Pkrevenue.com

Category: Budget

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

  • FBR recommended imposing environmental tax on industries producing polluting materials

    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.

  • ACCA opposes tax amnesty, recommends enforcement on available information

    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.

    Related Stories

    ACCA suggests making FBR immovable property values in line with fair market value to stop asset undervaluation

  • Restriction on gold purchase by non-filers proposed

    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.

  • Omitting condition on input sales tax claim proposed where tax unpaid by supplier

    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.”

  • Imposition of digital tax at 30 percent proposed

    Imposition of digital tax at 30 percent proposed

    KARACHI: Federal Board of Revenue (FBR) has been proposed for imposing digital tax at 30 percent in the budget 2019/2020.

    Chartered Accountants have suggested the imposition of digital tax from next tax year as OECD had started thinking of appropriately taxing the digitalized economy.

    Institute of Chartered Accountants of Pakistan (ICAP) in its budget proposals recommended the FBR that till the time proper mechanism was devised, a digital tax can be initially introduced at the rate of 30 percent (on non-resident companies having no establishment in Pakistan) only on their income from advertisements from Pakistan.

    It further added that policies should be developed in line with best practices from other countries, which should later be implemented with special consideration for companies setting up businesses in Pakistan.

    International social networking and retail websites, such as Alphabet, Facebook and Apple, are earning massive revenues from corporates and consumers in Pakistan by way of:

    — Advertisement on their websites,

    — Sharing consumer profiles / data with the corporates in Pakistan and to corporates and governments outside Pakistan, etc.

    “Despite all the revenues collected from consumers in Pakistan, these companies are not adequately taxed as they are not established within the country,” the ICAP said.

    These companies are also denting Pakistan’s local tech industry by eating up majority of the local advertisements, whereas their interests are not to set up business in Pakistan.

    Despite there are companies, like Ali Pay, who are now investing in Pakistan and have put their money in tech companies, like ‘Daraz’ and ‘Telenor Bank’.

    These businesses should be rather incentivized by charging high tax on non-resident companies not having their stakes in Pakistan despite earing significantly.

    “This will also encourage local software service providers to get registered and earn from local advertisements.”

    The ICAP further suggested identifying tax leakage areas / sectors prone to easy-escape tax net

    An efficient and effective collection platform is required to replace cash economy through digitization e.g. Jazz Cash or Easy Paisa or replacing this with a State Platform.

    The chartered accountants recommended that banks, insurance companies and branchless banking networks should be the ones recovering the taxes.

    The FBR together with firms / institutions must organize tax education campaigns (in digital, print and social media) in both Urban and Rural Areas.

  • PBC presents tax proposals for reducing cost of doing business

    PBC presents tax proposals for reducing cost of doing business

    KARACHI: Pakistan Business Council (PBC) has suggested measures for reducing cost of doing business and promoting manufacturing and industrialization.

    In its tax proposals for budget 20119/2020, the PBC suggested following measures for reducing cost of doing business:

    Exemption from collection of Withholding tax under section 148 at import stage & exemption for manufacturing concerns under Section 153

    Procedures and rules for obtaining exemption certificates for import of plant & machinery and Raw material by tax payers have serious restrictions which causes hardship.

    Proposed Change

    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 section 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.

    Rationale for Change

    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.

    Estimate and Payment of Advance Tax Section 147

    The time for making the estimate of income has been changed by the Finance Act, 2015 from ‘before the last installment is due’. 50 percent of the difference is required to be paid along with the 2nd installment and 50 percent of the difference with 3rd and 4th installments in two equal installments.

    Furthermore; Finance Act, 2018 has required the taxpayer to submit the actual turnover of completed quarters of the tax year with estimate (submitted earlier) and reasons for variations thereto along with documentary evidences. The Commissioner is now also empowered to reject the estimate, if he is not satisfied by the reasons and evidence of such variation.

    Proposal

    We recommend that this sub-section be restored to its original position (before finance bill 2018-19) whereby the taxpayers can file its best judged estimate without any questioning by the tax department. Moreover; section 205 (1B) relating to default surcharge becomes redundant if inquiry is made at the end of every quarter.

