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Category: Taxation

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  • Tax collection from cash withdrawals falls by 52 percent in Tax Year 2020

    Tax collection from cash withdrawals falls by 52 percent in Tax Year 2020

    ISLAMABAD: The income tax collection on cash withdrawal from banking system fell by around 52 percent during tax year 2020 following return filers allowed tax free transactions.

    According to statistics released by the Federal Board of Revenue (FBR) the collection of income tax under Section 231A of Income Tax Ordinance, 2001 was at Rs15.17 billion as compared with Rs31.75 billion in the preceding tax year.

    Prior to March 2019 the person filing income tax return and were on the Active Taxpayers List (ATL) were liable to pay 0.3 percent on cash withdrawal above Rs50,000 in a day from banking system. Meanwhile, the persons not on the ATL were required to pay 0.6 percent on the cash withdrawal above Rs50,000 in a day.

    However, through Finance Supplementary (Second Amendment) Act, 2019 amendment was made to Section 231A Income Tax Ordinance, 2001 and persons on the ATL were exempt from paying 0.3 percent income tax on making cash withdrawal above Rs50,000.

    The levy of withholding income tax on cash withdrawal was introduced through Finance Act, 2005. Initially the tax was payable on withdrawal of above Rs25,000 per day. But through Finance Act, 2012 the limit was increased to Rs50,000.

    According to Section 231A of the Income Tax Ordinance, 2001 every banking company shall deduct tax, if the payment for cash withdrawal, or the sum total of the payment for cash withdrawal in a day, exceeds fifty thousand rupees.

    The FBR clarified that the said fifty thousand rupees shall be aggregate withdrawals from all the bank accounts in a single day.

  • Harmonizing general sales tax top priority: Hammad Azhar

    Harmonizing general sales tax top priority: Hammad Azhar

    ISLAMABAD: Federal Minister for Finance, Revenue, Industries and Production, Mohammad Hammad Azhar on Tuesday said that harmonization of general sales tax is priority area of the government.

    Hammad Azhar, held a virtual meeting with Hartwig Schafer, Vice President South Asia Region, World Bank Group at the Finance Division.

    The federal and provincial tax authorities are working out procedures for its smooth implementation, the finance minister added.

    He expressed firm resolve of the government in implementing reforms under ongoing World Bank projects and thanked the Vice President for their continued guidance and collaboration.

    The Finance Minister reiterated that the government is fully committed to implementing structural reforms, protecting social spending and boosting social safety nets in order to protect the vulnerable segments of the society.

    Federal Minister for Economic Affairs Division Makhdoom Khusro Bakhtiar, Federal Minister for Energy Omar Ayub Khan, SAPM on Power Tabish Gauhar, Governor State Bank of Pakistan Reza Baqir, Secretary Finance Division, Secretary Power Division, Secretary EAD, Chairman FBR and senior officials participated in the meeting.

    The finance minister appreciated the pivotal role being played by the World Bank in strengthening governance and service delivery through institutional reforms in Pakistan over the years.

    The Federal Minister for Energy and SAPM on Power outlined the steps being taken to streamline the power sector, improving service delivery and serving the larger interest of electricity consumers.

    They emphasized that the government is fully committed to make power sector dynamic and more sustainable.

    The Federal Minister for Economic Affairs Division (EAD) lauded the World Bank’s IDA financing for the Crisis-Resilient Social Protection (CRISP) and other projects on the occasion.

    The Vice President, World Bank appreciated the government’s relief initiatives to curtail the impact of COVID-19 pandemic effectively. The Vice President reiterated the World Bank’s continuous support to the Government of Pakistan during testing times.

    The World Bank also acknowledged that a lot of progress has been made on implementation of structural reforms in various sectors. There is a need to keep up the momentum once the health crisis abates, he added.

  • FBR officials given access to declarations filed under amnesty scheme

    FBR officials given access to declarations filed under amnesty scheme

    ISLAMABAD: The senior officials of the Federal Board of Revenue (FBR) have been authorized to access declarations of undisclosed income and assets under amnesty scheme of year 2019.

    The FBR issued SRO 369(I)/2021 to notify Assets Declaration Rules, 2021 dated March 31, 2021. Under rule 15 access has been authorized to declarations under the act i.e. Assets Declaration Act, 2019.

    According to the rule 15: Member Information Technology and Member IR (Operations) are authorized by the FBR to access the declarations under Section 14 of the Act, on their own or when a request by the concerned chief commissioner IR, supported with reasons, is forwarded to any of the aforementioned Members for provision of a copy of the declaration.

