Category: Budget

KARACHI: The Federal Board of Revenue (FBR) has been urged to allow complete tax adjustment at the time of deduction by employee on the time paid as salary under Section 149 of the Income Tax Ordinance, 2001.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 informed the FBR as per section 149, every person paying salary to employee shall deduct tax from the amount paid at specified rate after making tax adjustment of tax credit U/s. 61, 62, 63 and 64 and other adjustments.

READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023

Complete tax credits though legally available are not adjusted in payroll, the tax bar said.

“This section should include all tax credit under Part X Chapter III as are admissible against salary income,” it suggested.

The current scheme has apparently missed tax credit U/s. 62A. The proposed amendment would cater all the current credits and those to be introduced from time to time.

READ MORE: CGT exemption on private company shares suggested

The tax bar also suggested amendment related to Employer contribution to Provident Fund under Section 12 of the Income Tax Ordinance, 2001.

Under Clause (3), Part I, Sixth Schedule, the employer’s contribution in the recognized provident fund in excess of Rs.150,000 (increased from Rs.100,000 by Finance Act, 2016) is deemed to be income of the employee.

This provision is invalid as the accumulated balance (it includes employer’s contribution) due and becoming payable to an employee participating in a recognized provident fund is totally exempt from tax under Clause (23), Part I, Second Schedule.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

Without prejudice to foregoing, since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution.

Clause (3) Part 1, Sixth Schedule be amended to exempt employer contribution to bring it at par with clause (23) Part 1, Second Schedule.

READ MORE: FBR urged to issue rules for WHT on digital transactions

Alternatively, the threshold be based as Rs 150,000 or 1/10th of the salary whichever is higher.

Since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution, the tax bar said.

KARACHI: The Federal Board of Revenue (FBR) has been urged to grant capital gain tax (CGT) exemption on disposal of shares of private companies after 10 years.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 suggested amendment in Section 37 of the Income Tax Ordinance, 2001 regarding gain on sale of shares of private companies.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

The tax bar said as per section 37 of the Ordinance, gain on sale of shares of private companies’ shares is taxed at corporate tax rate. This gain is reduced by 25 per cent in case the holding period is more than one year.

In case of gain on disposal of immovable property, the gain is exempt in case the holding period is more than 4 years. In case of capital gain on securities U/s. 37A, the gain is exempt on securities acquired before 1 July 2012.

READ MORE: FBR urged to issue rules for WHT on digital transactions

“Hence, investment in shares of Private companies stands at comparative disadvantage,” the KTBA said.

It is proposed that the gain on sale of private company shares should also be allowed exemption in case if the holding period is 10 years or more. In order to encourage and benefit corporatization of business.

The tax bar also recommended amended to Section 2(19)(d) of the Income Tax Ordinance, 2001 regarding buy back of shares.

READ MORE: New import income tax regime should be abolished

As per definition of dividend the distribution made by a company to its shareholders on reduction of capital shall be deemed dividend. This situation is generally referred to as Buy-back of shares.

On the other hand, under Rule 13P of the Income Tax Rules, 2002, the shares buy-back transaction is treated as Capital Gains. Thus, there exists a contradiction among the provisions of Ordinance and Rules.

Contradictory provisions in law that needs to be corrected, the tax bar said, adding that in principal, buy back of shares cannot be equated as alienation of shares and should not be covered U/s. 37A of the Ordinance.

READ MORE: Adjustable advance tax proposed for corporate services

Necessary clarification should be issued and Rule 13P be amended to align within the law in order to align the various provisions of law.

The tax also proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.

The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.

READ MORE: FBR proposed to restore group taxation in original form

The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”

KARACHI: Karachi Tax Bar Association (KTBA) has proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.

The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.

