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Category: Taxation

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  • FED cut for beverage industry in budget likely

    FED cut for beverage industry in budget likely

    KARACHI: The government is seriously considering to bring down federal excise duty (FED) from existing 13 percent to 11.5 percent in the upcoming budget 2021/2022.

    According to sources the tax authorities had received instructions to finalize proposals regarding beverage industry for reducing the rate of FED from 13 percent to 11.5 percent.

    The FED rate on aerated waters, containing added sugar or other sweetening matter or flavored was increased to 13 percent from 11.5 percent through Finance Act, 2019.

    It is interesting to note that Finance Minister Shaukat Tarin in a meeting last week with the delegation of the representatives of the Beverage Industry of Pakistan, said although he is supportive of adopting measures that can boost the industrial development, generate employment and help in expansion of businesses; any decision, regarding the taxation/ relief provided to any industry which has direct linkages with general well being and health of the public, will be taken after a careful analysis of all the facts and arguments.

    The Diabetic Association of Pakistan (DAP) in a recent press conference presented alarming rise of diabetic patients in the country due to growing demand for sugar.

    Therefore, the association demanded the authorities to double the taxes on sugar-sweetened beverages (SSBs) in the coming budget 2021/2022.

    It said diabetes is growing at an alarming rate in Pakistan, which has the 4th highest burden of type 2 diabetes worldwide with more than 19 million cases.

    The association demanded the government to increase the FED to 20 percent in the upcoming budget in order to discourage use of beverages.

    “Unfortunately, beverages are becoming an increasingly essential part of household food consumption with more than a 10 per cent point increase in the last few years along with a gradual increase in production and decrease in the price,” according to a letter sent to the FBR by the association.

    Health experts warned that diabetes was growing at an alarming rate in the country, and as per 2nd National Diabetes Survey of Pakistan 2016-17, every 4th Pakistani adult is suffering from type 2 diabetes.

    “Overweight and obesity are key risk factors leading to early development of diabetes. According to the Non-communicable Disease (NCDs) Steps Survey (2014-15), more than four out of ten adults of Pakistan are obese or overweight, while 37 per cent have hypertension,” according to the survey.

    WHO and the World Bank also recommended Pakistan for increasing taxes on beverages to reduce obesity and related diseases like diabetes.

    The association demanded increase in FED to 20 percent, and create a category of beverages to include sugary drinks beyond aerated water (juices, energy drinks, flavored milk, iced tea, nectars etc.) to impose minimum of 20 per cent excise tax.

  • SRB launches tax scheme for waiver of penalty, default surcharge

    SRB launches tax scheme for waiver of penalty, default surcharge

    KARACHI: The Sindh Revenue Board (SRB) on Monday launched a scheme to exempt whole of the amount of penalty and default surcharge on payment of principal amount by given date.

    Sindh Revenue Board (SRB) in this regard issued notification to exempt the whole of the amount of penalty and such of the amount of default surcharge as is in excess of the amount of default surcharge specified below, provided that the principal amount of tax and the following amounts of the default surcharge thereon are deposited in the prescribed manner in Sindh Government’s head of account “B-02384” during the periods as specified below:-

    (a) the principal amount of tax (as outstanding on 31st May, 2021) along with zero default surcharge thereon if deposited during the period from 1st June, 2021 to 12th June, 2021;

    (b) the principal amount of tax (as outstanding on the 31st May, 2021) along with 5 percent of the amount of default surcharge thereon if deposited during the period from 13th June, 2021 to 21st June, 2021; and

    (c) the principal amount of tax (as outstanding on the 31st May, 2021) along with 10 percent of the amount of default surcharge thereon if deposited during the period from 22’d June, 2021 to 30th June, 2021.

    Explanation: The word “deposited”, used in this notification, means deposited by means of the CPR (Computerized Payment Receipt) so generated.

    The benefits of exemption of penalty and default surcharge, as specified in this notification, shall also be available in relation to the arrears of the tax (as outstanding on the 31St May, 2021) payable under the Sindh Sales Tax Ordinance, 2000 and under the Sindh Sales Tax on Services Act, 2011, by.