    Rationale

    This amendment / addition to the existing provisions of advance tax estimates may lead to unnecessary harassment of the advance income Tax payers, who are usually from the organized corporate sector for the simple fact that it is totally impracticable to provide detailed documentary evidences of the ‘estimated expenses or deductions’ which are to happen in the future and have to be worked out by the tax payer based on the business forecasts and projections.

    Section 147(6), as amended vide Finance Act, 2018, also empowers the Commissioner to consider rejection of the estimate, if the above information is not made available by the tax payer; which is a very harsh and authoritative provision, since the tax payer is always in the best position to make their own estimates since he /she knows their business.

    Alternate Corporate Tax

    Under Section 113, corporates are subject to one of three income tax regimes-Alternate Corporate Tax (ACT), Minimum Turnover Tax or Normal Tax Regime.

    Proposal

    ACT is a major hindrance towards capital investment as newly incorporated companies or those companies, which make huge capital investments for expansion, extension or BMR are not practically able to get the benefits of initial allowance owing to the fact that such allowance is available only against the taxable income whereas in case of huge capital investment resulting in higher initial allowance and consequently lower taxable income, tax payer usually falls under the ACT regime against which the benefit of adjustment of initial allowance is not available.

    Rationale

    It results in triple jeopardy (after NTR and Minimum Tax under section 113) and is most likely to be not accepted by Court as only one capacity tax is possible as per the constitution read with SCP order in case of Elahi Cotton.

    Moreover, real benefit of initial allowance/ first year allowance is not available owing to the applicability of ACT.

    SRO 250 dated February 26, 2019

    SRO has been introduced for the electronic monitoring and tracking of the goods mentioned therein i.e. goods of tobacco, beverages, sugar, fertilizer and cement industries. Fee for the operation of this SRO will be recovered by the licensee (private firms) from the companies in the above mentioned industries.

    Proposal

    This SRO should be amended suitably to ensure that the Administrative cost of operation /activities in this SRO should not be borne by the manufacturers of goods.

    Rationale

    It is mentioned in the SRO that the cost of activities in relation to this SRO will be borne by the manufacturers of goods. This is against the main objective of the current government to provide ease of doing business for the manufacturing industries since, as per this SRO, the teams operating this electronic monitoring equipment will sit at the manufacturing premises of the companies and the cost of the operating such equipment along with licensee marking fee will be recovered from the manufacturing companies.

    Rule 43, Income Tax Rule 2002

    Presently the taxpayer has to deposit the withholding tax deducted fortnightly, i.e. within seven days from the end of each week ending on every Sunday.

    In addition, certain WHT agents do not deposit on time and some agents do not deposit at all. This also includes agencies /govt. Organizations in respect of WHT, where CPR is not provided hence revenue leakages to government in the absence of WHT deposit.

    On the other hand, where WHT is deducted by agencies /govt. Organizations but do not provide system (IRIS) generated CPR as they do not enter in the system. Therefore assesse cannot get input benefit due to non-availability of CPR from IRIS system on account of WHT in spite.

    Proposal

    Timeline of 7 to 13 days be extended to one week after the month. IRIS system should be applicable for all withholding agent including agencies /government organizations and CPR in respect of WHT Facing authority be available from IRIS.

    Rationale

    Ease of doing business and facilitate withholding tax agents. Control Revenue leakage as well assesse can claim input tax properly thus neither it is loss to authority nor the assesse. In the absence of non-availiblity of CPR, this is an extra cost for doing business.

    Section 8(1)(j)

    introduced through Finance Act, 2015, where in a restriction has been imposed on claiming input on services which are not allowed in provincial sales tax on services Act(s).

    Proposal

    Section 8(1)(j)of the Sales Tax Act, 1990 should be deleted.

    Rationale

    Since input tax sales tax on reduced rate services is not available for adjustment, this increases the cost of doing business. Currently there are more than 25 services under respective provincial sales tax on services Act(s).

