Pkrevenue.com

Category: Budget

This is parent category of budgets presented by Pakistan government. Here you will find year-wise federal and provincial budgets.

  • Finance ministry, IMF meeting to finalize budget proposals

    Finance ministry, IMF meeting to finalize budget proposals

    ISLAMABAD: An important meeting of the ministry of finance with representatives of International Monetary Fund (IMF) will be held today evening (Thursday evening) to finalize the recommendations for budget 2021/2022.

    Senior officials of the ministry of finance, three representatives, including country head, of IMF and senior officials of Federal Board of Revenue (FBR) will attend the meeting, sources said.

    Officials of the IMF will attend the meeting through video link.

    The meeting will discuss important points of the budget, which will include salary income tax and sales tax reforms.

    The sources said that the meeting would finalize tax slabs for salaried persons.

    The IMF had proposed reduction in salary tax slabs from 11 to five. Further the meeting will discuss sales tax incentives and reduced rates.

    The sources said that the government would finalize the proposals after discussions with the IMF.

    The source said that the government is considering an increase of 10 percent in salaries and pension. This increase would be given through adhoc basis. However, the government is not considering to grant the increase in basic pay scale.

    The government has decided to allocate an amount of Rs900 billion for Public Sector Development Program (PSDP).  The budget deficit may be curtailed at six percent of the GDP.

    In his recent statement, Finance Minister Shaukat Tarin had already made it clear that the government was not in position to take strict measures due to covid pandemic.

  • FBR urged to reintroduce income tax credit on registered sales

    FBR urged to reintroduce income tax credit on registered sales

    KARACHI: Federal Board of Revenue (FBR) has been urged to reintroduce income tax credit on registered sales in order to provide incentive to documentation of economy and increase the tax base.

    Karachi Tax Bar Association (KTBA) in its recommendations for budget 2021/2022 submitted to the FBR proposed the reintroduction of tax credit on registered sales.

    The KTBA said that the tax credit would provide incentive for documentation of economy and increase of the tax base a tax credit of 2.5 percent of tax liability was offered to manufacturers given in the year 2009 making 90 percent of their sales to persons registered under the Sales Tax Law.

    The tax credit was increased to 3 percent by Finance Act, 2016. However, this Tax credit was deleted by Finance Act, 2017.

    Years of efforts to document the economy has been pushed backwards and that too without any warning and rationale.

    The KTBA said that the tax credit should be re-introduced. Further this tax credit on 90 percent sales should be extended to persons making 90 percent of purchases from persons registered under the Sales Tax Act, 1990 as well.

    It will encourage the much-desired documentation of the economy.

  • Stock exchange recommends elimination of minimum tax

    Stock exchange recommends elimination of minimum tax

    KARACHI: Pakistan Stock Exchange (PSX) has recommended elimination of minimum tax regime for listed companies in order to promote documentation in the country.

    The PSX in its proposals for budget 2021/2022 recommended the elimination of minimum tax regime for listed companies. It said that though the concept of minimum tax is prevalent in a few other countries, however, in other countries, as a principle, it is levied only in cases where high-income taxpayers don’t pay any tax due to different tax exemptions available to them.

    The PSX proposed that minimum tax regime should be eliminated from listed companies as such companies are strongly compliant towards specific documentation requirements of various statutes.

    Giving rationale to the proposal, the stock exchange said that the application of minimum tax on listed companies has resulted in discouraging documentation of the economy.

    Listed companies have significant documentation and regulatory requirements and need to engage external auditors to audit their business affairs.

    The stringent regulations keep the listed companies strongly compliant towards filing of income tax / sales tax returns, paying quarterly advance taxes, adjustment of withholding taxes on sales and purchases and consequently filing withholding statements, statements on final taxation and fulfilling various other requirements which resultantly align their books of accounts with the statutory requirements and provide a comfort zone to the authorities and stakeholders over the reported numbers.

