Category: Budget

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

FBR advised reducing income tax to half for exporters other than five zero-rated sectors

KARACHI: Federal Board of Revenue (FBR) has been suggested to reduce the income tax rate to half for exporters not falling under five zero-rating scheme in order to promote and diversification of exports.

Pakistan Business Council (PBC) in its tax proposals for forthcoming budget 2019/2020 said that at present the rate of tax deduction on export proceeds under Section 154 of Income Tax Ordinance, 2001 is one percent, which is same as for five export oriented sector as well as for other than five sectors.

The council said that in order to promote diversification of exports instead of relying on only five specified sectors, rate of tax on export proceeds should be reduced to 0.5 percent from one percent for sectors which are not covered under the five specified export oriented sectors.

Giving rationale for the change, it said that at present sales tax zero rating is available to five specified export oriented sectors on their input materials whereas such benefit is not available to other potential export sectors.

Moreover, gas supply is also available to five specified sectors at 600/MMBTU whereas rate of gas per MMBTU for non-conventional sectors is Rs780 in addition to GIDC, which makes potential export uncompetitive and consequently, Pakistan is unable to diversify export markets.

“In order to compensate such exporters and to promote export of other than five sectors, rate should be decreased to five percent for such sectors,” the PBC recommended.

The PBC further pointed out that manufacturing bond/DTRE rules are cumbersome and in certain cases lack clarity whereby many potential exporters cannot avail them. Consequently, it results in lost exports.

Therefore, it is recommended that manufacturing bond/DTRE rules should be modified to make it easily accessible and lend full clarity to allow exporters to fulfill potential export orders.

The proposed amendment would increase exports by facilitating existing and potential exporters.

May 17, 2019

PTBA recommends eliminating 12 provisions of withholding tax in next budget

KARACHI: Pakistan Tax Bar Association (PTBA) has recommended abolishing 12 different provisions of withholding income tax in order reduce the cost of business.

The apex tax bar of the country in its tax proposals for upcoming budget 2019/2020 recommended rationalization of withholding tax regime and in the first step it suggested eliminating 12 withholding tax rates.

The PTBA said that withholding tax regime significantly impacts the taxpayers and Inland Revenue Officers (IRO) alike.

On one hand, the regime increases the cost of doing business for a taxpayer and, on the other hand, it forces IROs to devote numerous resources in monitoring of withholding taxes.

The monitoring of taxes’ goal can be achieved by out sourcing the professional auditor firm and ability of the officer may be used for other work.

Even with the best efforts of the IROs, it is practically impossible to plug all the leakages of taxes withheld and deposit into the national exchequer.

“Globally the withholding tax regime is only applicable to persons whose income is difficult to determine, easier to evade or more likely to cross national boundaries. Currently, in Pakistan, withholding tax regime has been made applicable to almost all the categories of taxpayers and nature of payment under 49 provisions of law been weaved into the indirect taxes,” the PTBA said.

PTBA recommended revamping and rationalize of Withholding Tax Regime in order to reduce cost of doing business, complexity in the taxation laws and leakages in tax collection.

As a first step, it recommended following provisions of law may be withdrawn in which no substantial revenue is being collected in the last three years and eight months of current fiscal year:-

Sr. No.	Section	Description	2018-19 [Estimated on the basis of actual up to March, 2019]	2017-18	2016-17	2015-16
01	156B	Withdrawal of balance under Pension Fund.	100	136	86	76
02	235A	Domestic electricity consumption.	917	792	312	1,730
03	236B	Advance tax on purchase of air ticket.	559	484	303	495
04	236D	Advance tax on functions and gathering.	965	839	783	622
05	236F	Advance tax on cable operators and other electronic media.	49	24	19	21
06	236J	Advance tax on dealers, commission agents and arhatis etc.	136	123	123	109
07	236L	Advance tax on purchase of international air ticket.	1,131	1,257	1,331	999
08	236Q	Payment to resident for use of machinery and equipment.	644	619	328	174
09	236R	Collection of advance tax on education related expenses remitted abroad	543	397	339	367
10	236S	Dividend in specie.	3	20	452	623
11	236U	Advance tax on insurance premium.	424	485	397	–
12.	236V	Advance tax on extraction of minerals.	–	0.1	–	–
Total	–	–	–	–

May 17, 2019

Sales tax rate in Pakistan highest in region: ACCA

KARACHI: Association of Chartered Certified Accountants (ACCA) has said that the existing sales tax rate of 17 percent in Pakistan is the highest in the region.

