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Category: Taxation

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  • Finance Bill 2021: tax treatment of capital gain on disposal of immovable properties

    Finance Bill 2021: tax treatment of capital gain on disposal of immovable properties

    KARACHI: The Finance Bill 2021 has proposed various changes to Income Tax Ordinance, 2021 to capital gain tax on disposal of immovable properties.

    In its commentary on budget 2021/2022, KPMG Taseer Hadi & Co. Chartered Accountants said that taxation of gain on disposal Gain on disposal of immovable property is currently taxable on separately provided slab rates by computing the such gain on the basis of holding period as envisaged under sub-sections (1A) read with (3A) of section 37.

    The Finance Bill 2021 proposes to provide for taxability of gain on disposal of immovable property where such gain exceeds Rs. 5 million as normal capital gain subject to tax under applicable tax rates provided under normal slab rates or corporate tax rates.

    However, benefit of holding period shall still be taken into account while computing the taxable capital gain.

    Amendment has also been proposed to tax this gain at 5 percent instead of existing slab rates varying from 2.5 percent to 10 percent. Thus, the gain below Rs. 5 million computed by taking benefit of holding period shall be subject to tax @ 5 percent.

    The Finance Bill also proposes to insert explanation in sub-section (1A) of section 37 that where a person purchases and sells immovable property in the ordinary course of business, such gain shall be taxable as business income and not as capital gain.

    This fiction has always remained subject matter of dispute though eventually decided by the court upholding the stance of tax authorities that such gain should be taxed as business income.

    Currently under section 37(4A) where a capital asset becomes the property of the person inter-alia through gift, the fair market value of the asset, on the date of its transferor acquisition by the person shall be treated to be the cost of the asset.

    This historically as bestowed two-pronged benefits i.e. exempting gain on such disposal from tax in the hands of transferor and simultaneously entitling the transferee to a revalued cost to be claimed as deduction on subsequent sale.

    The bill proposed that if the capital asset acquired through gift is disposed of within two years of its acquisition and the Commissioner is satisfied that this constitutes a tax avoidance scheme then the recipient of the gift shall be treated to have acquired the asset for a cost equal to the cost for the person disposing the asset i.e. the historical cost.

  • Highlights of relief in duty, taxes for import, local supply of cars

    Highlights of relief in duty, taxes for import, local supply of cars

    KARACHI: The government has proposed relief in duty and taxes on import and local supply of motor cars up to 850CC in order to enable lower income group to purchase the motor vehicles.

    According to a commentary on budget 2021/2022 issued by KPMG Taseer Hadi & Co. Chartered Accountants, in recent years, the prices of automobiles in Pakistan have seen a sharp rise due to multiple factors, making them unaffordable for common man.

    The Finance Bill 2021 proposes to rationalize the tariff structure of the automobile sector in order to address this matter in the following manner:

    For motor vehicles up to 850cc, the Bill proposes to abolish import taxes including minimum value addition tax. In the case of locally manufactured vehicles with engine capacity upto 850cc, the Bill proposes to reduce sales tax from 17 percent to 12.5 percent and abolish federal excise duty.

    In case of local supply of locally manufactured Electric Vehicles (EV) i.e., small cars or SUVs with battery capacity up to 50 kwh and Light Commercial Vehicles(LCV)with battery capacity up to 150 kwh, the Finance Bill 2021 proposes to levy sales tax at reduced rate of 1 percent whereas import of the same is excluded from minimum value addition tax with 25 percent reduction in custom duty till 30.06.2026.

    However, import of CKD kits for these EVs is proposed to be taxed at reduced customs duty rate of 1 percent with exemption / exclusion from chargeability of sales taxand minimum value addition tax.

    In addition, the Bill proposes to reduce sales tax on Hybrid Electric cars with capacity up to 1800 cc to 8.5 percent.

    The Bill further proposes to reduce levy of minimum tax on turnover from 1.5 percent to 0.25 percent in case of persons engaged in sale and purchase of used vehicles while also abolishing withholding of income tax on purchase of used vehicles from general public.