    However, the levy of minimum tax puts downward impact on the earnings of listed company despite having current and brought forward losses.

  • KTBA presents proposals for budget 2021/2022

    KTBA presents proposals for budget 2021/2022

    KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday presented proposals for budget 2021/2022 to the Federal Board of Revenue (FBR).

    In its proposals the KTBA said that the tax-to-GDP ratio was a soaring issue for country’s economic managers. “On the other hand, tax measures undertaken in Pakistan have traditionally created higher taxation on formal economy and under taxation on information economy,” it added.

    Primarily, it is because of over dependence over withholding tax regime as well as due to higher tax expenditure and concessions/exemptions.

    In addition to above many studies have concluded that there are gap in agriculture and property income in Pakistan which otherwise are under-taxed hence misused.

    “Besides, there are distortions in collection of General Sales Tax on goods and services and full tax collection on this core is yet to be exploited,” it added.

    In addition to above, a host of tax exemption/concessions have already been withdrawn by way of Tax Laws (Second) Amendment Ordinance, 2021 which was believe will become part of budget proposals.

    It is however the country needs a lot more drastic measures to bring its tax to GDP ratio at desired level.

    The KTBA suggested that federal and provincial governments should harmonize their differences in order to remove the gaps and distortions and to improve tax collection from agricultural, property and GST.

    The tax bar said that the proposals were completed keeping in view following features and categories:

    — Salvaging the manufacturing sector

    — Proposal for salvaging the corporate sector

    — Taxation and withholding tax regime under Section 148 and 153 of Income Tax Ordinance, 2001.

    — Proposals regarding taxation of property income

    — Capital gains taxation on securities

    — Proposal for changes in taxation of salary income

    — Proposal for changes in taxation of non-residents

    — Proposal for change in Non-Profit Organizations

    — Withholding tax provisions

    — Proposal for Appellate proceeding

    — Proposal for departmental proceeding

    — Proposal for simplifying filing and other periodic compliance

    — Broadening the scope and equitable of the law.

  • Karachi Tax Bar suggests reduction in corporate tax rate

    Karachi Tax Bar suggests reduction in corporate tax rate

    KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday suggested reduction of corporate tax rate to 25 percent from existing 29 percent in order to promote documentation of economy and discouraging tax evasion.

    The KTBA in its recommendations for the budget 2021/2022, stated that currently corporate rate of tax in Pakistan is 29 percent which due to Workers Welfare Fund (WWF) and Worker Welfare Participation Fund (WWPF) goes up to 36 percent which is higher than the average tax rate in Asia i.e. 21.32 percent.

    The higher corporate rate is increasing cost of doing business and regionally uncompetitive position.

    The KTBA proposed that the corporate rate of tax should be decrease up to 25 percent by gradually decreasing 1 percent every year.

    The rate of tax on small companies should also gradually be reduced to 15 percent.

    Income of WPPF should be exempted from tax. The excess of WPPF as deposited in WWF fund should be also as a credit against WWF levy.

    The KTBA said that the high rate of tax is encouraging tax evasion and discouraging documentation of economy and corporatization.

    It is also disincentive for foreign and local investment, it added.

  • Removal of sunset clauses on CGT exemptions for real estate sector demanded

    Removal of sunset clauses on CGT exemptions for real estate sector demanded

    KARACHI: Pakistan Stock Exchange (PSX) has pointed out that at present timelines for exemption from Capital Gain Tax (CGT) are discouraging long-term investors from entering the Real Estate Sector.

    Moreover, different Real Estate Investment Trust (REIT) categorization have created distortion and excluded commercial and mixed-use REIT projects, the PSX highlighted the issue in its proposals for the upcoming budget 2021/2022.

    It further said that higher rate of tax on dividends as compared to mutual funds (enhanced through Finance Act 2019, rate of tax on dividend from REITs Schemes was enhanced from 15 percent to 25 percent.