    (i) persons who are liable to be registered under section 24 of the Act but were not registered, provided that:-

    (a) they get themselves registered with SRB in the prescribed manner during the aforementioned periods from 1st June, 2021 to the 30th June, 2021;

    (b) they deposit their tax liabilities for the principal amount of tax along with the aforementioned percentages of the amount of default surcharge thereon in relation to the tax periods from the date of the commencement of their economic activity to the tax period of May, 2021, in Sindh Government’s head of account “B-02384” in the prescribed manner by the due dates prescribed in clauses (a), (b) and (c) of paragraph 1 of this notification; and

    (c) they also e-file their tax returns, for the tax periods from date of commencement of their economic activity of taxable services to the tax period May, 2021, during the period from the date of this notification to the 30th June, 2021.

    Explanation: For the purpose of this sub-paragraph (i), the word “registered” in the case of withholding agents shall mean “e-Signed up” in terms of the Sindh Sales Tax Special Procedure (Withholding) Rules, 2014;

    (ii) persons who were registered but were non-filers or null-filers or nil-filers of their tax returns;

    (iii) persons who were late-registered with SRB and they did not file all of their tax returns for the tax periods from the date of commencement of their economic activity of taxable services;

    (iv) persons who withheld any amount of Sindh sales tax but have either not deposited the said withheld amount in Sindh Government’s head of account “B-02384” or have deposited the withheld amount in a head of account other than the Sindh Government’s head of account “B-02384”;

    (v) persons who determine the arrears through self-detection and selfassessment;

    (vi) persons who short-paid any amount of tax in their tax returns;

    (vii) persons against whom any arrears of tax were detected in SRB’s scrutiny of tax returns or in SRB’s audit of taxpayers’ record

    (viii) persons against whom any tax amount has been determined or assessed or adjudged, by an officer of the SRB, through an order or decision passed under the Sindh Sales Tax on Services Act, 2011, or the rules/notification issued thereunder;

    (ix) persons against whom any tax liability has been adjudged or confirmed by the Commissioner (Appeals) or the Appellate Tribunal;

    (x) persons whose cases are under assessment or under adjudication with any officer of the SRB or are pending, at the appellate stage with the Commissioner (Appeals) or with the Appellate Tribunal; and

    (xi) persons whose cases are under litigation in any court of law including the High Court and the Supreme Court.

    The SRB said that the benefits provided under this notification, to the extent as specified below, shall also be available in cases where a person has late paid the principal amount of tax prior to the date of this notification and/or has not yet discharged the liability of penalty (whether the prescribed amount of penalty or the adjudged amount of the penalty) and default surcharge on such late payment provided that he deposits an amount equal to:-

    (a) 5 percent of such amount of penalty and 10 percent of such amount of default surcharge (as outstanding on 31st May, 2021) in Sindh Government’s head of account “B-02384” during the period from 1st June, 2021 to 12th June, 2021;

    (b) 10 percent of such amount of penalty and 15 percent of such amount of default surcharge (as outstanding on 315t May, 2021) in Sindh Government’s head of account “B-02384” during the period from 13th June, 2021 to 21st June, 2021; and

    (c) 15 percent of such amount of penalty and 20% of such amount of default surcharge (as outstanding on 3151 May, 2021) in Sindh Government’s head of account “B-02384” during the period from 22nd June, 2021 to 30th June, 2021.

    If the whole of the dues of the principal amount of tax and the aforementioned prescribed percentage of the amount of default surcharge thereon are paid by a person in terms of this notification, such a person shall not be prosecuted under section 49 of the Act, and the offence, to the extent of the arrears of the tax paid under this notification, shall also be compounded under section 46 of the Act.