    PBC is pursuing this matter with the provincial authorities also.

    Section 156-Prizes and winnings:

    Section 156 of the ITO 2001 requires a Company to deduct 20 percent tax on “prize offered by companies for promotion of sale”

    Prize and winnings-(1) Every person paying of prize bonds, or winning from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sale to end consumers, or cross-word puzzle shall deduct tax…………..

    The clear intention of this section is to capture tax through withholding at source from persons who are recipients of these prizes or winnings; the intention is not to tax any person who belongs to the supply chain of the companies who offer prize for promotion of sales. The income of the supply chain i.e. dealers, distributors is subjected to withholding tax in the shape of withholding taxes imposed under separate withholding regimes. It is therefore suggested that to clear any ambiguity in law regarding application of this section, it may be amended to add the term “end consumers” to oust any person in the supply chain from the ambit of this section.

    Section 153(1)(a)

    Section 153(1)(a) withholding income tax on supplies by distributors of FMCG products is two percent for companies and 2.5 percent for others. This rate is quite high for industries dealing in bulk commodities/large volume but low margin products.

    Proposal

    Rate for withholding tax on FMCG distributors should be aligned with section 113 of the Income Tax Ordinance, 2001 i.e. Minimum tax on FMCG distributor is 0.2 percent.

    Rationale

    Current situation is leading to build up huge refunds / blockage of funds for the distributors since minimum tax charging rate is 0.2 percent whereas withholding is up to 2.5 percent.

    Due to amendments in the definition of withholding agents the tax withheld on the receipts of the distributors has increased significantly.

    Section 8B

    (1)Not withstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety percent of the output tax for that period.

    Proposal

    (1) Not withstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety-five percent of the output tax for that period.

    Rationale

    Will allow better management of cash flows

    Clause 18B of Part ii of the Second Schedule-Tax credit for Shariah Complaint Companies.

    Income Tax Ordinance on the one hand requires the corporate sector to fulfill the prescribed Shariah compliance criteria approved by SECP (as per Clause 18B of Part ii of the second schedule to the Tax Ordinance) whereas, on the other hand, Income Tax Rules, as prescribed by FBR (via Rule 231H )still remain applicable and are in conflict with the SECP Regulations.

    Further, Clause 18B of Part ii of the Second Schedule is reproduced below:

    The rate of tax as specified in Division II of Part I of the First Schedule shall be reduced by 2 percent in case of a company whose shares are traded on Stock Exchange if :

    (a)it fulfils prescribed Shariah compliant criteria approved by State Bank of Pakistan, Securities and Exchange Commission of Pakistan and the Board;

    (b)derives income from manufacturing activities only.

    (c)has declared taxable income for the last three consecutive tax years.

    (d)has issued dividend for the last five consecutive tax years.

    Proposal

    Since the SECP has notified Regulations for Shariah Compliant Companies, Rule 231H should be deleted.

    Further, Clause 18B be amended as below :The rate of tax as specified in Division ii of Part I of the first Schedule shall be reduced by 2 percent in case of a company whose shares are traded on stock exchange if:

    (a) it fulfils prescribed Shariah compliant criteria approved by Securities and Exchange Commission of Pakistan.

    (b) derives majority or more than 50 percent income from manufacturing activities.

    Rationale

    SECP being the Regulatory Authority for legislation and promulgation of Companies governance laws in Pakistan, holds the right infrastructure including a Shariah Compliance Department and the expertise to determine and regulate compliance with Shariah governance regulations, 2018.

    Reduced Rate of WHT on Export Proceeds

    At present, rate of tax deduction on export proceeds under section 154 is 1 percent which is same as for five export oriented sectors as well as for other than five sectors.

    Proposal

    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 1 percent for sectors which are not covered under the five specified export oriented sectors.

    Rationale

    At present, sales tax 0 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 @ 600/MMBtu whereas rate of gas per MMBTU for non -conventional sector is Rs. 780 in addition to GIDC, which make 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 0.5 percent for such sectors.