    Sale of real estate to a REIT scheme at market value is a paper transaction required to transfer title of real estate in the name of trustee.

    Furthermore, REIT Scheme is exempt from income tax when 90% income is distributed as dividend and therefore advance tax cannot be adjusted.

    The PSX proposed exemption from CGT provided in clause 99A, Part 1, 2nd schedule of Income Tax Ordinance, 2001 should be applied to all categories of REITs (mix-use projects)

    – Remove sunset clauses

    • June 2023 for Developmental REIT Scheme and Rental REIT Scheme.

    — Rate of tax on dividend, which is 25% at present, be synchronized with mutual funds15 percent [First schedule, Part-1, Division-Ill, paragraph B]

    — Exempt advance tax on property transfers to/from a REIT Scheme u/s 236C & 236K.

    Giving rational to the proposals, the PSX said it will promote documented real-estate will attract more investments particularly by companies with disclosure of actual prices and income. Revenue impact will be positive as it will generate indirect and additional revenues from allied businesses.

  • Withholding tax exemption sought on commodity future contracts

    Withholding tax exemption sought on commodity future contracts

    KARACHI: Federal Board of Revenue (FBR) has been urged to exempt withholding tax on transactions made for future contracts at commodity exchange.

    The Pakistan Stock Exchange (PSX) in budget proposals 2021/2022 submitted to the FBR, highlighted the issue and stated that currently, buyer of a commodity withholds tax (4 percent-9 percent) from seller before making payment with the exception of growers.

    This tax adds cost and puts the investors at a disadvantageous position when dealing in actual commodity exchange at PMEX in futures contracts/e-WHR5 as grain markets are not documented and as such this tax is actually not being paid.

    The stock exchange proposed to exempt commodity futures contracts and EWRs from the application of section 153 of the Income Tax Ordinance, 2001 like these are exempt from GST under SRO 445(1)12004 June 14, 2004.

    It will be only applicable on physical settlement of futures contract by exchange of delivery of underlying commodity. On contract, CGT is already applicable.

    Giving rationale to the proposal, the PSX said that development of regulated and organized commodity markets will greatly benefit the agriculture sector.

    Revenue impact will be neutral to positive due to adjustability of withholding tax while documentation leading towards more income tax from traders and related parties.

  • Tax rate disparity discourages corporatization: PSX

    Tax rate disparity discourages corporatization: PSX

    KARACHI: Inequality in tax rates for corporate and non-corporate businesses has discouraging corporatization in the country, Pakistan Stock Exchange (PSX) noted in its proposals for budget 2021/2022.

    The stock exchange pointed out that corporate business profits are taxed twice: once at company level at 29 percent and on dividend distribution at 15 percent.

    As compare to 44 percent of total tax in case of companies, unincorporated businesses are being taxed from 0 percent to 35 percent in slabs.

    This inequity in taxation is discouraging corporatization and documentation as unincorporated businesses are subject to substantially lower taxes.

    Absence of clarity in tax laws is causing issues of taxation of Limited Liability Partnerships (LLP5) as companies whereas LLPs are essentially AoPs with perpetual life.

    Therefore, the PSX recommended that inequality of taxation of businesses shall gradually be removed by reducing corporate tax rate/increasing tax rates for AoPs [First Schedule Part 1, Division I, II, hA & Ill]. Rationale

    It said that equality of tax regime will promote corporatization culture leading towards documentation and will therefore generate more tax revenue.

    Adding clarity with respect to status of LLP will encourage more businesses particularly in services sector to opt for this perpetual business structure. It will also help in increasing tax revenue from these segments.

  • PSX recommends modification in tax laws for Shariah compliant criteria

    PSX recommends modification in tax laws for Shariah compliant criteria

    KARACHI: Pakistan Stock Exchange (PSX) has recommended modification in Shariah compliance criteria under Income Tax laws to make it practically possible to meet the requirement.