READ MORE: FBR urged to issue rules for WHT on digital transactions

The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”

READ MORE: New import income tax regime should be abolished

It proposed that a new head of income in Section 11 of Income Tax Ordinance 2001 should be added as income from disposal and trading of real estate containing progressive taxation, without allowing any exemption as to holding period and quantum of gain:

Where holding period is two years the rate of tax on gain should be 20 per cent

Where holding period is five years the rate of tax on gain should be 17.50 per cent

READ MORE: Adjustable advance tax proposed for corporate services

Where holding period is ten years the rate of tax on gain should be 15 per cent

Where holding period is more than ten years the tax on gain should be 10 per cent

The tax bar further proposed a separate definition of income from disposal and trading of real estate.

READ MORE: FBR proposed to restore group taxation in original form

Other regulatory amendments recommended by the tax bar are included: Restriction of individual holding of real estate properties [save Single member company]- Transfer of Properties Act 1882 to be amended; A separate ‘Real Estate Regulatory Authority’ is suggested; Aside Director General Commissioner be empowered to seek report from valuer on any transaction of Real Estate Trading

Giving rationale to the proposal, the KTBA said this will strengthen the taxation system and will able to collect tax from elite class.

KARACHI: The Federal Board of Revenue (FBR) has been urged to notify procedures and rules in the forthcoming budget 2022/2023 for deducting withholding tax (WHT) on digital transactions.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 proposed the FBR to make rules regarding digitalization of economy.

READ MORE: New import income tax regime should be abolished

The tax bar said that on the eve of digitalization of economy, novel transaction/ settlement forums are emerging. These include, online marketplace, digital payment etc.

Due to lack of specific guidelines and procedures, the taxpayers are facing difficulty in applying withholding tax provisions while making payments for buying goods where the transaction involve, seller, online portal, banker etc. simultaneously.

READ MORE: Adjustable advance tax proposed for corporate services

“The FBR should issue special procedures and rules to prescribe mode and manner of withholding of tax in case of purchase of goods or services by prescribed persons,” the tax bar recommended. Giving rationale, it said the amendment would provide clarity in law would preclude unnecessary tax disputes.

Earlier, the tax bar recommended that twelfth schedule should be abolished, and all imports should be categorized as industrial undertakings or in other respective categories as it stood prior to amendment vide Finance Act 2020.

READ MORE: FBR proposed to restore group taxation in original form

It is further recommended that exemption procedure under clause 72B Part IV 2nd Schedule that was revoked should be restored. Rate of tax should be reduced from 5.5 per cent to 1 per cent for all Industrial Undertakings to be adjustable tax.

Separate scheme should be introduced for service sector allowing collection of tax at import stage to be adjustable tax i.e. enabling exemption from this collection of tax.

Addressing the unnecessary hassle particularly for industrial undertaking.

Reinstatement of exemption to curtail staggering refund and bring recipe for taxpayers. To address the issue faced by the service sector.

READ MORE: Taxpayers should not be penalized for dealers’ fault

KARACHI: The tax authorities have been urged to abolish the advance income tax regime at import stage and reinstate the previous regime through budget 2022/2023.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023, recommended the Federal Board of Revenue (FBR) to amend advance tax at import stage under Section 148 of the Income Tax Ordinance, 2001.

READ MORE: Adjustable advance tax proposed for corporate services

The tax bar said the scheme of tax to be collected at import stage has been revamped in Finance Act 2020 as follows: All imports have been categorized as Part I, Part II and Part III of the Twelfth Schedule chargeable at the rate of 1 per cent, 2 per cent and 5.5 per cent, respectively; the advance tax collected under section 148 of Income Tax Ordinance, 2001 is treated as minimum tax except in case of Industrial undertaking for their own use and falling in Part I, and II of Twelfth Schedule.

In case of goods classified under Part III of the Twelfth Schedule which are used both as raw material and finished goods, the Board may by notification in the official Gazette, specify that goods imported by a person or class of persons as raw material for its own use shall be treated as classified under Part II of the Twelfth Schedule, subject to such conditions and procedure as may be prescribed.

READ MORE: FBR proposed to restore group taxation in original form

Besides, exemption procedure under clause 72B Part IV 2nd schedule revoked.