    However, the collection of advance tax is proposed to be made from the original purchaser who sells it without registration, at the rates ranging from Rs. 50,000 to Rs. 200,000.

  • FBR directs customs officers to submit asset declaration, PERs

    FBR directs customs officers to submit asset declaration, PERs

    ISLAMABAD: Federal Board of Revenue (FBR) on Wednesday directed officers of Pakistan Customs Service (PCS) from Grade – 19 to Grade – 20, who are in promotion zone, to submit asset declaration and performance evaluation reports (PERs) by July 10, 2021.

    The FBR said that the meeting of Central Selection Board (CSB) for promotion of Pakistan Customs Service from BS-20 to BS-21 and BS-19 to BS-20 will be held shortly.

    All BS-19 and BS-20 officers of PCS in the promotion zone are advised to ensure that their PERs and Declaration of Assets up to June 30, 2021 are complete and submitted to the Board latest by July 10, 2021 positively.

    Completion of PERs and submission of Declaration of Assets are the pre-requisites for promotion to selection grads under Civil Servants Promotion (BS-18 to BS-21) Rules, 2019.

    The FBR is trying hard to ensure that all eligible officers be considered for promotion in the forthcoming CSB meeting. However, cooperation in timely completion of service record is equally essential.

    All BS-19 and BS-20 officers of PCS are advised to get the needful done as early as possible. The Reporting/Countersigning Officers are also advised to forward PERs to the Board (ERM Section), if pending with them immediately.

  • Additional withholding tax imposed on cars sold without registration

    Additional withholding tax imposed on cars sold without registration

    KARACHI: The application of withholding tax on cars / motor vehicles that are sold without registration shall pay additional withholding income tax.

    According to the Finance Bill, 2021 the withholding tax in addition to registration/transfer would be applicable and the same would be collected by the motor vehicle registration authority of Excise and Taxation Department if manufactured motor vehicles sold prior to registration by the person who originally purchased it from the local manufacturer.

    Tax analysts at KPMG Taseer Hadi Chartered Accountants said that Tax Laws (Amendment) Ordinance, 2021 inserted sub-section (2A) in Section 231B, whereby, every motor vehicle registration authority of Excise and Taxation Department shall collect advance tax at the time of sale of such vehicles from buyers of locally manufactured vehicles who sell the vehicles within 90 days of taking delivery from the local manufacturers/assemblers, whether or not registered by the respective authorities.

    The rates of withholding tax on motor vehicles sold prior registration are:

    Up to 1000CC: Rs50,000

    1000CC to 2000CC: Rs100,000

    2000CC and above: Rs200,000

    The tax analysts said that above rates were applicable till June 30, 2021.

    However, the Finance Bill, 2021 proposed to continue the provision. However, the restriction of 90 days is proposed to be done away with.

  • Penalty imposed for non-declaration of business bank account

    Penalty imposed for non-declaration of business bank account

    ISLAMABAD: The Federal Board of Revenue (FBR) has been authorized to impose penalty on taxpayers who fail to declare their bank accounts.

    According to budget 2021/2022 commentary issued by KPMG Taseer Hadi & Co. the Finance Bill 2021 proposed a new definition of “business bank account” to mean a bank account utilized by the taxpayer for business transaction declared to the Commissioner through original or modified registration form prescribed under section 181.

    The form under section 181is available on IRIS wherein the taxpayer is required to declare bank account which would be treated as business bank account.

    The Bill proposes to beef-up the documentation of taxpayer by prescribing specific penalty and prosecution provisions on non-declaration of bank account.

    Where any person fails to declare business bank account(s), in his registration application or fails to amend his registration profile to declare existing business bank account(s), such person shall pay a penalty of Rs. 10,000 for each day of default since the date of submission of application for registration or date of opening of undeclared business bank account whichever is later subject to minimum penalty of Rs.100,000 per undeclared bank account. This provision is proposed to be effective from 1st October 2021.

