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.
(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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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.
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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.
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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.”
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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.
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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.
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FBR recommended imposing environmental tax on industries producing polluting materials
KARACHI: Federal Board of Revenue (FBR) has been suggested to impose environmental tax on industries producing non-renewable and polluting materials.
Pakistan has a wide range of industries, which are involved in usage and production of nonrenewable, polluting materials that are extremely harmful for our environment.
“There are many entities, AOPs and sole proprietors who are not taxed because they either do not have taxable income or, they do not intend to disclose it properly while conducting their businesses that are damaging country’s environment,” said Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020..
The institute recommended that higher tax should be levied at non-renewable, polluting inputs and outputs, such as coal, automobiles, chlorine, phosphate detergents, chemical pesticides, chemical fertilizers, lead acid batteries and plastic etc.
“As an incentive, the organizations taking measures to preserve the environment may be made eligible for a tax credit,” it further suggested.
Pakistan is already lacking behind other developed and developing countries who are taking measures to safeguard their ecosystem.
“Introduction of this tax and tax credit would not only increase tax revenue and encourage multiple entities to file their return of income in order to avail the tax credit, but Pakistan will also be recognized as a country, which is taking an initiative to safeguard the environment,” ICAP suggested.
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ACCA opposes tax amnesty, recommends enforcement on available information
KARACHI: Association of Chartered Certified Accountants (ACCA) Pakistan has opposed tax amnesties and suggested the tax machinery to use available information with proper enforcement.
“Tax Amnesties without proper penal clauses had been a failure. With the strengthening of OECD, they should be done away with and focus should instead be shifted on using the organization’s platform to retrieve necessary information and ensure proper enforcement of applicable laws and regulations,” the association recommended this in its tax proposals for budget 2019/2020.
ACCA has presented detailed recommendations for bringing structural reforms in the taxation system while opposing any amnesty scheme in the presence of plethora of information maintained by the Federal Board of Revenue.
For the structural reforms following measures have been suggested by the ACCA:
• A single tax return for all taxation affairs of a taxpayer which all authorities can utilize to obtain the relevant data.
• Harmonization of taxation laws in the country.
• Resolving issues within IRIS to make it more user friendly
• Integration of Federal and Provincial Revenue Authorities’ systems and databases
Structural Reforms
• Reducing the discretionary powers vested in FBR officials and shifting towards an objective criteria based approach
• Developing the existing policy of differential tax treatments and incentives for filers while penalizing non-filers
• Introducing impact on economic sectors (GDP development) and numbers of decisions upheld at the appellate forums along with collections target as a performance evaluation criteria for FBR functionaries
• Ensuring time limits adherence as specified in the laws and rules particularly pertaining to refund matters
• Facilitating the tax payers
• Introducing confidence by establishing a swift response complaint resolution cell to deal with corruption and harassment of tax payers
• Change in discretionary powers of FBR for moveable and/or immovable property including bank accounts attachment to improve ease of doing business and trust of taxpayers in the tax apparatus. Limit the attachment powers to only cases involving concrete information re asset disposal.
• Ensuring no post remains vacant for more than two weeks to avoid delays in resolving tax-payers issues arising out of transfers, postings and additional charges, etc.
• Limiting charge on a single post in FBR to a maximum of two (2) years to discourage the corrupt practices and collaborations.
• Effective enforcement should be ensured by working on maximum automation of the taxation system.
• Effective enforcement should be ensured by working on maximum automation of the taxation system.
• Hiring and training of adequately qualified staff with ongoing capacity building should be focused on to ensure efficient and productive results from the tax apparatus.
• Appointing independent officials as Commissioner Appeals ideally from the judicial service and qualified accountants practicing taxation from various bodies including ACCA.
• ACCA is the largest Global accountancy body, which is now the largest in Pakistan too. Including ACCA members practicing taxation within the definition of accountant members for the Appellate Tribunal Inland Revenue will further strengthen the competition and meritocracy.
• Hiring and training of adequately qualified staff with ongoing capacity building should be focused on to ensure efficient and productive results from the tax apparatus.
• Limiting charge on a single post in FBR to a maximum of two (2) years to discourage the corrupt practices and collaborations.
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ACCA suggests making FBR immovable property values in line with fair market value to stop asset undervaluation
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Restriction on gold purchase by non-filers proposed
KARACHI: Federal Board of Revenue (FBR) has been suggested to restrict non-filers of income tax returns from purchasing gold bars, jewelry and other luxury goods in order to broaden tax net.
“In addition to the restriction on purchase of immovable property and motor vehicles by non-filers, the punishment should be made even severe by foisting a restriction or imposing an additional charge of tax, on non-filers upon purchase of other luxury goods, including gold bars and jewelry, paintings, antiques, electronics etc.”
The suggestions were made by Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020 in order to broaden the tax base and documentation of economy.
The institute said that the proposed restriction would eradicate the indifference between a filer and non-filer, and giving a sense of benefit to the filers, while non- filers should be penalized heavily.
Giving recommendations and rationales in this regard it said:
— Increase withholding income tax and sales tax for non-filers/unregistered persons by 50 percent higher rates; ‘further tax’ on sale to unregistered person should be increased to 5 percent.
— Extra tax on commercial and industrial utilities connection should be increased to 15 percent for unregistered person.
— Separate teams should be made and assigned responsibilities to visit the local shops, retail outlets and services providers to verify that proper sales tax invoices are generated and persons are registered with revenue authorities, if not they should be heavily penalized and compulsorily registered.
— All utility connections amounting to Rs2.4 million or more of non-filers should be forced to get registered by issuance of Show-Cause Notices.
In case of noncompliance, their utility connections should be disconnected.
— An additional charge of tax should be foisted on non-filers upon purchase of luxury goods, such as gold bars and jewelry, paintings, antiques, electronics etc.
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Omitting condition on input sales tax claim proposed where tax unpaid by supplier
KARACHI: Pakistan Business Council (PBC) has suggested to omitting the condition of disallowing input tax adjustment where tax unpaid by supplier.
In its tax proposals for budget 2019/2020, the PBC said that according to Section 8(1)(ca) of Sales Tax Act, 1990, input sales tax is not allowed where tax unpaid by supplier.
“A taxpayer is not entitled to claim input tax paid on the goods (or services) in respect of which sales tax has not been deposited in the government treasury by the respective suppliers.
The PBC said that this provision needs to be omitted especially after the implantation of the STRIVe system.
Giving rationale to the proposal, it said that the matter was challenged in the Lahore High Court (LHC), in a petition W.P.No.3515/2012 filed by D.G Khan Cement Company Limited.
LHC permitted relief and declared the provision as unconstitutional.
“With the implementation of the STRIVe system this is redundant,” the PBC said.
The PBC further said that based on the Doctrine of Revenue Neutrality and plethora of judgments of superior courts, it is now a settled principal of law that if any liability for short paid tax is subsequently discharged, then the same cannot be recovered from the taxpayer again.
However, unfortunately, such provision is not part of the Sales Tax Act, 1990.
It proposed that Sub-Section 4B should be inserted in Section 11 of the Sales Tax Act with the purpose of introducing “doctrine of revenue neutrality”.
It is a settled principal of law that if any liability for short paid tax is subsequently discharged, then the same cannot be recovered from the taxpayer again.
Proposed insertion in Section 11 of the Sales Tax Act 1990:
“(4B) Where at the time of recovery of sales tax under sub-section (1), (2), (3), or (4) and (4A), it is established that the sales tax that was required to be paid has been meanwhile been paid by that person or recovered from the supply chain, no recovery shall be made from the person who had failed pay the sales tax or had paid short-amount of sales tax.”