The existing rate of Sales Tax at 17 percent is one of the highest in the region with an average of around 12 percent in Asia (15 percent in India and Bangladesh, 10 percent in Indonesia and just 6 percent in Malaysia), ACCA said in its tax proposals for budget 2019/2020.

Sales Tax should be used to broaden the tax base and not as a replacement of direct taxation.

In order to avoid the net negative costs for the economy, the rate should be brought down to single digit in a phased manner with a proposed reduction to 14 percent.

The association also recommended harmonization of inter-provincial and federal-provincial taxation for avoiding double taxation.

It said that the conflicts between various provincial revenue authorities and the federation are resulting in double taxation of services owing to the classification and jurisdiction disputes.

Also, standardizing the applicable rates while also reducing them could facilitate the businesses while also increasing the tax revenues simultaneously.

Similarly, the lack of inter-provincial harmonization also results in double taxation of services owing to the classification and jurisdiction disputes.

These issues should be resolved to create a business-friendly environment and facilitate the tax-payers.

Point of origination or deliverance of services can be agreed upon by all revenue authorities as the basis of classification and the resulting jurisdiction to resolve the major inconvenience to the taxpayers.

The ACCA highlighted the issue of adjustable input tax and said with the introduction of the STRIVE system resulting online matching of invoices, the chances of sales tax fraud and/or error have been minimized.

Therefore the current restriction of limiting the input tax adjustment to 90 percent (ninety percent) of the output tax is outdated and needs to be abolished.

This will be in line with the principles of fairness, equity and justice for all and help restore the confidence of businesses.

The association also pointed out revision of sales tax return and said this should be made easy and automated as with the STRIVE system in place, chance of tax fraud are minimized to the maximum possible extent as claimed by FBR.

It further pointed out that in line with the principles of fairness, equity and justice for all, the appeals should be heard by a person not under the administrative jurisdiction/influence of FBR.

May 17, 2019
FBR recommended to exempt income tax on mortgage loans to facilitate salaried persons

KARACHI: Federal Board of Revenue (FBR) has been recommended to exempt income tax on mortgage loans in order to facilitate salaried persons.

Currently the loans obtained from the employer below Benchmark interest rate is subject to tax, said Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020.

It recommended that the taxation of marginal income on loans obtained from the employer below benchmark rate should be exempted by deleting sub-section (7) of Section 13 of Income Tax Ordinance, 2001.

Alternatively, the minimum threshold of the loan amount on which the provisions of Section 13(7) would not be attracted, should be raised to at least Rs2,500,000 from the existing limit of Rs1,000,000.

Moreover, current benchmark rate of 10 percent of much higher than the prevailing KIBOR rates, therefore, benchmark rate should be reduced suitably to somewhere near KIBOR rate.

“Alternatively, at least the mortgage loans should be exempted from the operation of Section 13(7) of the Income Tax Ordinance, 2001.”

The institute said that this is not a significant source of revenue for the Government on the one hand and very rigid piece of legislation on the salaried taxpayer on the other hand who are hard hit by the present economic situation.

The taxation of this notional income is highly unjust since it taxes the notional income of the salaried person, which is against the basic principle of taxation since this notional income will never ever be received by the taxpayer.

Similar notional income in the hands of employees of educational institutions, restaurants, hospitals, clinics etc. is already exempt under clause (53A) of Part I of Second Schedule.