    Manufacturing Bond /DTRE rules are cumbersome and in certain cases lack clarity whereby many potential exporters can not avail them. Consequently, it results in LOST EXPORTS.

    Proposal

    Manufacturing bond/ DTRE rules need to be modified to make it easily accessible and lend full clarity to allow exporters to fulfill potential export orders.

    Rationale

    To increase exports by facilitating existing and potential exporters.

  • ACCA suggests making FBR immovable property values in line with fair market value to stop asset undervaluation

    ACCA suggests making FBR immovable property values in line with fair market value to stop asset undervaluation

    KARACHI: Association of Chartered Certified Accountants (ACCA) Pakistan has urged the Federal Board of Revenue (FBR) to bring the immovable property values in line with fair market values to discourage under-valued asset declarations.

    (more…)
  • ICAP recommends harmonization of federal, provincial tax laws

    ICAP recommends harmonization of federal, provincial tax laws

    KARACHI: Institute of Chartered Accountants of Pakistan (ICAP) has recommended harmonization of federal and provincial tax laws to facilitate the taxpayers.

    In its budget proposals for fiscal year 2019/2020 the ICAP suggested following measures for harmonization of federal and provincial taxes:

    Integration of Taxation Authorities for One-Window Solution

    The ICAP believes, there should be a strong integration of all revenue authorities in such a way that each authority would maintain its existence but should provide one-window solution for the taxpayer.

    This would be not only for enabling inter-adjustment of refunds, but also for one return for both the Federal and Provincial Taxes.

    In this regard, STRIVE should be implemented at provincial level also along with integration with the Federal return.

    The Federal Board of Revenue (FBR) is practically not allowing refunds for Provincial sales tax, owing to settlement disputes / claims pending with the Provincial Tax Authorities.

    Further, unnecessary notices are issued against input tax claims, on account of non-verification of Provincial sales tax in FBR’s system.

    This issue needs to be taken up with the Provincial sales tax authorities for its resolution at the earliest.

    Federal and Provincial Policies – Enforcing Uniformity

    A policy board comprising Chairman of the FBR as well as the Provincial Boards should be formed to ensure uniformity in policies, tax rates and procedures of the Federal and Provincial Revenue Boards. Standard Schedule of services should also be introduced.

    Classification rules play a vital role and are generally crucial in the identification of a correct tariff heading for levying tax.

    The provincial statutes should provide classification of taxable services in a more consistent manner to provide clarity and help reducing unnecessary litigation.

    Sales Tax Rate to be Standardized

    Another key area for correction is different Sales Tax rates prevailing across provinces. For example, standard rate of sales tax in Punjab is 16 percent, which is high as compared to other provinces and, therefore, needs some standardization.

    Standard rate of Sales Tax should be reduced to 13 percent, in line with the SST to attract more taxpayers into the tax net; reduce cost of doing business; and bring equity with other provinces.

    Concept of Reverse Charge under Provincial Sales Tax on Services

    All Provincial Statues provide that service provided by a non-resident service provider is liable to tax under reverse charge mechanism i.e. in the hand of service recipient.

    A nonresident has been defined as a person who is not registered with the relevant provincial statute.

    Concept of reverse charge is used in many countries so that service exporters do not have to get themselves registered in the jurisdiction of the service importer.

    In Pakistan, inter-provincial transactions are not zero-rated, or exempt in the jurisdiction of origin.

    Accordingly, such a tax framework is tantamount to double taxation in case where service provider is located in other province of Pakistan, because the service provider becomes liable to tax in his/her respective Province; while the recipient of service becomes liable to tax in the Province of his/her residence.

    It is suggested that the reverse charge should be restricted to such cases where service provider is located outside Pakistan.

    Further, tax paid under the reverse charge mechanism should be allowed as an input tax.

    Export of Services

    Unlike STA, zero rating of services is not available in other provincial statutes in line with the best international practices.

    In PSTSA, zero rating is allowed on the basis of certain harsh conditionalities; while under SSTSA, such benefit is only extended to Accountants & Auditors and Software Consultants.