Onerous requirement for Industrial undertakings felt under Part III for e.g. Automobile sector engaged in Assembly/ Manufacturing and falling within mischief of Part III.

The regime resulted in staggering of refunds particularly if taxpayer has discharged his tax liability for obtaining exemption U/s. 153 of the Ordinance and Increased cost of doing business for service sectors.

READ MORE: Taxpayers should not be penalized for dealers’ fault

The KTBA recommended that twelfth schedule should be abolished, and all imports should be categorized as industrial undertakings or in other respective categories as it stood prior to amendment vide Finance Act 2020.

It is further recommended that exemption procedure under clause 72B Part IV 2nd Schedule that was revoked should be restored. Rate of tax should be reduced from 5.5 per cent to 1 per cent for all Industrial Undertakings to be adjustable tax.

READ MORE: FBR urged to restore first year allowance

Separate scheme should be introduced for service sector allowing collection of tax at import stage to be adjustable tax i.e. enabling exemption from this collection of tax.

Addressing the unnecessary hassle particularly for industrial undertaking.

Reinstatement of exemption to curtail staggering refund and bring recipe for taxpayers. To address the issue faced by the service sector.

KARACHI: The tax authorities should introduce adjustable advance income tax for entire corporate service sector in the forthcoming budget 2022/2023.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) highlighted minimum tax on corporate service providers under Section 153(1)(b) of the Income Tax Ordinance, 2001.

It said that after the amendments made by the Finance Act, 2015, the tax withholding at source is a minimum tax for Corporate Service providers.

READ MORE: FBR proposed to restore group taxation in original form

Withholding of 8 per cent of income tax and that too inclusive of the amount of service tax of 13 per cent, automatically implies a fictional profit of over 30 per cent which is completely irrational and devoid of any sound logic. “This has resulted in unreasonable tax liabilities for a number of service providers. The exception provided to fourteen (14) service sectors under Clause (94) is again a blatant discrimination with other service sectors,” the tax bar said.

Therefore, the KTBA proposed that the position prior to Finance Act, 2015 is re-enacted and the tax withheld at source is considered as adjustable advance tax invariably for whole of the corporate service sector entities. Consequent to above, concept of reduced rates for prescribed sectors which has created further litigation would become redundant.

READ MORE: Taxpayers should not be penalized for dealers’ fault

“This will not only lower the cost of business for service sector entities but will also bring the desired level of growth in Corporate Service Sector. It will also encourage the unregulated service providers to incorporate companies for the purpose, thereby coming under the umbrella of regulated sector,” it added.

The tax bar also highlighted companies whose accounts are prepared on accrual basis are being subjected to tax twice on a single transaction and are unable to claim refund because both the tax are minimum tax.

It said that companies whose income falls under normal tax regime with a caveat of minimum tax are required to prepare return and pay tax on accrual basis of accounting whereas tax deduction is made on their revenue on receipt basis.

READ MORE: FBR urged to restore first year allowance

In Year 1, the company receives advance against revenue and no revenue is recorded in its accounts. Income tax would be deducted on advance received against revenue, which will be treated as minimum tax whereas since there is no revenue in its financial statement, there would be no corporate tax payable. Hence, minimum tax deducted would be the tax liability of the company.

In year 2, revenue would be booked in the financial statement of the advance received last year and the company would be required to pay corporate tax in year 2 on the same transaction in which the company has already paid income tax in year 1.

The KTBA proposes the following amendment:

“Provided where the minimum tax exceeds the tax due under normal tax regime, the excess shall be eligible for carry forward for set off in the following three succeeding tax years.”

READ MORE: Abolishing minimum tax suggested for listed companies

Provided further that such deduction shall be minimum tax in respect of amount subjected to witholding of tax in the tax year in which the related revenue is recognized. With the proposed amendment, this anomaly will be addressed. Else, an amendment to be made under the Ordinance for companies being taxed under normal tax regime with minimum.

These amendments will resolve the anomaly explained in the implication column and the company would not be jeopardize by subjecting it to tax twice on the same income.