    Rule 8 of the notified SRO explained about treatment of asset, income or expenditure in a declaration. According to it the amount of asset, income or expenditure in a valid declaration for and upto tax year 2018 shall not be included in a taxable income of the declarant for any tax year under the Income Tax Ordinance, 2001.

    The FBR explained: “For removal of doubt it is clarified that any assets, income or expenditure that can be plausibly traced as sourced in assets or income declared in a valid deduction shall not be called into question.”

    Rule 9 has explained about the proceedings under the Income Tax Ordinance, 2001 in respect of the information received other than under Common Reporting Standards (CRS).

    Sub Rule 1 stated that subject to sub-rule (2), no proceedings under any provisions of the Income Tax Ordinance, 2001 shall be initiated on the basis of any information relating to any asset, income or expenditure as the 30th day of June 2018 or any prior period, if the information relates to a declarant under the Asset Declaration Act, 2019 and the declarant files an irrevocable written statement along with documentary evidence to the effect that the source of the asset, income or expenditure in the received information has been the assets, income or expenditure declared under the Act. The declarant shall file such a statement on a notice under Section 176 of the Income Tax Ordinance, 2001 along with the related documentary evidence.

    Sub-Rule 2 of Rule 9 stated that the nature and source of asset, income or expenditure shall not be treated as explained and the Commissioner Inland Revenue or his delegate shall be entitled to proceed under Section 111 of the Income Tax Ordinance, 2001, on the basis of definite information acquired from any source other than a valid declaration itself, in following cases:

    (a) where the value of asset, income or expenditure, as at the 30th day of June 2018 or before as per the definite information is in excess of value as per declaration; and

    (b) where the source of asset, income or expenditure relates to a person other than the declarant.

    Sub-Rule 3 of Rule 9 stated that where an action under Section 111 of the Income Tax Ordinance, 2001 as undertaken in accordance with the sub-rule (2) results in invalidation of the declaration then such an action cannot be initiated without prior approval, for reasons to be recorded in writing, of the chief commissioner inland revenue as defined in clause (11B) of the Section 2 of the Income Tax Ordinance, 2001.

    Rule 10 explained declaration filed and the information received under CRS. According to sub-rule 1 of the Rule 10, where a foreign asset or income is reported to the FBR under CRS, then prior to any action under any provision of the Income Tax Ordinance, 2001, the FBR shall ensure compliance of the condition under the protocol for CRS including exchange of information by the person whose information has been received. On completion of that process, following procedure shall be followed:

    (a) the commissioner inland revenue of the concerned person or delegate of the commissioner shall issue a notice under section 176 of the Income Tax Ordinance, 2001;

    (b) the notice referred in clause (a) of this sub-rule shall enquire as to whether or not such asset, income or expenditure has been declared under the Voluntary Declaration of Domestic Assets Act, 2018 and the Foreign Assets (Declaration and Repatriation) Act, 2018 or Asset Declaration Act, 2019;

    (c) if the taxpayer informs the commissioner Inland Revenue or his delegate that the asset, income or expenditure, as reported under the CRS has been declared in a declaration, the commissioner Inland Revenue or his delegate shall require the taxpayer to provide a copy of the declaration; and

    (d) the taxpayer on receipt of such notice under section 176 of the Income Tax Ordinance, 2001 shall:

    (i) provide a copy of his declaration where such asset, income or expenditure, as the case may be, has been declared; and

    (ii) provide a copy of the declaration of another person, being the beneficial owner, where the asset, income or expenditure referred to in the CRS has been declared.

    Sub-Rule 2 of the Rule 10 stated that subject to the provision of Section 11 of the Asset Declaration Act, 2019, in case the information received under CRS as referred above are in agreement then a confirmation in writing shall be issued by the Commissioner Inland Revenue or his delegate that the asset, income or expenditure to the extent referred to in the letter has been declared under the respective declaration law.

    Through Rule 11, the FBR explained the beneficial ownership. The sub-rule 01 of Rule 11 stated that in case of matter relating to legal or beneficial ownership of an asset, income or expenditure, the claim of beneficial ownership shall not be questioned unless there is definite information that the asset was created out of sources of a person other than the person claiming the beneficial ownership.

    The sub-rule (2) of the Rule 11 stated where in the case of a foreign trust the source of contribution to the trust is claimed by any person other than settler, beneficiary or the trustees, the person so claiming shall be entitled to declare his contribution under the Asset Declaration Act, 2019. Such declaration shall not be called in question merely on account that such person is not the settler, beneficiary or trustee of the trust.

    Provided that where the asset, income or expenditure is reported under CRS in the name of settler, beneficiary of the trust or any person, proceedings shall be initiated against such person in the absence of a declaration by such settler, beneficiary or other persons;

    Provided further that in such a case any claim, by a third person as contributor to the asset, income or expenditure, shall only be considered if supported with documentary evidence.

