Pkrevenue.com

Category: Budget

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

  • KTBA discusses tax proposals at pre-budget seminar

    KTBA discusses tax proposals at pre-budget seminar

    KARACHI: Karachi Tax Bar Association (KTBA) on Monday organized pre-budget seminar to recommend tax proposals for year 2019/2020.

    Ali A Rahim, Director, Bakertilly Chartered Accountants presented income tax recommendations for the upcoming budget.

    Rahim presented following recommendations:

    Depreciation on Musharika Assets Under Section 22(15)C

    Proposal: The depreciation on Musharika assets to be allowed retrospectively since inception.

    Set off of Losses against income from property Under Section 56

    Proposal: The position prior to amendment made through Finance Act, 2013 should be restored to allow set off against property income as well.

    Restriction on setting off of depreciation losses Under Section 57

    Proposal: The amendment brought through Finance Bill 2018 relating to unabsorbed depreciation and amortization is proposed to be deleted.

    Workers Welfare Fund and Workers Profit Participation Fund Under Section 60A & 60B

    In both the Law it is categorically stated that this shall be allowed if the payment is made to the Federal Government. Since the enactment of the 18th Amendment in 2010, the same is collected by the Provincial Government.

    Since, there is no mention of the payment to the Provincial authorities the same is being disallowed by the Income Tax Authorities.

    Proposal: It is therefore proposed that the payment made under the Provincial Laws may be incorporated in Section 60A and 60B.

    Tax Credit to persons registered under Sales Tax Act, 1990 Under Section 65A

    Tax credit of 2½ was available from tax year 2009 to Manufacturers registered under the Sales Tax, if 90% of the sales were to those persons registered in Sales Tax. In 2016 this was increased to 3%, to encourage persons towards documentation.

    However to reasons best known to the Government, this was deducted vide Finance Act, 2017

    Proposal: It is proposed that this section should be reincorporated in the tax Law.

    Non Recognition Rules Under Section 79(2)

    This section excludes any gain or loss arising from disposal of assets if certain conditions are fulfilled including gift of an assets to a relative.

    However, if the recipient is a non-resident at the time of the acquisition then the said person is not entitle to an exemption which is very unfair as now every family has persons living abroad.

    Proposal: It is therefore proposed that section 79(2) should be deleted.

    Adjustment of Minimum Tax payment in case of Tax Loss Under Section 113(2)(c)

    The following Explanation is proposed to be inserted:

    “Explanation –For the removal of doubt, it is declared that the expression “the excess amount of tax” apply to all cases where no tax is payable for any reason whatsoever including any loss of income, profits or gains or set-off of losses or unabsorbed depreciation of earlier years, exemption from tax and allowances and deductions admissible under any provision of this Ordinance.

    Appointment of the Appellate Tribunal Under Section 130

    Accountant members are posted in the Tribunal from the tax department and can be reposted back in the tax department and hence are very conservative when imparting Justice.

    Proposal: It is proposed that once an officer is posted to the Tribunal, he should then retire from there and should in no way go back to the tax department. This will go a long way in imparting Justice.

    Stay order by Tribunal should be valid till Disposal of its Appeal Under Section 131

    Proposal: It is proposed that the said amendment be deleted and the earlier position of law should be restored in the interest of natural justice so as to provide relief to the taxpayer.

    Tax deduction on Import of Plant and Machinery by Service Sector Under Section 148(7)

    It is proposed to insert the following in the list of exceptions provided under sub-section (7) of section 148:

    Equipment imported by service sector companies for their own use.

    Exemption from Income Tax on Imports to NPOs Under Section 148 SRO 947 of 2008

    It is proposed that such exemption is also extended at least to such non-profit organizations whose income is exempt in terms of Clause (66) of Part I of the Second Schedule.

    Excessive Tax Deduction from Salary Under Section 149

    It is proposed to:

    -replace section 64 with 62A of the Ordinance to allow tax credit on House Loan.

    -insertion of new clause to allow tax adjustment for deductible allowances on account of Zakat, Allowance for payment of Profit House Loan and Education expenses under Sections 60, 60C and 60D, respectively.

    -tax withheld and paid under any other Section of the Ordinance.

    Withholding on Local Royalty Under Section 153

    It is proposed that the separate flat rate of tax withholding is specified if royalty is paid to residents which should fall under Final Tax Regime.

