Pkrevenue.com

Category: Budget

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

  • Reducing corporate tax to 25 percent recommended

    Reducing corporate tax to 25 percent recommended

    KARACHI: Federal Board of Revenue (FBR) has been urged to gradually reduce the corporate tax rate to 25 percent by tax year 2023.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2020/2021 recommended consolidation of all federal taxes in one lump sum.

    The government previously announced a policy for gradual decrease in corporate tax rate to bring it down to 25 percent by Tax Year 2023. However in the 2019 Finance Act the rate was frozen at 29 percent.

    The tax system has become cumbersome and inefficient due to a number of parallel taxes. In addition to direct corporate taxes, companies also pay other levies like the Workers Profit Participation Fund (WPPF) at 5 percent, Workers Welfare Fund (WWF) at 2 percent on their profits, thus the effective tax rate goes up significantly.

    If other taxes like the provincial infrastructure taxes in Sindh and Punjab, stamp duty on Purchase Orders and contracts, together with many other local levies are added, overall tax burden goes up to about 40 percent of profits, which is a significant tax burden with consequential increase in cost of doing business.

    The OICCI recommended to consolidate all federal taxes – Income Tax, and levies like WWF, WPPF in one lump sum so as to make the system more efficient and business friendly.

    Further, continue the previously announced policy to annually revise the tax rate to eventually align with the average Regional Corporate rate of 25 percent by FY 2023.

  • Export tariffs, tax slabs may not change in budget: Razak Dawood

    Export tariffs, tax slabs may not change in budget: Razak Dawood

    ISLAMABAD: The government is likely to maintain the current export tariffs and tax slabs in the forthcoming budget, according to Abdul Razak Dawood, Advisor to the Prime Minister on Commerce and Investment.

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  • PSX proposes tax relief for exchange traded fund

    PSX proposes tax relief for exchange traded fund

    KARACHI: Pakistan Stock Exchange (PSX) has proposed Exchange Traded Funds, transfer of Portfolio (basket of securities) from Authorized Participant (AP) to ETF’s Account should not be treated as disposal.

    In its proposal for budget 2020/2021, the PSX suggested that in order to facilitate the market for Exchange Traded Funds, transfer of Portfolio (basket of securities) from Authorized Participant (AP) to ETF’s Account should not be treated as disposal and therefore holding period of ETF constituents be carried forward to the ETF, upon conversation of Portfolio Deposit to ETF units, for the purpose of CGT calculation.

    Tax relief for ETF instrument will play a significant role in not only the benefit to existing ETFs recently launched but also in the successful launch of further ETFs in Pakistan, as the current structure would trigger capital gains in the creation of ETFs units. Moreover, a rationalization rate of tax on ETF investments, at par with the tax on other asset classes, would attract more investors towards ETFs.

    An Exchange Traded Fund (ETF) is a pooled investment vehicle, with shares which can be traded throughout the day on a stock exchange, at a price determined by the market. Similar to a traditional mutual fund, an ETF provides investors a proportionate share in a pool of underlying securities.

    ETFs are one the fastest growing category of passive fund investments. Globally ETFs are an integral part of product offerings in the capital markets. It is a product with significant presence in over 47 countries.

    Internationally, there are over 8,000 ETFs with aggregate Assets Under Management of about USD 6.5 trillion by the end of 2019 and estimated to grow to around USD 7.6 trillion by the end of 2020.

    ETFs typically track an underlying index; they can also be based on sectors and strategies. They hold immense potential for investors to gain exposure to various market themes, without paying excessive management fees for getting a diversified exposure or developing a portfolio.

    PSX proudly announced on March 24, 2020, the successful listing and commencement of trading in Pakistan’s first ever Exchange Traded Funds (ETF).

    Two ETFs, namely NIT Pakistan Gateway ETF and UBL Pakistan Enterprise ETF, were launched on March 24, 2020 by the National Investment Trust Limited and UBL Fund Managers Limited, respectively.

    Given the current circumstances and in the interest of safety, a first of its kind virtual launch was organized by PSX for the landmark launch of the ETFs.

    This virtual launch is a step taken to make sure that the message of availability of ETFs in the Pakistani Capital Market goes across to all investors and market participants while ensuring their safety in the wake of the current threat of the potential spread of the Covid-19 virus.