    Through Rule 12, the FBR also explained declaration made by relatives of holder of public office. Sub-rule 1 of the Rule 12 stated that the status of a person as to the holder of public office or otherwise and the period during which a person remained holder of public office shall not be questioned or challenged by the commissioner Inland Revenue or his delegate if the same is confirmed by the relevant office.

    Sub-rule 2 of the Rule 12 stated that no declaration by a person entitled to file a declaration under the Asset Declaration Act, 2019 shall b questioned only for the reason that the declarant is a relative other than spouse and dependent children of the declarant of a person being a holder of public office unless it is confirmed through a definite information that the asset, income or expenditure have been created out of the undisclosed sources of a holder of public office.

  • FTO proposes initiating criminal prosecution against smugglers

    FTO proposes initiating criminal prosecution against smugglers

    ISLAMABAD: Federal Tax Ombudsman (FTO) has recommended that tax authorities should initiate criminal prosecutions against persons involved in smuggling or selling non-duty paid goods.

    In its proposals for budget 2021/2022, the FTO recommended measures on the issues of smuggling, misdeclarations, under-invoicing and non-transparent auctions.

    In order to effectively check the smuggling, it was recommended that criminal prosecution should be initiated against the persons/owners of the showrooms involved in business of Non-Duty Paid (NDP) vehicles, fuel pumps of smuggled oil and storage godowns of other smuggled items, from whom the NDP goods were recovered as provided in the Customs Act, 1969 read with the Prevention of Smuggling Act, 1977.

    Installation of scanners on the ports was recommended to be given top priority. It was emphasized that if government invested herself in this project, it will raise the potential of higher revenue and more effective check on misdeclaration of description or quantity of imported goods.

    So far two scanners have been added at Karachi Ports in addition to one already installed there. Two scanners have also been installed at Jamrud and Torkham, Peshawar.

    It was recommended to provide a mechanism in law for cross-matching of value declared on export documents of exporting station to import documents at importing station.

    Federal Board of Revenue (FBR) was asked to prescribe Model Auction Rules for auction through electronic means and prepare/operationalize an auction module in the WeBOC system to bring transparency and efficiency in the auctions.

    According to FBR, under the WeBOC-Glo initiative (an enhanced version of WeBOC), an electronic auction module has been developed and deployed in the system. This module envisages online registration of bidders who can bid for all auctionable goods displayed on website by the Customs authorities. Pilot is being run at Karachi Port (South Asia Port Terminal only).

    In view of constant complaints about delayed clearance at the border stations, generators should be provided on priority for speedy passengers/goods clearances and maintenance of IT and infrastructure support.

  • List of exemptions from total income withdrawn through ordinance

    List of exemptions from total income withdrawn through ordinance

    KARACHI: officials in the Federal Board of Revenue (FBR) have said that through Tax Laws (Second Amendment) Ordinance, 2021 various clauses of Second Schedule of Income Tax Ordinance, 2001 have been deleted that have allowed tax exemptions from total income.

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  • Minimum penalty of Rs10,000 fixed for defaulting withholding statement

    Minimum penalty of Rs10,000 fixed for defaulting withholding statement

    KARACHI: A minimum penalty of Rs10,000 has been fixed for defaulting withholding statement where no tax is required to be deposited.

    Official at the Federal Board of Revenue (FBR) said that the amendment has been brought into Section 182 of Income Tax Ordinance, 2001 through Tax Laws (Second Amendment) Ordinance, 2021.

    Chartered Accountants said that prior to the amendment following penalties are prescribed for non-filing of statements under sections 165, 165A or 165B within due date:

    a) Rs. 5,000 where the person has deposited the tax withheld within due date and the statement is filed within 90 days;

    b) In all other cases, Rs. 2,500 for each day of default with a minimum penalty of Rs. 10,000.

    However, a new proviso has been inserted whereby minimum penalty has been prescribed at Rs. 10,000 in cases where there is no tax withholding to be deposited in a particular period.

  • FBR chairman inaugurates head office of Pakistan Single Window

    FBR chairman inaugurates head office of Pakistan Single Window

    ISLAMABAD: Muhammad Javed Ghani, Chiarman, Federal Board of Revenue (FBR) on Friday inaugurated the head office of Pakistan Single Window (PSW) Company.

     On the occasion, Chairman FBR lauded efforts of Pakistan Customs to roll out Pakistan Singe Window (PSW) System almost a year before its deadline of June, 2022 set under World Trade Organization’s Trade Facilitation Agreement. He also appreciated Customs for reducing the project cost from initial estimates of USD 163 million to USD 67 million through indigenous development effort.