    Deduction of tax Under Section 153

    No withholding in the case of registered persons [Filers]

    It is proposed to amend the Section 153 that the withholding agents should only deduct/collect tax in the cases of Non-Filers or Unregistered Services providers, Suppliers & Contractors.

    Automatic credit of tax deducted Under Section 153

    It is proposed that when the tax is deducted, credit of the same should automatically be given to the withholdee.

    Withholding on Rent in case of Multiple Years Under Section 155

    It is proposed to include an explanation under Section 155 that tax withholding is required on the basis of annual rent paid for a tax year at the applicable rates to each year.

    Time limit for Monitoring of Withholding of Income Tax Under Section 161 & 162

    It is proposed to insert the following provisions under Section 161/162:

    Proceedings for monitoring of withholding taxes should not be initiated for a tax year after expiry of 6 tax years

    Allow ability of Tax Payment as a Credit after Monitoring of Withholding of Taxes. Under Section 161 (1A)

    It is proposed that the withholder should be allowed to deposit the tax in the

    name of the parties whose withholding fell short.

    Bi-Annual Statements to be replaced with Monthly Withholding Statement Under Section 165

    It is proposed that the filing of biannual is replaced with monthly filing of withholding statement.

    Offences and Penalties Under Section 182(1)

    An explain was incorporated explaining “Tax Payable” and it stipulated to mean tax chargeable on the basis of the taxable income.

    The purpose of the penalty is to educate the taxpayers and the same should not be for the purpose of tax generation. In addition taxes deducted/paid, other then payment along with the return, is already with the Government, hence there is no loss of revenue.

    It is therefore proposed that penalty should be on the balance of tax payable along with the return and not the total tax liability.

    Returns Not filed within due date Under Section 182A

    A person filing the returns late by even 1 day will be treated as a non filers for the full year.

    There is already a provision in the Law under section 182 for imposition of penalty for late filers.

    Proposal: Section 182A should be withdrawn and the person filing the return late should also be considered as a filer, after payment of the penalty under section 182.

    Duplication of Advance tax on payment of foreign Education made through Credit Card or Debit Card or Prepaid Card Under Sections 236R & 236Y

    The provisions should be withdrawn in its entirety for filers.

  • ICAP submits tax proposals for ease of doing business

    ICAP submits tax proposals for ease of doing business

    KARACHI: The Institute of Chartered Accountants of Pakistan (ICAP) has submitted tax proposals for budget 2019/2020 and suggested measures for ease of doing business.

    The ICAP suggested following tax proposals for ease of doing business:

    Facilitating Small and Medium Enterprises (SMEs)

    The ICAP said that SMEs serve as the backbone of the economy by playing the most vital role of production, employment generation etc. To facilitate their growth and ease of doing business, there is dire need for SME and retailers to have a separate and simplified income tax regime. It is proposed that, with simplified one-page return and minimum possible book-keeping requirement, the taxation regime should encourage SME/retailers for income based taxation.

    “It is proposed to exclude SMEs from the list of withholding tax regime specified within different sections of the Income Tax Ordinance, 2001. Such simplified regime should also be aligned with the sales tax regime.”

    A special regime in the form of Ninth Schedule (as presented by Tax Reform Committee) should be adopted.

    Retailers falling under SRO 1125(I)/2011 dated December 31, 2011 are allowed reduced sales tax rate of six percent, if their sales transactions are integrated with the FBR system. Considering the effectiveness of this system and in order to curtail loss of revenue in other sectors due to under-reporting of revenue, option may be provided to all the retailers to install real-time sales reporting system and those availing such facility should be allowed to charge reduced rate of sales tax.

    Income Tax Credit for sales tax registered person:

    In this regard, Section 65A of Income Tax Ordinance, 2001 is proposed to be reinstated with a higher rate of tax credit in order to encourage documentation in the economy and broadening of tax base.

    Moreover, condition of 90 percent supplies to registered persons should be reduced to 75 percent. Further, the restricted benefit of this tax credit to manufacturers should be extended to all persons registered under the Sales Tax Act, 1990.

    Promoting Local Industry, Brand Made in Pakistan for import substitute:

    A long term solution to reduce export-import gap, as also envisaged in the medium term economic framework, import substitution is one of the highest priorities for the government at the moment.