    If the principal amount of tax and the aforementioned percentages of the amount of the default surcharge thereon, as are paid in terms of this notification by the persons described in clauses (vi), (vii), (viii), (ix), (x) and (xi) of paragraph 2 of this notification, are held to be not payable in view of the order issued by the respective competent authority (i.e. the adjudicating officer or the Commissioner (Appeals) or the Appellate Tribunal or the Court of Law), the Officer of the SRB, not below the rank of an Assistant Commissioner, shall allow tax adjustment/credit of the amount or, alternatively, shall refund the amount, so paid, within 90 days from the date of receipt of the taxpayer’s application, for refund or for tax adjustment/credit, together with a copy of the order/judgment and also of the evidence that the incidence of the tax was not passed on to the service recipient.

    This notification shall not apply for refund or adjustment of any amount of tax or default surcharge or penalty as has already been paid or recovered on any date on or before the 31st May, 2021.

  • Cut in tobacco tax under consideration

    Cut in tobacco tax under consideration

    KARACHI: The government is considering to reduce the federal excise duty on cigarettes in order to discourage duty evasion and stop smuggling.

    Sources said that proposals had been invited from stakeholders to rationalize the duty structure on tobacco industry.

    The sources said that the authorities were considering to reduce the FED rate by 10 percent in the upcoming budget 2021/2022.

    They said that a strong lobby was behind pressure for reduction in the rate for tobacco industry. It is learnt that the duty rate was proposed to cut because of large volume of smuggled cigarettes available in the market.

    Interestingly, the health ministry had proposed to increase the levy in order to discourage the use of cigarettes.

    The sources said that after the proposed reduction on the tobacco industry, the country would become having the lowest amount of taxes on the cigarettes use.

    For the last two years the government was raising the duty rate on the tobacco industry. However, the stakeholders were demanding to reduce the rate in order to stop the smuggling.

    The sources said that total revenue collection from tobacco industry was around Rs130 billion. Meanwhile, the tobacco industry assured that with the proposed reduction in duty the revenue would ultimately increase.

    To some estimates, the country was losing around Rs77 billion due to smuggled cigarettes.

  • FBR urged to allow CGT exemption to private companies

    FBR urged to allow CGT exemption to private companies

    KARACHI: Tax practitioners have demanded the Federal Board of Revenue (FBR) to allow capital gain tax (CGT) exemption to private companies in order to encourage corporatization in the country.

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  • Tax on property income should be made final

    Tax on property income should be made final

    KARACHI: The Federal Board of Revenue (FBR) has been urged to rationalize rental income from property and individuals or Association of Persons (AOPs) should be taxes as full and final discharge of tax liability.

    Karachi Tax Bar Association (KTBA) in its proposals for budget 2021/2022 said that the rental income from property, AOP or individual and company (taxable as separate block of income) should be taxed at a uniform rate of 15 percent of the gross rent as full and final discharge of tax liability.

    The tax bar said that at present for every person except companies the income from property is chargeable to tax at the rate specified in Division (VIA) of Part-I of the First Schedule, which is considered to be their final tax liability and they are not allowed any expenditure against gross rent, except option provided under sub-section (7) of section 15A of the Income Tax Ordinance, 2001.

    The companies are required to pay normal tax (current at 29 percent) on such income after adjustment of admissible expenditure out of gross rent.

    The tax rate on rental income has been gradually increased from 20 percent to 35 percent for individuals and AOPs vide the Finance Act, 2019.

    Apart from that the lessor is also required to pay Sindh Sales Tax at 3 percent to SRB. It makes the total tax impact very unfair and exorbitant.

    The current taxation framework makes the total tax impact on property income very unfair and exorbitant.

    The KTBA further suggested that rental income taxable under normal tax regime should be allowed to be adjusted against business loss. The restriction imposed through Finance Act, 2013 needs to be reconsidered.

    The impact of taxes (direct and indirect) on rental income will be rationalized. Investors will be encouraged to declare their genuine rental income.

  • KTBA presents tax proposals for salary income

    KTBA presents tax proposals for salary income

    KARACHI: The Karachi Tax Bar Association (KTBA) has presented income tax proposals for salary income for incorporating in the Finance Bill 2021.

    In its proposals for budget 2021/2022, the tax bar highlighted the issue related to taxation of notional income.