The rationale underlying this proposal is that:

a) It will boost the housing industry since in today’s economic situation and the presence of speculators in the property market it is next to impossible for a salaried employee to own a house on commercial mark-up rates. Once this industry takes off there will be provision of cheap houses and there will be increase in tax revenue from housing and allied sector;

b) It will contribute in enhancing the national economic activity by extending affordable loans and advances to middle class income group of society;

c) It will remove detrimental financial ramifications due to incremental rate of interest on notional income for all other salaried persons, who are already facing a tough challenge to survive within their paltry resources- all legally declared and tax paid; and

d) The FBR is also cognizant of this fact by stating in Clause (53A) that “any other perquisite or benefit for which the employer does not have to bear any marginal cost; and the Circular Letter 4(8)IT-J/91 dated June 30, 1991 issued by then CBR opines that “…it is not desirable to tax such notional income…”. The same principle should be applied in this situation.

May 16, 2019
FBR suggested abolishing withholding tax for corporate manufacturers

KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish withholding tax on import stage for corporate manufacturers in order to attract investment in the country.
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May 16, 2019
PTBA recommends outsourcing potential taxpayers profiling to data mining company

KARACHI: Pakistan Tax Bar Association (PTBA) has suggested the Federal Board of Revenue (FBR) to outsource the preparation of profiling potential taxpayers to a data mining company for broadening of tax base.

The PTBA in its tax proposals for budget 2019/2020 suggested the tax machinery that the assignment of preparation of profile of potential taxpayers/registered person be out sourced to a data mining company in line with the responsibility of collection of tax on capital gains given to the National Clearing Company of Pakistan.

“This company should only be allowed to collect the following information and present the potential taxpayer’s profile to the FBR’s BTB department to take appropriate action in accordance with law.”

The PTBA said that Pakistan was facing a challenge with regards to the widening of the current tax base to prevent tax-revenue erosion.

Although in the current year number of Active Taxpayer has improved; however since many years, Pakistan’s registered tax base has been more or less stable at less than 1 percent of the total population.

Over the last few years, the concept of filers and non-filers has been introduced in order to encourage increased filing of returns of income.

However, such amendments have not been able to increase the tax base by many folds as envisaged.

On the other hand has increased the burden of withholding agents by prescribing different withholding rates based on the Active Taxpayers List without achieving any significant progress inroads on the actual tax compliance rates.

In reality bulk of the increased cost due to higher tax rates for non-filer, has been passed on by the unregistered persons to the end consumer by enhancing cost of goods /services to gross up the impact of higher withholding.

The PTBA also proposed that a new team comprising of young IT expert, Accountants and Tax experts should be hired for BTB department.

A task force comprising of independent professionals and top officials be formed to monitor the work assigned to the data mining company and ensure that the BTB department operates efficiently and effectively to ensure the progress in broadening of tax base activity by FBR.

The effective enforcement should be made in accordance with Section 114 of the ITO. The government and FBR on its part should ensure that the relevant provisions of law are implemented in letter and spirit without any distinction on the basis of cast, creed, color and clout to achieve the goal of broadening the tax base.

A complete profile consisting of CNIC, Firm/Company registration-wise of the taxpayer may be prepared generated by maintaining a data base of all the:-

Owners and holders/allottee of the industrial, commercial, residential and agriculture properties;

Private motor vehicles;

Club membership;

International traveling;

Utilities;

credit cards;

investment in bank deposits;

Investment in national saving schemes;

investments in Capital Market; and

Major expenditure (i.e. Rs.300,000/- & above) incurred on account of hospitalization, parties at hotels and schooling of dependents.

Submission of quarterly statements by the Registrars & Housing Societies for registration/transfer of Immovable Property (Industrial Commercial, Residential & Agricultural), Motor Vehicle Registration Authorities, Clubs (Private & Public), Credit Card issuing authorities, Central Depository Company, National Clearing Company of Pakistan, large scale private hospitals, hotels & schools and Financial Institutions distributing profit more than statutory taxable limit or granted commercial loans, should be made mandatory.

Jurisdiction other than Company should, for some time, be reverted strictly to geographical basis to avoid duplication and slippages of potential tax filers.