    Therefore, as PSX is working actively with all market participants and regulators, the tax structure for ETFs needs to be rationalized to incentive prospective Aps to deal in ETF’s Account (both maintained with Trustee), would trigger Capital Gains Tax (CGT).

    Internationally, the growth and attraction of ETFs has been driven by the essential requirement that creation of ETF units by authorized participants are not subject to capital gains.

    A fundamental feature of ETFs is that the creation of their units are made in-kind, and not in cash as in the case of a mutual fund, so it does not trigger capital gains tax.

    In almost every market where ETFs are traded, regulators have allowed the practice of in-kind transfer portfolio securities. Examples include Saudi Arabia, Canada, UK, and USA.

    The following proviso should be inserted after sub- section 3 of section 37A to the Income Tax Ordinance, 2001;

    “Transfer of Portfolio (basket of securities) from Authorized Participant (AP) to ETF’s Account should not be treated as disposal and therefore holding period of ETF constituents be carried forward to the ETF, upon conversion of Portfolio Deposit to ETF unit, for the purpose of CGT calculation.”

    Appropriate amendment to be made in the Income Tax Rules, 2002.

  • FPCCI suggests measures to broaden tax base, improving tax to GDP ratio

    FPCCI suggests measures to broaden tax base, improving tax to GDP ratio

    KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested measures to broaden tax base and improving tax to GDP ratio.

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  • Exemption from withholding tax at import stage suggested

    Exemption from withholding tax at import stage suggested

    KARACHI: Pakistan Business Council (PBC) has suggested the tax authorities to exempt withholding tax at import stage for avoiding generation of tax refunds and expansion of industry.

    In its proposals for budget 2020/2021, the PBC recommended exemption from collection of withholding tax under section 148 at import stage and exemption for manufacturing concerns under Section 153.

    It said that procedures and rules for obtaining exemption certificates for import of plant and machinery and raw material by tax payers have serious restrictions, which causes hardship.

    Corporate manufacturing sector should be excluded from the purview of income tax withholding at import stage under section 148 as well as from tax deduction on local supply under section 153.

    Similar exemption is already given to the greenfield industries through the Finance Supplementary Second Amendment Act 2019 announced in March 2019.

    The same exemption, however, is not available, for the brownfield expansion.

    Moreover, all the companies engaged in manufacturing should be exempt from withholding of tax under section 153.

    Similar exemption is available for Sales Tax in the Sales Tax Special Procedure (Withholding) Rules, 2007 via SRO 586 dated July 1, 2017.

    Alternatively, issuance of exemption certificate from withholding under sections 148 and 153 should automatically trigger on the FBR portal based on payment of quarterly advance tax under section 147 to avoid harassment of genuine taxpayers.

    This will enable taxpayers to avoid creating huge tax refunds and focus on more expansion.

    This would increase the investments for brownfield capacity expansion as well and would provide a meaningful relief (similar to greenfield expansion) with regard to BMR and extension / expansion. Further, it will also attract foreign direct investment in the form of new expansion ventures as well as partnerships and hence will also result in export growth.

  • PSX proposes funded pension scheme

    PSX proposes funded pension scheme

    KARACHI: Pakistan Stock Exchange (PSX) has proposed funded pension scheme that should offer old age benefits to retired employees at public sector enterprises and government workers, without putting burden on the annual budget.

    At present, Pakistan’s pension scheme for government employees is an un-funded, pay-as-you-go scheme. Government of Pakistan exclusively finances the pension expenditure by obtaining a provision in the annual budget for this purpose.

    This has all the making of an impending pension crisis in future, and places unfair burden on future generations. In case of public sector enterprises too, much of the pension liability remains unfunded.

    The future monetary obligations are taken to be met from taxation, which places undue fiscal burden and responsibility on future generations. Age analysis of population suggests growing state pension expenses given the expected increase in the older age group.

    These conditions have led to increasingly stressed pension arrangement.

    Pension’s system reforms are focused on extending coverage to funded pension systems, which are professionally managed, extend to the informal sector, and facilitate switching from the existing employer schemes.

    While in the public sector, funds have been created at the provincial level to pre-fund the future liability.

    The PSX said that government of various countries have actively worked to provide financial security for their aging populations by maintaining adequately funded pension funds.