    Zero rating on export of all taxable services should be allowed without any conditionalities by all provinces in order to promote export of services in the international market, and to harmonize the service tax laws with the federal tax law; in line with the best international practices.

    Time to claim Input Tax

    Presently, the time to claim input tax credit in all provinces is six months, and that in PRA is four months from the end of the relevant tax period.

    Such period is insufficient and does not cater to business needs.

    It is, therefore, suggested that the time period for claiming input tax credit be consistent across all the Provincial Statutes and be also increased to one year.

    Single Base for Calculating Property Related Taxes

    It is proposed that a single base be defined to calculate all the Provincial and Federal taxes applicable on acquisition and disposal of property.

    This would help in documentation of the untaxed money parked in the real estate sector. Appropriate changes in the Constitution of Pakistan are also desired for the purpose.

    Sales Tax Withholding

    Except for Punjab, all the Provinces require withholding of sales tax for registered / active taxpayers as well. This results in unwarranted administrative and operational issues.

    In this regard, it is suggested that in all the Provinces, sales tax withholding be exempted in cases where service provider is registered. Where a service is provided by an unregistered person to the registered service recipient, the liability to pay the tax practically falls upon the

    person receiving the service in almost all cases.

    The whole amount of sales tax is required to be withheld from the payment made to the unregistered person.

    It is suggested that the rate of withholding tax for unregistered service providers may be reduced to 1 percent; in line with the Federal Sales Tax Rules.

  • Smuggling through ATT biggest threat to economic growth: PBC

    Smuggling through ATT biggest threat to economic growth: PBC

    KARACHI: Pakistan Business Council (PBC) in its budget proposals 2019/2020 has said that smuggling through Afghan Transit Trade is the biggest threat for economic growth of the country.

    “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,” the council said.

    Smuggled goods through the borders of Afghanistan, Iran, China, India and the Afghan Transit Trade from a chunk of the informal economy, volume of which ranges between 50-60 percent of the formal economy, the PCB said.

    “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,” it said.

    The PBC suggested that goods moving under Afghan Transit Trade (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 and taxes so paid should be deposited with the State Bank in the US Dollar. Further, a quantitative restriction should be applied on goods moving under ATT on the basis of consumption.

    Giving rationale of the proposal, the PBC said that it would allow industry to fairly compete with unscrupulous imports, government to benefit from increased revenue.

    The PBC also suggested rationalizing import tariff to promote domestic manufacturing.

    The council said that the tariff structure had been distorted due to constant changes in the duty rates, the tariff structure was originally designed to support domestic manufacturing, however, changes in rates of import duties coupled with imposition of regulatory duty had led to situation where the tariff on finished products was less than that on the raw or intermediate goods.

    It said that a detailed tariff exercise with the objective of rationalizing the duty structure to promote domestic manufacturing was underway. Therefore, industry needs to be taken into confident in this matter.

  • Chartered Accountants declare documenting agriculture income must for tax reforms

    Chartered Accountants declare documenting agriculture income must for tax reforms

    KARACHI: The Institute of Chartered Accountants of Pakistan (ICAP) has said that documentation of agriculture income is must for bringing tax reforms in the country.

    In its budget proposals for year 2019/2020 the ICAP said that there was a serious need of brining taxation of agriculture income under a more transparent and documented manner.

    “Capacity building of Provincial Authorities, in this regard, is required to be undertaken by the federal government,” it said.

    Though taxation of agricultural income may remain with the provinces under the Constitution but there is no bar on federal government in documenting agricultural income, so that the agricultural assets and income earned there from are identified and not used for under reporting and mis-declaration, it added.

    Following are the other proposals of the ICAP for tax reforms:

    Effective Utilization of Available Database

    The basic source for broadening of the existing Tax Base is financial transactions carried out by the persons who avoid filing tax returns.

    All major financial transactions require CNIC number and the FBR should remain in touch with these authorities/offices to collect information.

