR in all three fiscal laws, an aggrieved person may apply for resolution of a dispute pending before any court of law or appellate forum, through ADR mechanism in following cases:-
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a) Where the liability of tax is Rs 100 million or above or admissibility of refund;
b) The extent of waiver of default surcharge & penalty; or
c) Any other specific relief required to resolve the dispute.
However, any case where criminal proceedings have been initiated fall outside the purview of ADR mechanism.
Previously, in case of a dispute where a mixed question of law and fact was involved, the Federal Board of Revenue (FBR) was empowered to examine as to whether ADR Committee should be constituted or not. This hindrance has been removed.
Under the new mechanism, the taxpayer has a right to nominate a person from the panel notified by the FBR except where the relevant Chartered Accountant or an Advocate has been an authorized representative of the taxpayer.
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Furthermore, the taxpayer will have to withdraw his appeal for seeking relief under ADR.
Following is the text of Section 134A that is substituted through the Finance Act, 2022:
134A. Alternative Dispute Resolution. — (1) Notwithstanding any other provision of the Ordinance, or the rules made thereunder, an aggrieved person in connection with any dispute pertaining to—
(a) the liability of tax of one hundred million and above against the aggrieved person or admissibility of refund, as the case may be;
(b) the extent of waiver of default surcharge and penalty; or
(c) any other specific relief required to resolve the dispute; may apply to the Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application, which is under litigation in any court of law or an Appellate Authority, except where criminal proceedings have been initiated.
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(2) The application for dispute resolution shall be accompanied by an initial proposition for resolution of the dispute, including an offer of tax payment, from which, the applicant would not be entitled to retract.
(3) The Board may, after examination of the application of an aggrieved person, appoint a committee, within forty five days of receipt of such application in the Board, comprising,—
(i) Chief Commissioner Inland Revenue having jurisdiction over the case;
(ii) person to be nominated by the taxpayer from a panel notified by the Board comprising –
(a) chartered accountants, cost and management accountants and advocates having a minimum of ten years’ experience in the field of taxation;
(b) officers of the Inland Revenue Service who have retired in BS 21 or above; or
(c) reputable businessmen as nominated by Chambers of Commerce and Industry:
Provided that the taxpayer shall not nominate a Chartered Accountant or an advocate if the said Chartered Accountant or the advocate is or has been an auditor or an authorized representative of the taxpayer; and
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(d) person to be nominated through consensus by the members appointed under (i) and (ii) above, from the panel as notified by the Board in clause (ii) above:
Provided that where the member under this clause cannot be appointed through consensus, the Board may nominate a member proposed by the taxpayer eligible to be nominated as per clause (ii).
(4) The aggrieved person, or the Commissioner, or both, as the case may be, shall withdraw the appeal pending before any court of law or an Appellate Authority, after constitution of the committee by the Board under sub-section (3), in respect of dispute as mentioned in sub-section (1).
(5) The committee shall not commence the proceedings under sub-section (6) unless the order of withdrawal by the court of law or the Appellate Authority is communicated to the Board:
Provided that if the order of withdrawal is not communicated within seventy five days of the appointment of the committee, the said committee shall be dissolved and provisions of this section shall not apply.
(6) The Committee appointed under sub-section (3) shall examine the issue and may, if it deems necessary, conduct inquiry, seek expert opinion, direct any officer of the Inland Revenue or any other person to conduct an audit and shall decide the dispute by majority, within one hundred and twenty days of its appointment:
Provided that in computing the aforesaid period of one hundred and twenty days, the period, if any, for communicating the order of withdrawal under sub-section (5) shall be excluded.
(7) The decision by the Committee under sub-section (6) shall not be cited or taken as a precedent in any other case or in the same case for a different tax year.
(8) The recovery of tax payable by a taxpayer in connection with any dispute for which a Committee has been appointed under sub-section (3) shall be deemed to have been stayed on withdrawal of appeal up to the date of decision by the Committee or the dissolution of the Committee whichever is earlier.
(9) The decision of the committee under sub-section (6) shall be binding on the Commissioner and the aggrieved person.
(10) If the Committee fails to decide within the period of one hundred and twenty days under sub-section (6), the Board shall dissolve the committee by an order in writing and the matter shall be decided by the court of law or the Appellate Authority which issued the order of withdrawal under sub-section (5) and the appeal shall be treated to be pending before such court of law or the Appellate Authority as if the appeal had never been withdrawn.
(11) The Board shall communicate the order of dissolution to the court of law or the Appellate Authority and the Commissioner.
(12) The aggrieved person, on receipt of the order of dissolution, shall communicate it to the court of law or the Appellate Authority, which shall decide the appeal within six months of the communication of said order.
(13) The aggrieved person may make the payment of income tax and other taxes as decided by the committee under subsection
(6) and all decisions, orders and judgments made or passed shall stand modified to that extent.
(14) The Board may prescribe the amount to be paid as remuneration for the services of the members of the Committee, other than the member appointed under clause (i) of sub-section (3).
(15) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.
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Simplified tax regime for shopkeepers implemented
KARACHI: The Federal Board of Revenue (FBR) has implemented a simplified tax regime from shopkeepers and small retailers.
Through the Finance Act, 2022 important amendments have been made to Income Tax Ordinance, 2001.
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Tax experts at PwC A. F. Ferguson & Co. explained that for other than Tier – 1 retailers and specified service providers, a ‘final tax’ has been levied on the basis of gross amount billed for commercial electricity connections at the following rates:
Where the amount does not exceed Rs. 30,000: the tax shall be Rs3,000
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Where the amount exceeds Rs. 30,000 but does not exceed Rs. 50,000: the tax shall be Rs5,000
Where the amount exceeds Rs. 50,000 but does not exceed Rs. 100,000: The tax shall be Rs10,000
Specified retailers and service providers through Income Tax General Order: the tax shall be Rs200,000
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The aforesaid tax shall be collected by the electricity companies through monthly bills in addition to withholding tax under section 235 of the Income Tax Ordinance, 2001.
However, in case sales tax is collected from such retailers through electricity bills under section 3(9) of Sales Tax Act, 1990, the sales tax will constitute discharge of tax liability under this section and thus no tax will be charged/ collected along with electricity bills.
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The Federal Government is empowered to issue income tax general order for implementing this scheme and to specify service providers eligible for this regime.