Tax credit at the rate of 5% be restored and provided to those taxpayers whose 90% Sales and Purchase of Goods are from persons who are registered as Sales Tax and Income Tax taxpayers.

The PTBA said that the proposed amendments would result in increased visibility of potential taxpayers and incentivize registration with the tax authorities without increasing the burden on existing taxpayers.

May 15, 2019
FPCCI invites FBR chairman for budget proposals discussions

KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has invited Shabbar Zaidi, Chairman of Federal Board of Revenue (FBR) to discuss budget proposals.

A statement issued on Tuesday said that the President FPCCI Engr. Daroo Khan Achakzai alongwith Abdul Waheed Sheikh, Ijaz Khan Abbasi, Qurban Ali and Shireen Arshad Khan, Vice Presidents of FPCCI visited the office of Shabbar Zaidi congratulating him on assuming the charge of Chairman FBR.

During the meeting the President FPCCI discussed various measures and proposals particularly for enhancement in number of tax payers and to increase their confidence level to achieve the set targets of revenues.

Engr. Daroo Khan Achakzai further said that misuse of powers by the tax authorities is creating trust deficit and lack of confidence.

The FPCCI Chief hailed the prompt decisions taken by the FBR’s Chairman in facilitating and providing relief to the taxpayers such as “Suspension of raid on any premises of any existing taxpayer without prior approval of Member IR – Operation and Chairman FBR”.

Moreover, the FPCCI President also appreciated the Chairman FBR for not suspending any Active Taxpayer from Active Taxpayer List unless there is personal interaction with the assessee 24 hours before suspension and monitoring himself the list of all cases of suspension. The President of FPCCI also lauded Shabbar Zaidi, Chairman, FBR for not freezing bank account without prior intimation and notice to the bank account holder. The FBR Chief further said that the real estate is fast growing sector of the economy and FBR will devise various reforms. The tax amnesty scheme is also under process and will be announced soon, he stated.

The President FPCCI Engr. Daroo Khan Achakzai invited the Chairman FBR to visit FPCCI Headquarter at Karachi and its Capital Office Islamabad to discuss FPCCI’s budget proposals and to share vision to revamp the tax system and machinery which is now the need of hour to be shifted in effective automated system to facilitate the taxpayers.

The Chairman FBR agreed to visit the FPCCI soon to get feedback and first-hand information from FPCCI members and apprised them of FBR’s stance / point of view.

May 14, 2019
FBR advised making declaration of fund source mandatory for foreign remittances

KARACHI: Federal Board of Revenue (FBR) has been advised to make it mandatory the declaration of source of funds for foreign remittances.

Association of Chartered Certified Accountants (ACCA) in its tax proposals for budget 2019/2020 recommended changes to Section 111(4) of Income Tax Ordinance, 2001 regarding foreign exchange remitted from outside Pakistan.

The association recommended amendment:

“to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect … and a declaration along-with evidence of the source of funds.”

It said that this will continue to promote the inflow of foreign exchange remittances towards the country while stopping the misuse of the provision to whiten/launder black monies and de-incentivizing genuine tax paying businesses.

“This way, the ‘non enquiry’ clause which has been extensively abused, will be abolished sans the current monetary limit while still retaining the tax relief for foreign exchange remittance.

The ACCA further said that the minimum tax on turnover is charged irrespective of the net profit or loss.

This often gives rise to a situation where businesses end up paying double taxes on their revenues and profits as well as loss making businesses facing additional cash-flow pressures by paying this tax.

The current rate of 1.25 percent applicable generally except for a few sectors, should be brought down to 0.4 percent.

The now deleted exception in case of a gross loss needs to be reinstated in line with the principles of natural justice and equity.

This will facilitate the business eco-system contributing to a growth in GPD which can lead to increased revenue collections for the treasury.

The association further highlighted Section 138 and 140 of the Ordinance regarding recovery of tax through attachment of bank accounts and/or property or arrest.