    In this regard, some of the steps proposed here should play a key role: a trade license mechanism should be introduced with a legal onus on the supply chain member to check that the goods are not from illegal or smuggled source.

    Radiography scanning of all inbound and outbound containers should be made mandatory to curb smuggling and plug revenue leakages. Import stage tax incidence on raw material should be reduced enough to provide manufacturers to bear the expense of value addition and local taxes.

    This would discourage import of finished goods, which can be manufactured in Pakistan and thus can reduce country’s reliance on imports, leading to saving of precious foreign exchange.

    Foreign exchange regime needs to be further strengthened to ensure that values are properly declared and taxes at import stage.

    Encourage Domestic and Foreign Investment

    At present, amongst other factors both the new local as well as foreign investors are reluctant to invest in manufacturing industry of Pakistan due to various impediments.

    These include collection of sales tax at 17 percent and income tax at 5.5 percent at import stage on plant and machinery and spare parts.

    In order to promote industrialization in the country, it is suggested that the exemption from tax collection at import stage on import of plant and machinery and spare parts by newly established manufacturing company/for expansion by the existing company should be allowed at least for five years from the date of incorporation of the new company/initiation of expansion projects by the existing company.

    This amendment will encourage new much needed investment in the manufacturing sector of the country without any additional cost / burden on the government’s exchequer as tax collected at import stage is already adjustable/refundable.

    Income Tax Exemption

    The ICAP proposed that restriction in respect of issuance of exemption certificate for new projects/capacity expansion/formula and process changes should be removed.

    Further, under the current law, tax exemption is conditional upon payment of tax on the basis of proceeding two years’ tax liability. The said condition, to meet the tax payment equal to previous tax years, is proposed to be abolished and the same should also be linked with the payment of advance tax liability for the respective period.

  • PBC suggests measures for broadening tax base by enhancing withholding tax rates on non-filers, unregistered persons

    PBC suggests measures for broadening tax base by enhancing withholding tax rates on non-filers, unregistered persons

    KARACHI: Pakistan Business Council (PBC) has suggested measures for broadening tax base through enhancing withholding tax rates on non-filers and unregistered persons in various sectors.

    The PBC – the advisory council of large corporate entities – in its budget proposals for 2019/2020 said that the concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy.

    “Though large amounts are being collected from non-filers, no effort has been made to increase the tax base. The non-filers for the most part have build the cost of this government levy into pricing and passed it on to their customers.”

    The PBC said that in order to broaden the tax base and to achieve increase in overall tax collection without burdening existing taxpayers, the policy to increase tax on non-filers / unregistered persons should be implemented specifically in the following cases:

    a. unregistered industrial / commercial entities (not having STRN) having bill amount in excess of Rs20,000 per month, extra sales tax should be increased from five percent to 20 percent.

    b. After collection of extra tax for a continuous period of six months, all these connections should be provisionally converted into NTN and STRN and return filing from these connections should be enforced.

    c. In case of provisional registration, utility companies should be directed to issue show cause notices where annual billing amount exceeds Rs2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non-compliance, utility companies should be directed to disconnect utility connections.

    d. Moreover, in order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies. In case of failure to provide NTN, electricity connection should be disconnected. Considering the fact that all industrial/commercial connections will be linked with NTN, the tax department will then be in a better position to assess the electricity consumed by commercial/industrial users and corroborate the same with amount of sales/ production etc. reported in sales tax/income tax return.

    e. In order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with them. Thereafter, such commercial / industrial consumers without NTN should be charged advance income tax at 30 percent (from existing 12 percent) on their utility bills. Those with NTN but non-filer status should be charged at 20 percent withholding tax.

    f. Residential consumers should be made liable to provide NTN in case of electricity bill amount exceeds Rs1.2 million per year or levy advance income tax withholding of 20 percent.

    g. All exemption (like exemption on agriculture income) under the income tax law should only be made available to filers so that exempt income is also reported and wealth is reconciled.

    h. withholding tax on international business class tickets under Section 236L is same Rs16,000 for filer and non-filer, it should be increased to Rs50,000 for non-filers.

    i. Withholding tax at five percent or Rs20,000, whichever is higher, is applicable under Section 236D on all functions organized by filers as well as non-filers. Rate of withholding should be increased for non-filers to Rs100,000 as minimum and no withholding tax from filer.