KARACHI: The Federal Board of Revenue (FBR) has been proposed to restore group taxation laws in its initial form as introduced through Finance Act, 2007 and Finance Act, 2008.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 urged the authorities to restore group taxation laws.

It said through second amendment, exemption on inter-corporate dividend between companies eligible for group taxation U/s. 59B of Income Tax Ordinance, 2001(Group Relief) has been revoked.

READ MORE: Taxpayers should not be penalized for dealers’ fault

The incentive for investment through expansion of groups has been done away with.

It suggested that group Taxation laws should be restored in its initial form as introduced via Finance Act 2007 and Finance Act 2008

Furthermore clause 103C, Part I, Second Schedule of the Ordinance, providing exemption from inter-corporate dividends to group companies eligible U/s. 59B should be reinstated.

READ MORE: FBR urged to restore first year allowance

Amendments made in Clause 11B, Part IV, Second Schedule via Finance Act 2015 and Finance Act 2016, should be revoked to ensure exemption from withholding tax is provided on inter-corporate dividends exempt under clause 103A and the repealed clause 103C, Part I, Second Schedule of Ordinance.

Giving rationale to the proposal, the tax bar said it will restore the investment incentive for expansion of group companies to third party investments.

READ MORE: Abolishing minimum tax suggested for listed companies

Similarly, the KTBA sought amendment to inter – corporate services and contractual receipts under Section 59A of the Income Tax Ordinance, 2001.

Inter-corporate payment for goods, services and contract within the group companies that is tax as a one fiscal unit of group are though not be taxable in the return of income yet are subject to withholding of taxes. It is completely unnatural to tax the member of the same group separately which cash from each other.

It is proposed to exempt the payment of good, services contract from withholding of income tax. The tax bar added that it would bring the withholding law at par with the realism.

READ MORE: KTBA suggests reduction in corporate tax rate to 25%

KARACHI: Karachi Tax Bar Association (KTBA) has proposed to delete provisions that are penalizing compliant taxpayers for fault or non-compliance of dealers.

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KARACHI: The Federal Board of Revenue (FBR) has been proposed to restore first year allowance on installation of plant and machinery by an industrial undertaking in rural and under developed area.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023, recommended the FBR to reintroduce first year allowance under Section 23A of Income Tax Ordinance, 2001.

READ MORE: Abolishing minimum tax suggested for listed companies

The tax bar said first year allowance, in lieu of initial allowance, of up to 90 per cent was allowed on installation of plant and machinery by an industrial undertaking in rural and under developed area. However, this allowance was deleted by Finance Act, 2021.

It clearly implies that instead of encouraging the investment in plant and machinery for industrialization in the country, the annual revenue collection targets are more sacred and important to the government and that even the new genuine taxpayers who have made investment in this investment starved country are not spared to face the brunt of lower revenue collection.

READ MORE: KTBA suggests reduction in corporate tax rate to 25%

The tax bar said that the proposed amendment would provide relief especially to those taxpayers who have made their feasibility studies based on substantial unabsorbed depreciation due genuine to operating losses or heavy infrastructure investment. “Currently, taxpayers with unabsorbed depreciation are already subject to payment of minimum tax and after deletion of this section, they may now end up paying corporate tax liability higher than the minimum tax,” it added.

The KTBA further pointed out condition of half allowance in the year of acquisition of asset.

READ MORE: Tax incentives proposed for making new investments

It said amendment has been made in subsection (2) and (8) of the Income Tax Ordinance, 2001, whereby the depreciation shall be allowed by 50 per cent in year of acquisition, previously it was allowed fully, and remaining 50 per cent in the year of disposal.

“It creates undue burden to the taxpayer and e-filing issues as IRIS module was not properly attuned to this,” the KTBA said and proposed to delete these amendment to restore the law in its original form.

This amendment will provide ease of taxability for the taxpayers especially for the small taxpayers and save them from undue burden.

READ MORE: Tax credit extension for employment generation