It said that currently, the allowance for the commissioner to attach the property of the taxpayer before expiry of notice period on “satisfaction” of the commissioner regarding possible removal, cancellation or disposal of attachable property is misused in many cases to harass the businesses.

This change can bring an end to this, increase taxpayers’ trust in the tax apparatus and improve the ease of doing business in the country.

“Any such attachment of any movable/immovable property before expiry of the notice period may only be authorized by the Commissioner in the presence of objective evidence, which should be shared with the taxpayer.”

May 14, 2019
KTBA suggests full fledged VAT, reduction in sales tax rate to 10pc

KARACHI: Karachi Tax Bar Association (KTBA) has suggested the tax authorities for introduction of full fledged value-added tax (VAT) and reduction of sale tax rate up to 10 percent in order to discourage under invoicing, corruption and smuggling.

The KTBA recently organized pre-budget seminar to formulate tax proposals for budget 2019/2020. Saud-ul-Hassan, Director Tax at EY Ford Rhodes presented issues pertaining to sales tax.

He said that the VAT system was adopted for documentation of economy. However, presently the Sales Tax Act, 1990 is a blend of numerous, included:

— exemption; zero-rating, subsidized/reduced rates;

— fixed tax regimes, extra tax, further tax, value addition tax;

— withholding tax provisions;

— various restrictions on claiming input tax; and

— various special regimes.

He recommended that all the distortions in VAT system should be removed and full fledged uniformed VAT system should be adopted.

“This will provide a level playing field for all registered persons and restore their confidence,” he said and added that it would ensure proper documentation of economy and a genuine increase in the tax to GDP ratio.

Highlighting the higher sales tax rate at 17 percent, he said that it was coupled with various increasing conditions such as further tax, extra tax, minimum VAT etc.

Further restrictions on claim of input tax, the sales tax cost (effective rate) is further enhanced. “Such outlook on a tax compliant person promotes tax evasion in the masses,” he added.

It is suggested that the tax rate may be brought down to 15 percent and gradually up to 10 percent. “The reduced rate will encourage the unregistered persons to get themselves registered.”

“It will also result in broadening of tax base and documentation of economy and discourage under invoicing, corruption and smuggling,” he added.

Pointing out the issue of extra tax levied on certain goods, which disallowed input tax, he said recommended that in order to reduce the cost of doing business the extra tax should not be levied on goods sold to manufacturers for their own use.

He said that through the Sales Tax General Order 27 of 2014, the FBR had exempted the supply of parts and accessories to the automobile manufacturers from the levy of extra tax, however, other manufacturers have not been granted similar exemption.

May 13, 2019
FBR suggested to abolish FTR for commercial importers

KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish Final Tax Regime (FTR) for commercial importers and other segment of the economy in order to make the taxation system equitable.

FBR sources said that suggestions had been received from business community and large business houses to eliminate the FTR and presumptive tax regime.

The sources said that large private sector entities and chartered accountants urged the newly appointed chairman Shabbar Zaidi, who is also a chartered accountant and had represented Institute of Chartered Accountants of Pakistan (ICAP), to status of normal tax regime for commercial importers should be restored.

The ICAP in its tax proposal for tax year 2019/2020 said that certain sectors/goods are being taxed under the presumptive/value added/ fixed/ final tax regimes.

Pakistan Business Council (PBC) also said that the presumptive/value added/fixed/final tax regimes are taxing turnover as opposed to income. In addition, entities availing this regime are not required to file tax returns.

“Under garb of the FTR, massive evasion of customs duties and sales tax are taking place putting the formal sector under undue pressure.”

The informal economy has outgrown the formal economy and the major driver of this has been the FTR.

The FBR said that the chartered accountants were strongly supporting elimination of FTR for commercial importers and recommended: “commercial importers status under Normal Tax Regime as introduced through the Finance Act, 2018 should be restored.”

They said that the presumptive/ value added/ fixed / final tax regime should be replaced with a normal tax regime.

Income has to be the only basis for taxation and option to exit the tax chain should not be available for whatever reason.

May 12, 2019