    The PSX in its proposals for budget 2021/2022 said that the modification would held the promotion and development of Islamic capital markets by encouraging new listings of companies on PSX through mobilizing resources towards faith-based investor savings.

    Giving rationale, the stock market said that the conditions imposed through the ITO, 2001 are impractical to implement given the inadequate depth of Islamic markets of Pakistan, constraining the taxpayers from achieving the Shariah Complaint status and therefore failing the reforms’ underlying objective – (e.g. 100 percent income from manufacturing operations, financing through licensed Islamic financial institutions only, issuing dividends in last five consecutive years etc.

    Highlighting the background, the PSX said that in 2016, the Federal Government through Finance Act 2016, had introduced certain amendments in the ITO which allowed 2 percent rebate in corporate income tax rate to companies which qualified the criteria for Shariah Compliance specified in Clause 18B of Part II of Second Schedule of ITO.

    Thereafter in January 2017, Rule 231H was inserted in Income Tax Rules, 2002 (Rules) which provided further guidance on the Shariah Compliance criterion mentioned in ITO.

    The objective for this rebate, as explained by Securities and Exchange Commission of Pakistan (SECP) in its press release of July 11, 2016, was to incentivize listed manufacturing companies to become Shariah Compliant and that this was introduced in the ITO as part of reforms, with collaboration of SECP, for promotion and development of Islamic Capital market.

    Thereafter, in November 2018, the corporate regulator introduced the landmark Shariah Governance Regulations 2018 (Regulations), which entailed a comprehensive jurisdictional framework to regulate and govern the corporate sector, including the capital markets, Islamic capital markets, Shariah-compliant securities and Islamic financial institutions.

    The framework was a major break-through to lay the foundation for a true Islamic financial and economic system. The Regulations encompass a number of elements of Shariah governance which are practical to adopt and implement, ensuring long-term sustainability.

    On the other hand, the requirements contained in the ITO, as introduced in 2016, are comparatively stringent and impractical for taxpayers to adopt in letter and spirit, which is ultimately defeating its underlying objective i.e. development of Islamic market in Pakistan.

    Hence, a re-alignment of income tax requirements with the SECP Regulations is critical so as to enable more companies to obtain Shariah Compliant status and avail the accompanying tax benefits.

    Under clause 18B of Part II of Second Schedule of the ITO, 2001, a reduction in corporate tax rate by 2 percent is allowed to a company which meets the criteria specified in the said clause and Rule 231H of the Income Tax Rules, 2002.

    However, the existing compliance requirements are very impracticable and more stringent then the requirements mentioned by SECP in Shariah Governance Regulations, 2018, which makes it practically impossible for the taxpayers to fulfill the criteria and achieve the desired status.

  • Short term tax policies should be avoided to attract investors

    Short term tax policies should be avoided to attract investors

    KARACHI: The government should avoid short term tax policies to ensure stable economic environment so investors can plan their investments in the country.

    Pakistan Stock Exchange (PSX) in its proposals for budget 2021/2022 said that as much as favorable tax treatment, investors need a stable and predictable tax environment.

    When making a long-term investment decision, they need to know what tax treatment their investment will receive over the term of their investment horizon. Otherwise, they may simply decide not to invest or adopt short term trading strategies (like most investors unfortunately tend to do).

    It should also be considered that the changes in policies should be prospective rather than retrospective in nature. One of such example is the amendment made in section 65B of the Income Tax Ordinance, 2001 through Finance Act 2019 where tax credit for investment in plant and machinery for the purpose of balancing, modernization and replacement was reduced from 10 percent to 5 percent retrospectively of the amount invested.

    Therefore, the stock exchange proposed to rectify all such amendments which have retrospective effect so that all the amendments made have a prospective effect.

    It further said that the government must move away from short term measures and frequent changes to tax treatment and adopt long term measures to promote savings and investment and development of the capital market.