    The ICAP believes a proper mechanism is central to this issue and needs to be introduced in the law to bring the potential unregistered persons, whose information is already available in the shape of NTN/CNIC, through withholding provisions. Further, all the bank accounts (including existing bank accounts) should mandatorily be tagged with tax registration.

    As such, banks should only open accounts of traders and shopkeepers (including sole proprietors and association of persons) having trade license and / or proper tax registration.

    Additionally, commercial connections of gas and electricity provided to non-filer should also be discontinued.

    With the advent of global tightening on the grey/black portion of the economy as well as rising scrutiny on the untaxed offshore assets, we encourage setting up of separate

    Directorate for International Taxation and Special Unit (Automatic Exchange of Information – AEOI) for dealing with cases arising out of exchange of information.

    However, AEOI requires further strengthening of resources and integration with the local database for broadening of the tax base. All these requirements should appropriately be included and made part of the relevant laws.

    Facilitating / Rewarding Tax Payers to create an incentive culture

    In order to encourage and motivate taxpayers, we suggest some mechanism has to be developed to stop all types of unfair treatment with existing taxpayers e.g. explanation of each and every credit entry in the bank statements.

    In this regard, issuance of a Taxpayer Facilitation Card should help with a preferential treatment given to individual taxpayers paying taxes above a particular threshold in a year (say, tax of Rs 1 Million, or above).

    Filers should also, in letter and spirit, be given priority treatment at various infrastructural facilities e.g., at NADRA, excise and taxation when registering motor vehicles, courts of law, airports etc.

    Final Taxation based on Income Parity

    Presently, certain sectors / goods are being taxed under Presumptive / Value Added / Fixed Tax Schemes. It is proposed that all Presumptive / Value Addition / Fixed Tax Schemes be abolished and, all such sectors / goods may be brought under the uniform tax regime to promote the culture of income-based taxation rather than receipt-based taxation.

    Minimum Tax (MT) and Alternative Corporate Tax

    For rationalization of taxes, simplification as well as overall efficiency, we suggest only one type of Minimum Tax Regime should be applicable on the taxpayer.

    At present, additional MT Regimes in the form of ACT and MT on services are also applicable, which is undue and creates distortions.

    Alternatively, ACT should be made applicable on the companies after two years of date of incorporation or start of commercial production, whichever is later.

    In this regard, Small Companies should be exempt from ACT altogether. In case MT paid due to a tax loss for the year, it is proposed that the taxpayer be made entitled to carried-forward, and therefore should be able to adjust it against the tax liability for five succeeding tax years.

    In our view, applicability of 8 percent MT on services also stands unreasonable. There are already a number of exceptions created for this regime, which is resulting in discrimination.

    Simplification of Withholding Tax Regime

    The chartered accountants believe, for simplification purposes, there should be a minimum number of withholding taxes but with few standard rates for all withholding taxes.

    The differentiation should be on the basis of filer and non-filer only. All withholding taxes collected or deducted should be made available for adjustment.

    They suggest to reduce withholding tax provisions for “filers” while raising the rate of withholding taxes for non-filers at the same time.

    This would help “filers” to utilize resources for business purposes.

    Further, exemption certificates be issued for all sorts of withholding taxes to the filers by receiving advance tax on quarterly / monthly basis.

    Reforms in Sales Tax Filings

    In case of any omission or wrong declaration in the return, a registered person is required to obtain approval from the Commissioner Inland Revenue in order to enable him/her to revise his/her return.

    Previously, this option was provided through SRO 278(I)/2010 dated 28 April 2010, but revoked through SRO 487/2011 dated 3 June 2011 due to potential misuse of this facility by declaring nominal increase in tax liability in revised return.

    However, now owing to STRIVE, the manipulation chances are minimal.

    Further, serious reforms are required in respect of following:

    (i) Claim of input tax within six months, beyond which approvals are unnecessarily required;

    (ii) Refund claim under sections 10 and 68 beyond one year requires unnecessary approvals and condonation with no response time prescribed for Tax Officials;

    (iii) Automated system of applications for condonations under section 74 is required; and

    (iv) Automatic restoration of un-adjusted input tax is required if refund cheque is not issued.