    The Prime Minister had tasked Customs to complete this highly transformational project for reducing time, cost and complication while ensuring better compliances with cross border trade regulations. To ensure that this new system is timely implemented and sustainably maintained, the PSW Company has been operationalized by FBR.

    The PSW Company is now enabling the Government of Pakistan to maintain complete ownership of this mission critical system of strategic national importance as it would handle entire cross border trade, related logistics and financial transactions.

    Member Customs Operation S.M Tariq Huda stated on the occasion that Customs Administration was leveraging its expertise in automation for PSW to support a wide array of other public and private sector entities involved in regulation of imports, exports & transit trade. The ongoing digitization of related public sector entities under this project will substantially improve their efficiency.

    PSW is instrumental for Pakistan to become a preferred route for international transit and transshipment besides it will help integrate upcoming national, regional and global single window systems. PSW will boost exports, help attract FDI and enable better integration into global value chains. It will also serve as the Trade Information Portal of Pakistan.

  • Penalty amount for late return filing reduced up to 75 percent

    Penalty amount for late return filing reduced up to 75 percent

    KARACHI: Penalty amount for late return filing has been reduced up to 75 percent in order to encourage people to make compliance of mandatory filing of declaration of income.

    Sources in the Federal Board of Revenue (FBR) said that the reduction in penalty amount has been made part of the Income Tax Ordinance, 2001 and amendments have been introduced through Tax Laws (Second Amendment) Ordinance, 2021.

    They said that the penalty amount will be reduced by 75 percent in case tax return is filed within one month after the due date for filing income tax return.

    According to a commentary on Tax Laws (Second Amendment) Ordinance, 2021 released by PwC A. F. Ferguson & Co. the law prescribes penalty for non-filing of return of income within due date as under:

    a) 0.1 per cent of tax payable for the tax year under consideration for each day of default, subject to minimum penalty of Rs. 40,000 and maximum penalty up to 50 per cent of the tax payable for the tax year under consideration;

    b) In case, 75 per cent of the income is from salary, and the same is less than Rs. 5 million, minimum penalty is Rs. 5,000

    However, two new provisos have been added whereby:

    a) Minimum penalty has been prescribed at Rs. 5,000 if taxable income for the year is up to Rs. 800,000; and

    b) Amount of penalty is reduced by:

     75 per cent if the return of income is filed within one month of the due date;

     50 per cent if the return of income is filed within two months of the due date;

     25 per cent if the return of income is filed within three months of the due date.

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  • 100pc tax credit allowed with mandatory return filing

    100pc tax credit allowed with mandatory return filing

    KARACHI: The tax exemption regime transposed into tax credit regime and certain businesses have been allowed 100 percent tax credit with mandatory requirement of income tax return filing.

    Chartered Accountants at PwC A. F. Ferguson & Co. in a commentary on Tax Laws (Second Amendment) Ordinance, 2021 said that income / profits and gains of the following persons were exempt from tax under Part I of the Second Schedule to the Ordinance:

    (i) persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects – clause (132B);

    (ii) a startup (as defined in section 2(62A) of the Ordinance) for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years – clause (143); and

    (iii) persons deriving income from exports of computer software or IT services or IT enabled services (as defined) up to the period ending on June 30, 2025; provided that 80 percent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels- clause (133).

    Through the Amendment Ordinance, the exemptions have been transposed into tax credit regime whereby the aforementioned persons shall be allowed a tax credit equal to 100 percent of the tax payable including minimum and final taxes for the period upon fulfillment of the following conditions:

    (a) return has been filed;

    (b) tax required to be deducted or collected has been deducted or collected and paid;

    (c) withholding tax statements for the immediately preceding tax year have been filed; and

    (d) sales tax returns for the tax periods corresponding to relevant tax year have been filed.

    They said that it has also been provided that the benefit contained in this newly inserted section shall not preclude the aforesaid persons’ case from audit selection by the Federal Board of Revenue (FBR) or the Commissioner Inland Revenue.

    Since these taxpayers are now allowed 100 percent tax credit against tax payable (including minimum tax), tax exemption presently available to them (under Part I of the Second Schedule) has been withdrawn whereas relevant clauses for exemption from turnover tax of section 113(provided under Part IV of the Second Schedule) though not withdrawn have effectively become redundant.

  • Transposition of exemption into tax credit to create complications

    Transposition of exemption into tax credit to create complications

    KARACHI:  The immediate withdrawal of tax exemptions to certain business into tax credit regime may create complications for taxpayers in the income year.

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