    These pension funds invest in a diversified range of global assets including equities, bonds, mutual funds, ETFs, and even real estate, infrastructure, and alternative assets.

    In Canada, the CPPIB (Canada Pension Plan Investment Board) is the government’s primary pension scheme, and has grown to become one the largest pension funds in the world.

    The CPPIB invests in the full stack of assets outlined above and returns are used to finance government’s pension liabilities every year. This takes the burden of pensions away from the annual budget.

    The CPP fund now manages over $409.5 billion in asset, up from $128 billion in 2010.

    An actively managed government pension fund in Pakistan will also help channel investment towards capital markets, since equities feature heavily at global pension funds.

    In Pakistan, the federal government could set up such an investment holding as a single-purpose asset management company with 100 percent control, and run by professional investment managers.

    The government should start funding its pension liabilities to avert a future pension crisis and encourage capital formation in Pakistan. An adequately funded pension scheme would offer old age benefits to retired employees at public sector enterprises and government workers, without putting burden on the annual budget. Further, it is recommended that a certain percentage of the funded pension scheme be invested in the capital markets.

    With Pakistan facing very high levels of poverty and the Government of Pakistan facing a rise in the old age population and having a scarcity of resources and funds to provide any old age benefits. An adequately funded pension scheme is one of the resources which the Government of Pakistan could offer to facilitate retired public sector employees.

    This would result in improvement in liability management of Federal Government Employees Pension Scheme.

    Appropriate amendment to be made in the Income Tax Ordinance, 2001.

  • Misuse of Afghan transit trade should be checked

    Misuse of Afghan transit trade should be checked

    KARACHI: Smuggling through Afghan Transit Trade has always been the biggest threat for economic growth and hardly any sector has been left untouched by this menace.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 said that smuggled goods through the borders of Afghanistan, Iran China, India and the Afghan Transit Trade form a chunk of the informal economy, volume of which ranges between 50 to 60 percent of the formal economy.

    It is costing the national exchequer in billions. Markets across the country are flooded with smuggled goods and local industries are struggling for survival as smuggled goods are not only easily available everywhere but are also attracting the buyers who prefer foreign merchandise Goods moving under ATT from Pakistan to Afghanistan should be charged with duties and taxes under the Pakistani laws and the same should be transferred to Afghan Government.

    Secondly, the duties/taxes so paid should be deposited with State Bank in USD.

    A quantitative restriction should be applied on goods moving under ATT on the basis of consumption.

    Allow industry to fairly compete with unscrupulous imports, Government to benefit from increased revenue.

  • Curtailing powers of tax officers in recovery, entering premises suggested

    Curtailing powers of tax officers in recovery, entering premises suggested

    KARACHI: Business community has suggested curtailing powers of tax officers while invoking provisions of sales tax laws.

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  • Withholding tax rate should be increased for immovable property purchase by non-filer

    Withholding tax rate should be increased for immovable property purchase by non-filer

    KARACHI: The withholding tax rate should be enhanced to 10 percent for non-filer purchaser of immovable property in the budget 2020/2021.

    Pakistan Business Council (PBC) in its budget proposals 2020/2021 recommended to increase the rate of withholding tax for unregistered and non-filers of income tax returns.

    The PBC recommended that 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.

    The PBC said that the concept of separate withholding tax rates for filers & non-filers was introduced as a measure for increasing documentation of the economy.

    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 nonfilers. 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.

  • Massive under-invoicing by commercial importers destroying domestic industry: PBC

    Massive under-invoicing by commercial importers destroying domestic industry: PBC

    KARACHI: Pakistan Business Council (PBC) has said that massive under-invoicing especially by commercial Importers is destroying domestic industry.

    In its budget proposals for fiscal year 2020/2021, 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.”

    In order to resolve the problems, the PBC proposed 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 percent 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 percent. Presently, tax collected from commercial importers is treated as an advance tax. Final 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 percent 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.

    Transparency in collection of taxes will discourage mis-declaration, measures to discourage evasion of taxes and duties will help industry to fairly compete with unscrupulous imports and also Government stands to benefit from the increased indirect taxes revenues.

    It will also help in accountability of the customs staff and will reduce the incidence of Customs Duty & Sales Tax evasion and increase government revenues.

    The proposed change will help in boosting the manufacturing base of Pakistan, the PBC added.