    j. Function halls withholding tax on electric bills should be 30 percent which can be adjusted against tax liability by providing proof of tax deducted from their customers.

    k. Withholding income tax on interest income under section 151 of Income Tax Ordinance, 2001 is 10 percent for filer and 17.5 percent for non-filer. Rate should be increased to 30 percent for non-filers.

    l. Annual private motor vehicles tax under section 234 of the ordinance for non-filers is Rs15,000 for 1600 cc-1999cc and Rs30,000 for 2000cc and above. Rate for non-filers should be increased to Rs50,000 for 1600cc – 1999cc and Rs200,000 for 2000cc and above.

    m. Advance income tax is collected on sales of immovable property under Section 236, which is 2 percent for non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more.

    n. Purchase of land (above specified limit) is only allowed by filers, however, holding of land and its sale by non-filers is still allowed. Holding of land by non-filers should be made more expensive by asking those authorities collecting property tax (cantonment boards/ societies/ registrars) to collect adjustable advance income tax, form non-filers, on behalf of the federal government as: Rs500,000 per year for 800 yards or more but less than 1800 yards; Rs1 million per year for 1800 yards and above.

  • PSX proposes reducing withholding tax to 2.5pc on income from margin financing transactions

    PSX proposes reducing withholding tax to 2.5pc on income from margin financing transactions

    KARACHI: Pakistan Stock Exchange (PSX) has recommended the tax authorities to reduce the withholding tax to 2.5 percent from 10 percent to develop the market and increase tax collection.

    In its budget proposals for 2019/2020, the stock market said that the proposed reduction in the rate of tax on margin financing transactions would help develop market and increase tax collection by Federal Board of Revenue (FBR) because 10 years back the size of similar market for margin transactions was several time higher.

    The PSX said that margin financing facility is made available to all members against net ready market purchases of their clients and proprietary positions.

    The National Clearing Company of Pakistan Limited (NCCPL) provides a system to margin financing participants for recording and settlement of margin financing transactions, with financing terms and conditions pre-determined by the margin financee and margin financier.

    Margin financing facility is made available only in eligible securities notified by the Securities and Exchange Commission of Pakistan (SECP).

    The PSX said that the present tax rate on gross income of the financier is 10 percent without deduction of any expenditure to earn such income.

    In most cases the funds are borrowed from financial institutions for such margin financing transactions, it added.

    The cost involved in margin financing includes financing cost payable to financial institution, trading, clearing and depository charges and other administrative cost which render that the amount deducted as advance tax could not be fully adjusted against the tax liability of most brokers leading towards claims for tax refunds that are not time bound.

    For the purpose of reducing withholding tax, the PSX proposed amendment to Division IIB of Part IV, First Schedule to Income Tax Ordinance, 2001 as: “The rate of deduction under section 233A shall be 2.5 percent of profit or mark-up or interest earned by the member, margin financier or securities lender.”

  • Commercial importers destroying domestic industry: PBC

    Commercial importers destroying domestic industry: PBC

    KARACHI: Pakistan Business Council (PBC) – the advisory forum of large corporate entities – has said that commercial importers are involved in massive under-invoicing and they are destroying the domestic industry.

    In its budget proposals for 2019/2020, the PBC recommended measures for documentation of economy to providing level playing field for domestic manufacturing.

    The PBC said that across the board massive under-invoicing and dumping of imported products had been increasing. “Information regarding values at which various customs check post clear import consignment is not publicly available. This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues,” it added.

    It also pointed out that there are massive leakages in Afghan Transit Trade (ATT) and smuggled goods are being openly sold in all major shopping centers of the country. “Customs however is not willing to act against smuggled products citing lack of cooperation from local authorities,” it added.

    The PBC recommended:

    a. values at which import shipments are cleared through PRAL or CARE need to be publicly available.

    b. The government of Pakistan must insist of Electronic Data Interface (EDI), initially for both Free Trade Agreement (FTA) and non-FTA from China. “In future the requirement of EDI should be made compulsory for imports from FTA/ PTA partner countries.

    c. Depending on industry, the import trade price (ITP) should be fixed e.g. on the basis of country of origin, weight, volume etc. after discussion with stakeholders. “ITP’s may be fixed for most items prone to mis-declaration such as consumer goods and margins of commercial importers should be monitored to assess the value of subsequent supply of imported goods. A certificate to this effect should be issued by auditors of commercial importers.”