  • Tarin directs FBR to ensure tracking progress of installed POS machines

    Tarin directs FBR to ensure tracking progress of installed POS machines

    ISLAMABAD: Minister for Finance and Revenue Shaukat Tarin on Tuesday directed the tax authorities to ensure effective tracking progress of installed Point of Sale (POS) machines and provide post deployment support to the retailers.

    He further directed to determine the total volume of sales by retailers to effectively tap the revenue generation through POS system after adjustment of input and output taxes. He directed to establish a cell at FBR HQ to fast track the progress on POS integration.

    Minister for Finance & Revenue Shaukat Fayaz Ahmed Tarin visited FBR Headquarters on Tuesday and held a meeting with FBR officers.

    The agenda of the meeting was to devise a strategy to increase integration of retailers with the Point of Sales System of FBR.

    The meeting also discussed the way forward to bring identified potential taxpayers into tax net. Special Assistant to the Prime Minister on Finance & Revenue Dr. Waqar Masood Khan and Chairman FBR Asim Ahmad along with other members of FBR were present in the meeting.

    Chairman FBR while briefing said that the licensing of IT companies for installation and configuration of POS System would be completed by the end of August.

    He further briefed that monitoring cells would be formed in each RTO headed by respective Chief Commissioner to supervise the POS integration for achieving desired results. Minister for Finance and Revenue directed to ensure effective tracking progress of installed POS machines and provide post deployment support to the retailers. He further directed to determine the total volume of sales by retailers to effectively tap the revenue generation through POS system after adjustment of input and output taxes. The finance minister directed to establish a cell at FBR HQ to fast track the progress on POS integration.

    The meeting under the Chair of Minister for Finance & Revenue also discussed the strategy to increase the tax net possibilities.

    FBR Team briefed that sizeable number of potential taxpayers have been identified after retrieving available data of their withholding taxes through third party sharing.

    Chairman FBR briefed that efforts are being made to bring all the identified potential taxpayers into tax net. Minster for Finance and Revenue directed to remove all hurdles in bringing the identified potential taxpayers into tax net. He directed to further identify the potential taxpayers on the basis of third party data being received through credible sources.

    The Minister stressed on the need to finalize the modalities of third party audit which would not only increase the tax net but would also generate much needed revenue. The meeting ended after it was decided to hold regular meetings to pursue the targets on fast track basis.

  • FBR explains exemption withdrawal not new tax

    FBR explains exemption withdrawal not new tax

    ISLAMABAD: The Federal Board of Revenue (FBR) on Monday explained that withdrawal of exemption and concession does not mean imposition of new taxes.

    Clarifying to a news report, the FBR said that withdrawal of exemption and reduced rates should not be confused with imposition of new taxes.

    It is very clearly and candidly informed that the present budget proposals do not contain any new item for taxation of pensions or major components of salary as initially discussed.

    Omission of Clause (39) of Part I of Second Schedule to the Income Tax Ordinance, 2001 is only of technical nature. This clause provided exemption to re-imbursement of expenditure incurred by employee on behalf of the employer organization.

    This type of transaction cannot form part of the salary in any circumstances. The omission has been made only because there were some interpretations of the courts that were not in accordance with the actual purpose of this clause.

    The clause has accordingly been omitted to avoid multiple interpretations or confusions. The figures of revenue generation of Rs.1.82 billion reported by the Express Tribune in this regard are absolutely unwarranted and misleading.

    The clause has accordingly been omitted to avoid multiple interpretations or confusions. The figures of revenue generation of Rs.1.82 billion reported by the Express Tribune in this regard are absolutely unwarranted and misleading.

    However, profit on debt or markup component on provident fund has been proposed to be taxed @ 10% as a separate block of income only if such markup exceeds Rs.500, 000 in a tax year.

    FBR firmly believes that this change will not result in any significant burden on taxpayers.

    Slight changes on account of traveling allowance of newspapers employees, free supply of food or other perquisites etc. and salary of seafarers that was wholly exempt have been proposed for rationalization of salary tax regime rather than as revenue generation measure.