    It said that the difference between the benchmark rate and the actual rate of interest is charged where actual rate of interest is charged at less than the benchmark rate by the employers on concessionary loans provided to the employees or otherwise it is treated as perquisite chargeable to tax

    The tax bar said the taxation of this notional income is highly unjust since it taxes the notional income of the salaried person, which is against the basic principle of taxation since this notional income will never ever be received by the taxpayer.

    The KTBA proposed that the taxation of marginal income on loans obtained from the employer below benchmark rate should be exempted for lower threshold amounts. The minimum threshold of the loan amount on which the provisions of Section 13(7) of Income Tax Ordinance, 2001 may not apply should be raised to at least Rs.2,500,000/- from the existing limit of Rs.1,000,000/-.

    It is further suggested that benchmark rate currently fixed at ten percent be based on Kibor rate.

    Giving rationale to the proposal, the KTBA said that the change would result in facilitation and easement of salaried taxpayers.

    The tax bar highlighted the issue of withholding tax on salary income.

    It said as per section 149 of the Income Tax Ordinance, 2001, 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 of the Ordinance and other adjustments.

    Complete tax credits though legally available are not adjusted in payroll run.

    The KTBA proposed that this section should include all tax credit under Part X Chapter III as are admissible against salary income.

    Giving rationale to the proposal, the KTBA said that the current scheme has apparently missed tax credit under section 62A of the Income Tax Ordinance, 2001. The proposed amendment would cater all the current credits and those to be introduced from time to time.

    The KTBA also highlighted the issue of employer contribution to Provident Fund.

    It said Under Clause (3), Part I, Sixth Schedule of the Ordinance, 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.

    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.

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

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

    Giving rationale to the proposal, the KTBA said that 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.

    To another proposal, the KTBA said that as per clause (13)(iv) of part – I, there is existing limit of Rs.75,000/-.

    Gratuity exemption not indexed for inflation, it added.

    It should be increased to Rs.300,000/-, the KTBA proposed.

    Considering the inflationary effect since the current limit as set at the promulgation of Ordinance has remained unchanged.

    Similarly, the KTBA highlighted that as per clause (23A), withdrawal of 50 percent of balance is exempted subject to fulfillment of conditions.

    It said that it was an inadequate exemption.

    It is proposed to increase the exemption to the extent of withdrawal of actual amount invested in the pension fund and additional amount to be taxed at the rate of tax applicable on salaries.

    To exempt the portion of investment made in pension funds.

  • Inland Revenue speeds up action against illicit cigarettes

    Inland Revenue speeds up action against illicit cigarettes

    ISLAMABAD: The Inland Revenue Enforcement Network (IREN) of the Federal Board of Revenue (FBR) has accelerated action against non-duty paid / illicit cigarettes, a statement said on Saturday.

    IREN’s Directorate of Intelligent and Investigation (I&I) -IR Faisalabad Unit conducted a raid at Samanabad and discovered 201 cartons (2,000,000 cigarettes) of non-duty paid cigarettes.

    The confiscated cigarettes of various local brands such as Gold Mark, Cricket, Grace etc. have been moved to the warehouse of the Directorate.

    Similarly, the IREN Unit of Directorate of I& I-IR Karachi, intercepted the vehicle and found 119 Cartons (990920 sticks) of Non-duty paid cigarettes.

    The same have been detained on account of non-production of valid documents. The value of federal excise duty and sales tax of confiscated cigarettes is around 6 million. Further investigation is underway.

    A team of Directorate of I&I (IR), Hyderabad visited Godown of a Transport Company at Tando Mohammad Khan and found 121 Cartons (1210000 sticks) of different brands of cigarettes stocked in the godown.

    The person present there failed to produce any documentary evidence regarding payment of applicable duties and taxes in respect of these Cartons. Hence the stock of 121 cartons involving duty and taxes of Rs. 2.634 million has been detained for further investigation.