    d. For items, prone to under invoicing and mis-declaration, Federal Board of Revenue (FBR) should designate one or two ports (including the dry ports) for clearing of import consignments. “This will allow better monitoring of the import consignments where chances of mis-declaration are on a higher side.”

    e. Additionally, the old Customs General Order 25 should be revived with a provision that local manufacturer should be given the option to buy at a 15 percent premium, any consignment which appears undervalued.

    f. Taxes and duties deposited local manufacturers and commercial importers should be published.

    g. The rate of tax collected from commercial importers should be maintained at their current level. Presently, tax collected from commercial importers is treated as final tax. The income tax collected at import stage should be treated as advance tax.

    h. Commercial importers should be required to file returns under the normal tax regime as introduced through the Finance Act, 2018.

    i. In order to allow commercial importers to claim adjustment of tax deducted at import stage, commercial importers should be asked to present certificate from auditors that at least 70 percent of imported items have been exported or soled to registered manufacturers. “This will also help increase the overall tax base,” the PBC said.

    j. Monthly sales declared by commercial importers should be matched with sales declared in annual income tax returns as well as the credit entries in all business bank accounts. “In case of any discrepancy, a reconciliation with justifiable reason should be submitted by the commercial importers.

    k. Online CREST system must be amended in a way to trace sales along with value addition thereon of person to whom supplies were made by commercial importers.

  • PSX recommends aligning CGT on securities with immovable properties

    PSX recommends aligning CGT on securities with immovable properties

    KARACHI: Pakistan Stock Exchange (PSX) has recommended the government to align capital gain tax (CGT) on disposal of securities with the rates of CGT with immovable properties using same slabs of holding periods as those on real estate.

    The PSX in its proposals for budget 2019/2020 said that such proposal would encourage documentation in real estate activity, and lead to an easing of speculative pressure on real estate property prices in Pakistan.

    The PSX said that at present the tax rates on capital gains from the disposal of securities are prescribed using various slabs that denote the holding period of the securities.

    “The tax on these comparable slabs of holding periods of securities is higher than those for immovable property, and not aligned with the CGT on disposal of real estate, and result in making the real estate sector particularly appealing to investors when compared to capital markets.”

    The alignment of these tax rates will also lead to an easing of speculative pressure on real estate property prices in Pakistan, where much of the undocumented wealth has been currently flowing.

    The PSX proposed amendment in Division VII, Part I of the First Schedule to the Income Tax Ordinance, 2001, the following new table shall be interested in place of existing table:

    For securities acquired on or after July 01, 2016

    01. Where holding period of a security is up to on year: 10 percent for filer, 20 percent for non-filer

    02. Where holding period of a security is more than or equal to one year but less than two years: 7.50 percent for filers, 20 percent for non-filers

    03. Where holding period of a security is more than or equal to two years but less than three years: 5 percent for filers, 20 percent for non-filers

    04. Where holding period of a security is more than three years: zero percent for both filers and non-filers

    For securities acquired before July 01, 2016:

    05. Where holding period of a security is up to three years: 5 percent for filers, 20 percent for non-filers

    06. Where holding period of a security is more than three years: zero percent for both filers and non-filers.

    The PSX in its proposals for budget 2019/2020 said that such proposal would encourage documentation in real estate activity, and lead to an easing of speculative pressure on real estate property prices in Pakistan.

    The PSX said that at present the tax rates on capital gains from the disposal of securities are prescribed using various slabs that denote the holding period of the securities.

    “The tax on these comparable slabs of holding periods of securities is higher than those for immovable property, and not aligned with the CGT on disposal of real estate, and result in making the real estate sector particularly appealing to investors when compared to capital markets.”

    The alignment of these tax rates will also lead to an easing of speculative pressure on real estate property prices in Pakistan, where much of the undocumented wealth has been currently flowing.