    Tax rate on capital market transactions has been lowered from 15% to 12.5% in order to encourage ordinary people to invest their savings in the stock market tradable securities.

    This change will result in enhanced savings and investment in an activity that will lead to industrial expansion and economic growth.

    Needless to highlight, an enhanced confidence in stock market ultimately translates into raising funds/money by initial public offerings (IPOs) by existing companies or new companies joining the field.

    The incentive has been offered for promoting sustainable and inclusive economic growth.

    Ministry of Finance and FBR are always open to positive critique for making changes if any required in the proposals, however, take a strong exception to undue, unwarranted and unjustified criticism.

  • Bill withdraws income tax exemptions, concessions under Second Schedule

    Bill withdraws income tax exemptions, concessions under Second Schedule

    ISLAMABAD: A bunch of income tax exemptions and concessions has been proposed through Finance Bill, 2021, which will be implemented from July 01, 2021.

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  • Tax officers empowered to arrest persons for concealing income

    Tax officers empowered to arrest persons for concealing income

    ISLAMABAD: The Federal Board of Revenue (FBR) has introduced a significant amendment to the Income Tax Ordinance, 2001, through the Finance Bill, 2021, empowering tax officers to arrest individuals in cases of income concealment.

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  • Capital gain on immovable properties above Rs5 million to be taxed at normal rate

    Capital gain on immovable properties above Rs5 million to be taxed at normal rate

    KARACHI: The government has taken taxation measures on capital gains from disposal of immovable properties and introduced normal tax regime on gains on immovable properties above Rs5 million.

    According to commentary on budget 2021/2022 and Finance Bill, 2021 released by PwC A. F. Ferguson & Co. Chartered Accountants, under the existing provisions, gains on disposal of immovable properties are taxed at special (reduced) slab rates along with reduction in gain based on holding period.

    Gains on disposal of immovable properties held for more than four years are effectively non-taxable.

    The proposed amendment at the outset seeks to clarify that this regime for immovable properties is not applicable on persons habitually engaged in transaction of sale and purchase of properties or where sale is adventure in the nature of trade or business.

    Income of such persons would be taxable under the head of business with consequential effect that no benefit of holding period and special rate of tax would apply.

    Furthermore, it is proposed that gains up to Rs 5 million will be taxed at a special rate of 5percent as against the existing rate of 2.5 percent.

    The gains exceeding Rs 5 million will be taxed at normal rate though the benefit of holding period in computation would continue to apply as per existing provisions given below:

    1. Where the holding period of an immovable property does not exceed one year: the calculation for tax shall be

    A = Consideration minus cost

    2. Where the holding period of an immovable property exceeds one year but does not exceed two years: the calculation shall be A x 3/4

    3. Where the holding period of an immovable property exceeds two years but does not exceed three years: the calculation shall be A x 1/2

    4. Where the holding period of an immovable property exceeds three years but does not exceed four years: the calculation shall be A x 1/4

    5. Where the holding period of an immovable property exceeds four years: the calculation shall be Zero

    In case of disposal of a depreciable immovable property at a consideration higher than its cost, the provisions of law deem consideration as cost of such property, thus, resulting into recoupment of tax deprecation only.

    The rationale for such provision was that the Federal Government did not have powers under the Constitution of Pakistan to tax gain on disposal of an immovable property.

    However, the 18th amendment to the Constitution was construed by the Federal Government to have given them jurisdiction to tax such gains.

    Consequently, specific provisions were introduced for taxation of gains on immovable properties, but no such amendment was made for depreciable immovable assets.

    An amendment is now proposed to tax the aforesaid ‘excess’ as capital gains under section 37. As a result, in case of depreciable immovable assets, the excess should be dealt in the same manner as applicable for other immovable properties particularly with the concept of holding period.

    The placement and language of the proposed amendment contradicts section 22(8) thus resulting in anomalous situation, which should be reconsidered.