  • FBR urged to restore group tax laws in actual form

    FBR urged to restore group tax laws in actual form

    KARACHI: Pakistan Business Council (PBC) has urged the Federal Board of Revenue (FBR) to restore laws related to group taxation in the initial form as introduced via Finance Act 2007 and Finance Act 2008.

    In its proposals for budget 2021/2022, the business council said that most recently, via Income Tax Laws (Second Amendment) Ordinance, 2021, exemption from the levy of tax on intercorporate dividend between companies eligible under section 59B of Income Tax Ordinance, 2001 (Group Relief) has been revoked.

    The PBC proposed group taxation laws should be restored in its initial form as introduced via Finance Act 2007 and Finance Act 2008.

    Specifically, the following is being proposed:

    Clause 103C of Part I of Second Schedule of ITO, providing exemption from Intercorporate Dividends to group companies eligible under section 59B of the ITO, should be reinstated.

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

    Through Finance Act 2016, a restriction was introduced by insertion of sub-section 1A in section 59B of ITO such that the surrender of losses is now restricted to the percentage of shareholding. This amendment is against the intent of the legislation and it is recommended that sub-section 1A and its references in section 59B should be removed.

    Condition of Group Return Filing introduced in Clause 103A Part I of Second Schedule of ITO Via Finance Act 2015 to claim exemption on Intercorporate Dividend between wholly owned entities (eligible under section 59AA), should be removed.

  • Business Council identifies anomalies in minimum tax regime

    Business Council identifies anomalies in minimum tax regime

    KARACHI: Pakistan Business Council (PBC) has identified anomalies in minimum tax rates and demanded the levy should be abolished.

    In its budget proposals for 2021/2022 submitted to the Federal Board of Revenue (FBR) the council said that the rate of minimum tax of 1.5 percent is extremely high and unrealistic.

    It identified that as per the judgment of the Sindh High Court in case of Kassim Textile, carry forward and adjustment of Minimum turnover tax is not allowed in cases where the taxpayer reports loss. On the other hand, Lahore High Court, in case reported as 2019 PTD 1994, minimum tax, even in case of loss year, is allowed to be carried forward for adjustment.

    Income Tax Law prescribes that ‘income’ of the Zone Enterprise (located in Notified SEZ) is exempt from tax for 10 years. However, no explicit exemption is provided from Minimum Tax (payable under section 113 of the Income Tax Ordinance, 2001) to Zone Enterprises. SEZ Act, 2012 is a special law governing SEZs and Zone Enterprises granting exemption from all income taxes (which include Minimum Tax also), however, due to ambiguity, tax department does not allow exemption from minimum tax to entities operating in SEZ.

    Section 65D/65E of the Income Tax Ordinance, 2001 provides exemption for 5 years from all income taxes [including minimum tax and final tax] to company formed for operating a new industrial undertaking. On the other hand, no such benefit has been provided to an existing company investing for Expansion or extension to achieve benefits of large-scale manufacturing

    Therefore, the PBC proposed that in order to promote industrialization, Minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audit. For other companies, rate of minimum tax be reduced gradually by 0.2% on an annual basis so that by Tax Year 2025 the rate is 0.5%.

    Moreover, in order to streamline the mechanism of carry forward and adjustment of Minimum tax, minimum tax should also be allowed to be carried forward for adjustment in subsequent years even in case of losses.

    Exemption from minimum tax to all companies operating in SEZ In line with the tax credits under sections 65D/65E, in order to achieve economies of scale to compete with international suppliers, allow exemption for 5 years from all income taxes [including minimum tax and final tax] on income generated from expansion / extension / BMR projects by an existing industrial undertaking subject to the condition that the minimum investment in such extension / expansion project should not be less than $15 million

  • FBR projects Rs5,700bn tax collection for next fiscal year; IMF says ‘do more’

    FBR projects Rs5,700bn tax collection for next fiscal year; IMF says ‘do more’

    ISLAMABAD: The Federal Board of Revenue (FBR) has estimated Rs5,700 billion as a net revenue collection for the next fiscal year 2021/2022, around Rs263 billion less then projection of International Monetary Fund (IMF).

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