    At present, refund claims result in removal of input tax from the system because of which taxpayer is unable to utilize input tax if refund cheque is not issued in time.

    Appellate Forums

    It is felt that the principles of justice are not met at the first level of appeal i.e. Commissioner-Appeals. In this regard, Commissioner-Appeals should be brought under the administrative control of the Federal Ministry of Law and the Appellate Tribunal under the control of the High Court of the respective jurisdiction.

    All decisions of Commissioner-Appeals and Appellate Tribunal should also be reported for transparency and improvement of confidence of the taxpayer in the taxation system of the country.

    It is also suggested that an officer once appointed as Commissioner-Appeal not be subsequently assigned any functions, powers and responsibilities of an office or authority subordinate to the Federal Board of Revenue.

    Relaxation in Levy of Advance Tax on Import of Raw Materials

    In order to minimize cost of production, we suggest, the Industrial undertakings be allowed to import raw material in the first year of production, without payment of any advance tax.

    For subsequent years, they may be allowed exemption against advance tax under Section 148 on import of raw material, as per actual requirement, instead of 125 percent quantity of the previous year.

    The tax scheme should also be rationalized with the taxation of the commercial importers, if opted for normal tax regime.

    Tax on Surplus of Not-for-Profit Organization

    It is recommended to abolish sub-section (1A) and (1B) of section 100C of the ITO, as it is directly causing hindrance to the welfare activities involving capital expenditure to be incurred over a period exceeding one year. This requires due attention.

    Alternatively, the limit of spending in a year on charitable and welfare activities from receipts during that year currently set at minimum 75 percent of such receipts, may be analyzed over a reasonable period (at least three years), to account for expenditures, which are inevitably spread over a period exceeding one year.

    Execution of Contract by a Non-Resident Supplier

    The Finance Act 2018 brought about certain amendments in the Income Tax laws to tax supply of goods by a non-resident in case of overall arrangements for Engineering, Procurement, Construction and Commissioning (EPCC), even if the supply is made outside of Pakistan.

    The said amendments, in our view, as introduced through the Finance Act 2018, are not consistent with the International Tax Laws. Therefore, it is suggested that the competent authority reconsider such amendments in order to align it with the International Tax Laws.

    Adjustable Input Tax

    Presently, Section 8B restricts the claim of input tax up to 90 percent of the output tax and requires mandatory payment of 10 percent.

    It is suggested that Section 8B may either be removed from the statute or, at least, the mandatory payment of 10 percent be reduced to 5 percent.

    The issue of bogus refund is reduced to certain extent after introduction of STRIVE.

    Capacity Building of Revenue Authorities

    Capacity building is immensely important for the tax-collecting institution to assume and effectively execute larger challenge of documenting the economy.

    In this regard, the FBR should also go for hiring of professional staffs (like CAs, ICMAPs, PIPFAs, etc.) both at Commissioner and operational level having sufficient experience e.g. 2-5 years for the relevant position.

    Documenting the Economy & Revamping the Tax Mechanism

    Though not preferred, but a one-time Amnesty Scheme may be considered for bringing the black money into the tax net.

    Sufficient time should be provided so that people properly understand and make maximum use of the scheme. This may give better results after recent introduction of AEOI and follow-up tax proceedings.

    Rationalization of Further Tax and Extra Tax Regime

    Extra tax at the rate of 2 percent is levied and collected by the manufacturers and importers on certain goods designated as specified goods under Chapter XIII of the Sales Tax Special Procedure Rules, 2007 and, are tabulated in Rule 58S. Subsequent supply of specified goods subject to Extra Tax at the rate of 2 percent is exempt from the payment of sales tax, including those as made by retailers as per Rule 58T(5).

    Accordingly, distributors, wholesalers or retailers of such goods cannot issue any tax invoice to their customers. In this regard, it is suggested that suitable amendments are made in the law to specifically exclude items subject to Extra tax from the ambit of Further Tax.