    The PSX proposed amendment in Division VII, Part I of the First Schedule to the Income Tax Ordinance, 2001, the following new table shall be interested in place of existing table:

    For securities acquired on or after July 01, 2016

    01. Where holding period of a security is up to on year: 10 percent for filer, 20 percent for non-filer

    02. Where holding period of a security is more than or equal to one year but less than two years: 7.50 percent for filers, 20 percent for non-filers

    03. Where holding period of a security is more than or equal to two years but less than three years: 5 percent for filers, 20 percent for non-filers

    04. Where holding period of a security is more than three years: zero percent for both filers and non-filers

    For securities acquired before July 01, 2016:

    05. Where holding period of a security is up to three years: 5 percent for filers, 20 percent for non-filers

    06. Where holding period of a security is more than three years: zero percent for both filers and non-filers.

  • FTO recommends 20 percent increase in withholding tax rates

    FTO recommends 20 percent increase in withholding tax rates

    KARACHI: Federal Tax Ombudsman (FTO) has recommended 20 percent increase in adjustable withholding taxes in order to encourage income tax return filing.

    However, this deduction of withholding tax should not apply on salary income, the FTO said in its recommendation for federal budget 2019/2020.

    In order to encourage taxpayers to e-file income tax returns for claiming adjustment of adjustable withholding taxes, it was proposed that gradually all adjustable withholding taxes, excluding those on salary income, might be enhanced by at least 20 percent in the coming budget.

    The FTO also proposed that all current non-adjustable withholding taxes may be converted into adjustable withholding taxes by amending the relevant provisions of the income tax laws/rules.

    Further, in order to provide rights to taxpayers, the FTO said that a taxpayer should be given the right to approach the commissioner for the revision of assessment, as was available under original Section 138 of the Income Tax Ordinance, 2001.

    The FTO further suggested that income from pension was exempted from income tax, but pensioners were not eligible to avail benefits of provisions of withholding tax unless they were on active taxpayers list. It was therefore proposed that pensioners deriving income from pension only, be exempted from the provisions of withholding taxes applicable to non-filers.

  • PSX proposes scheme for attracting investment from black economy

    PSX proposes scheme for attracting investment from black economy

    KARACHI: Pakistan Stock Exchange (PSX) has advised the government to introduce a scheme for attracting investment from large black economy.

    In its budget proposals for fiscal year 2019/2020 the stock exchange advised the government to introduce a mechanism and regulatory structure for the launch of registered savings and investment accounts (RSIA) to help channel savings towards productive investments.

    “RSIAs will help capital from the large undocumented sector into the formal economy. Further. It is also crucial firm guarantees be offered that contributions be subject to full amnesty – aside from Anti-Money Laundering and Terrorist Financing issues diligence.”

    Giving rationale to its proposal, the PSX said that where they have been introduced, registered savings and investment accounts have been very successful in channeling saving to productive investments through capital markets and often constituents the main source of income in retirement.

    In Pakistan, they will bring the added benefit of driving the government’s goal to document the informal sector.

    RSIAs could become one of the driving forces in the transformation of Pakistan’s economy. By some estimates, 40 million middle-class Pakistanis have an average accumulated wealth of $10,000 for a total over Rs50 trillion.

    “Much of that wealth is currently investment in real estate, gold and other asset classes in Pakistan and offshore. If RSIAs can capture 10 percent of that wealth, it would be equivalent to more than half the current market capitalization of PSX listed companies or more than the outstanding amount of PIBs and Sukuks.

    The stock market proposed the new scheme to be introduced in the Income Tax Ordinance, 2001.

    The PSX recommended that initially there should be no limit to the amount an investor can contribute to a RSIA. “In this way, the government would maximize the benefits of RSIAs described above, including tax revenue upon withdrawal. Furthermore, unlike VPSs, no tax credit should be given with regard to contributed amounts.”

    It is further recommended that all income within the account such as capital gains and dividends should be tax free, like VPSs. It is this feature and the opportunity to legally invest in capital market instruments that will attract capital from the informal sector.

    “Investment should be limited to listed equities, ETFs, tradable bonds and mutual funds. Principle-based prudential rules must be adopted to ensure protection of client assets and suitability of investments.”

    The PSX said that withdrawals should be treated a taxable income because contributions are presumed to have been made from sources that have not been taxed.

    “Unlike VPSs, investors should be allowed to withdraw capital from the account any time they want. That feature is key in attracting capital from wealthy individuals who may otherwise not want to lock up their capital.”

  • PSX recommends CGT exemption to foreign investors

    PSX recommends CGT exemption to foreign investors

    KARACHI: Pakistan Stock Exchange (PSX) has proposed to exempt capital gain tax (CGT) on disposal of securities by foreign investors.

    The PSX in its proposals for budget 2019/2020 on Thursday, recommended the exemption of CGT on disposal of securities by foreign investors.

