In a decisive move to bolster transparency in financial transactions, the Federal Board of Revenue (FBR) is set to require all banks to provide detailed information on individuals receiving profit on debt, effective from July 1, 2020.
(more…)Category: Budget
This is parent category of budgets presented by Pakistan government. Here you will find year-wise federal and provincial budgets.
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Tax deduction allowed on salary up to Rs25,000 paid in cash
KARACHI: The Finance Bill 2020 has proposed major changes related to tax deduction in order to provide relief to business community. Under the proposed amendments the threshold amount has been increased up to Rs25,000 for tax deduction in case salary is paid.
According to interpretation of the Finance Bill 2020 by BDO Pakistan, the Finance Bill proposed amendments to Section 21 of the Income Tax Ordinance, 2001.
(l) The Bill seeks to enhance threshold of deduction for cash payment against business income under single account head from Rupees fifty thousand to Rupees two hundred and fifty thousand per annum.
This proposal seeks to relieve businesses from making transactions through banking channel, as it is difficult for business to make every transaction through banking channel.
Further The Bill seeks to increase the threshold of expenditure liable to be disallowed as a business expense if the same is not made through a crossed banking instrument/ online transfer of payment from Rs.10,000/- to Rs.25,000/ per transaction.
Furthermore, The Bill seeks to enhance threshold from Rs.15,000/- to Rs.25,000/- as allowable deduction against business income if the salary is paid in cash.
(p) & (q) The Bill seeks to add two new clauses to regulate limit of expenditure on account of utility bill and sales made to persons required to be registered but not registered under the Sales Tax Act, 1990 as an admissible deduction against business income where sales equal to or exceed Rs. 100 million per person. However, the disallowance of expenditure shall not exceed 20 percent of total deduction claimed.
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Exemption from withholding tax on foreign remittances may not practical for banks
The Pakistani government has announced a significant tax relief measure, granting withholding tax exemption on the transfer of foreign remittances to Pak Rupee (PKR) accounts. However, tax experts have raised concerns about the practical implementation of this exemption, particularly regarding the bifurcation of transactions for banks.
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Restoration of multiple years audit to burden taxpayers
KARACHI: Business community has criticized the government for eliminating condition of conducting audit once in three-year period.
Overseas Investors Chamber of Commerce and Industry (OICCI) highlighted anomalies in the Finance Bill 2020, sent to the Federal Board of Revenue (FBR) and said that omission of the condition would burden the taxpayers and would give sweeping powers to tax officials.
The Finance Act 2018 restricted the frequency of conducting audits to once in a three-year period.
This amendment of 2018 demonstrated the confidence of the Government on the records maintained by registered persons.
The Bill now seeks to omit the condition of conducting the audit once in a three-year period. If passed, this will unnecessarily burden taxpayers, while handing over sweeping powers to the assessing officers of Inland Revenue to conduct audits covering one or multiple tax years with no reprieve for the taxpayer available under the law, in absence of any prescribed limitation.
The consequence of this change will likely erode the taxpayer’s confidence in the revenue machinery and the probable unnecessary wastage of time and effort by the revenue authorities.
The OICCI said that during the FBR/OICCI Web link meeting on May 5th the FBR Member (IR-Operations) informed that new Audit Policy will be announced soon, where there will be only one audit in three years u/s 122, which was welcomed by OICCI members.
Therefore the removal of condition of one audit in three years in the Finance Bill 2020, is a shock for OICCI members.
“Hence, we strongly advocate maximum of one for audit within three years, for promoting Ease of Doing Business,” the OICCI said.
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Foreign investors express concerns on proposed rates for imported raw materials
KARACHI: Foreign investors have raised concerns over the proposed tax rates on import of raw materials.
Overseas Chamber of Commerce and Industry (OICCI), which is represented of foreign investors and multinational companies in Pakistan, highlighted anomalies in the Finance Bill 2020 and proposed rectifications.
The OICCI said that the reduction in rate of income tax u/s 148 to 2 percent on import of raw materials/items mentioned in Part II of the Twelfth Schedule is a significant relief that will improve the cash flow position of companies.
However, two concerns have been voiced on the changes proposed:
a) The Bill seeks to introduce a new Schedule as the Twelfth Schedule to the Ordinance wherein all the goods imported into Pakistan may be classified under either of the three categories viz Part I, Part II and Part III based on PCT code wise listing of goods.
However, certain core raw materials used by manufacturers are still falling under the category of 5.5 percent income tax by virtue of non-inclusion in Part II of Twelfth Schedule.
It is suggested that a general rate of 2 percent may be prescribed for all imports by manufacturing companies for own consumption.
b) The Bill now seeks to omit Clause 72B, therefore, exemption would no longer be available in respect of tax collected under Section 148 of the Ordinance to an industrial undertaking.
Though there is substantial reduction in rate of collection of tax, as a result of withdrawal of such exemption, nevertheless, the taxpayer operating on margins lower than the rate of advance tax collected on imports or having adjustable losses/tax credits or enjoying tax exemption may still face liquidity hitches.
In order to avoid cash flow issues and tax refundable situation, it is suggested that instead of omitting clause 72 B, industrial undertakings importing raw materials for in house consumption should be provided an option.
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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.
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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.
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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.
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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.
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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.