    Giving rationale to its proposals, the PSX said that the exemption of CGT on foreign investors would facilitate substantial capital inflow by relaxing the cumbersome and time consuming account opening and registration process for foreigners as they get discouraged and overwhelmed with the current registration structure and look for better investment alternatives in regional markets.

    It further said that Pakistan has taxation treaties with a number of countries thus foreigners would be liable to pay taxes according to the treaty. “Therefore, taxing foreigners would burden them and not only increase their cost of business but most importantly discourage them from investment in Pakistan’s capital market.”

    It is proposed that the proviso to sub – rule 2 of Rule 13N of Income Tax Rules, 2002 shall be omitted.

    The PSX said that it is observed that most countries do not impose capital gains tax on disposal of securities by foreigners.

    Bangladesh, Malaysia, and many other countries do not levy CGT on transactions of disposal of securities conducted by foreigners.

    Even in countries that do have CGT on foreign investors, the rules are distinctly different from those that apply to domestic investors, in order to provide an attractive tax environment and avoid double taxation.

    One important reason for not imposing such tax is that most of the countries have double taxation treaties.

    In Pakistan, foreign investors file income tax returns regularly and pay taxes in accordance with the provisions of the Income Tax Ordinance, 2001 or reduced rates provided under treaties executed with such countries.

    Foreign investors should be given preferential tax rates as they might still be required to pay taxes in their home country where they are considered as a resident taxpayer.

    The PSX also urged the tax authorities to review the mechanism for payment of CGT on disposal of securities for domestic investors.

    It said that at present National Clearing Company of Pakistan Limited (NCCPL) calculates and collects Withholding Tax on Capital Gains made on disposal of shares listed on Pakistan Stock Exchange Limited.

    However, it is witnessed that in many countries there is no capital gain tax collected by any institution but rather individuals/ corporate are required to file their tax returns and pay taxes if any on the capital gains made by trading of shares.

    A broad range of countries including Canada, USA, Indonesia, India, and Vietnam do not mandate the collection of CGT by any intermediary at the time of disposal of securities, and the CGT is payable at the time of filling of returns.

    In Singapore, Hong Kong, Malaysia and Mauritius there is no capital gains tax.

    Therefore, considering international perspective, it would be appropriate if in Pakistan, payment of capital gains tax be made obligatory on individuals and corporates and the status of NCCPL should be such that only the information is provided to the tax authorities by NCCPL.

    In line with the common practice internationally, the government should review and revise the mechanism for payment of tax on capital gains for filers.

    An alternative to the current convention should be explored along with pros and cons. Withholding tax at NCCPL level for filers should be debated thoroughly and replaced with the obligation on investors who are filer to pay CGT through annual tax returns.

    However, the current mechanism of withholding on CGT for investors who are non-filers shall remain the same provided no WHT on such non-filers whose Capital Gains is up to Rs100,000 per annum.

    In any case, NCCPL should provide information on all investors’ capital gains and losses to tax authorities for tracking purposes.

    In line with international practice for collection of capital gains tax, an obligation to file returns and pay taxes on disposal of securities at year end would encourage a widespread tax culture among investors.

    It is proposed that section 100B, 8th Schedule to the Income Tax Ordinance 2001 and Rule 13N of Income Tax Rules, 2002 shall be amended accordingly.

  • KTBA, RTOs discuss budget proposals

    KTBA, RTOs discuss budget proposals

    KARACHI: The office bearers of Karachi Tax Bar Association (KTBA) discussed budget proposals 2019/2020 with Chief Commissioners of Inland Revenue on Wednesday.

    The chief commissioners Inland Revenue from Regional Tax Offices (RTOs) Karachi including Shafqat Kehar, Badaruddin Ahmed Qureshi and Muhammad Ali Khan.

    The chief commissioners visited the KTBA and met newly elected office bearers.

    Both the sides discussed budgetary proposals and other matters of common interest.

    KTBA president Rehan Siddiqi apprised the senior tax officials about the problems faced by members of the bar.

    He suggested measures to improve understanding between tax departments and tax practitioners.

    The chief commissioners assured full support to remove trust gap between tax collector and taxpayers and underscored the need to broaden the tax base.

    The chief commissioners sought bar’s help for the purpose which was assured by the KTBA president as such both sides further agreed to keep in touch to resolve issues.