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Category: Taxation

Pakistan Revenue delivers the latest taxation news, covering income tax, sales tax, and customs duty. Stay updated with insights on tax policies, regulations, and financial developments in Pakistan.

  • FBR to force all NTN holders for filing tax returns

    FBR to force all NTN holders for filing tax returns

    ISLAMABAD: Federal Board of Revenue (FBR) has chalked out a comprehensive plan to broaden the tax base by enforcing tax returns in the case of all National Tax Number (NTN) holders.

    According to Economic Survey 2018/2019 released on Monday said that the FBR would take following measures to broaden the tax base:

    — Creation of a central data bank

    — Enforcement of return in the case of all NTN holders

    — Preparation of directory of non-filers deductees

    — Data to be obtained from NADRA, Telecom Cos, Banking Cos, Development Authorities, Schools, Clubs, Hotels etc

    — Data of suppliers/buyers of sales tax returns of 5,000 big companies

    — Raising expenditure on revenue collecting machinery from 0.8% to 1.5% of total revenue

    — Registration of persons subjected to withholding of sales tax

    — Registration of retailers under the new scheme introduced under Special Procedure Rules.

    — Deployment of Technology to Identify Risk Areas to Support Risk Based Audit

    It said that an audit plan has been reintroduced to accompany the self-assessment scheme and to overcome weak tax compliance.

    Substantial progress has been achieved for infrastructure upgradation and development with the introduction of the fully Inland Revenue Information System (Iris), which is available to all the field formations.

    A paradigm shift from simple random selection to Parametric Computer Ballot selection of cases and finally risk based selection in audit has been introduced. Moreover, litigation against General Audit Policies was successfully defended before different Courts of Law.

    Under the reform initiatives, Draft Audit policy for the Tax Year 2017 is under consideration and will be finalized after due deliberation/consultation with all concerned.

    Moreover, Risk-based Audit Framework is being devised to ensure a more targeted and focused approach with the help of World Bank. Training modules have been prepared to import Investigative Audit Training to officers with the help of World Bank.

    In order to promote tax culture, compliance and to dispel the general impression about evading taxation by individuals having prominent position in the society, FBR has under taken following initiatives for bringing a behavioral change regarding the tax culture perception in the society:

    a) Publishing Tax Directory of Parliamentarians

    b) Establishment of Financial Investigation Cell

    c) Campaign against Tax Evaders

    To simplify procedures and minimize contact between the taxpayers and the tax collectors, FBR management has made revolutionary changes in automation of tax procedures. Major achievements include:

    i. Web Based One Customs (WeBOC) System of Clearance

    ii. EDI – Electronic Data Interchange

    iii. National Single Window (NSW)

    iv. iv. Inland Revenue Information System (Iris)

    Current initiatives

    − Creation of Tax Policy Unit within Ministry of Finance

    − Identification and scrutiny of evasion by High Net worth Individuals

    − Administrative measures to increase tax collection by identifying untaxed wealth overseas and by data matching to identify non-filers

    − Practical steps taken to curb Offshore Tax Evasion (UK and UAE properties, Panama and Paradise Leaks, etc.) and continuous monitoring of such cases

    − Plaza Mapping at Lahore, Karachi and Islamabad

    − Launch of Device Identification, Registration and Blocking System (DIRBS) to control smuggling of mobile devices

    − Introduction of Currency Declaration System and Advanced Passenger Information System at major airports of the country

    − Discouraging imports of luxurious goods through additional Regulatory Duties (RDs)

    − Addressing under invoicing by signing MOU with China for exchange of pricing information

    − Forensic audit in Sugar, Tobacco and Steel Industries to address leakages and tax evasion and in these industries

    − Implementation of Tobacco Track & Trace System

    − Resolving pending litigation

    − Collection of pending arrears identified as collectable arrears

    − Resolving 1.2 million automatically selected cases for audit U/s 214D

    These reforms will start paying dividends in shape of improved compliance, higher revenue growth and improvement in tax-GDP ratio.

    The tax revenues have increased significantly during last four years. The collection jumped from Rs 1,946 billion in FY2013 to Rs 3,844 billion in FY 2018, registering an overall growth of 97.5 percent.

    Similarly, tax-GDP ratio of the country which was just 8.7 in FY2013 jumped to 11.1 in FY 2018.

    With the help of these initiatives, FBR is moving towards a more efficient tax system; facilitating taxpayers, promoting investment and broadening the tax base in the years to come. It is envisioned that these resource mobilization efforts will result in further improvement of domestic tax revenues in coming years.

  • Exemptions, concessions cost Rs972.4 billion in 2018/2019

    Exemptions, concessions cost Rs972.4 billion in 2018/2019

    ISLAMABAD: The economy has incurred duty and tax losses to the tune of Rs972.4 billion due to exemptions and concessions during the fiscal year 2018/2019, according to Economic Survey 2018/2019 launched on Monday.

    The cost of tax exemptions included: income tax Rs141.6 billion, sales tax Rs597 billion; and Rs233.1 billion as customs duty.

    Income Tax:

    1. Tax credit for charitable donations u/s 61 Rs2.448 billion

    2. Tax credits u/s 64A Rs1.191 billion

    3. Tax credit u/s 64AB deductible allowance on education expenses Rs0.067 billion

    4. Tax credit for employment generation by manufacturers u/s 64B Rs0.0096 billion

    5. Tax credit for investment in balancing, modernization and replacement of plant & machinery u/s 65B Rs90.954 billion

    6. Tax credit for enlistment u/s 65C Rs0.356 billion

    7. Tax credit for newly established industrial undertakings u/s 65D Rs5.487 billion

    8. Tax credit for industrial undertakings established before the first day of July, 2011 u/s 65E Rs6.458 billion

    9. Tax credit u/s 100C Rs13.977 billion

    10. Tax credit for investment in shares and insurance u/62 Rs2.055 billion

    11. Tax loss due to exempt business income claimed by IPPs under clause (132) of Part I of the Second Schedule Rs18.034 billion

    12. Tax loss due to exemption to export of IT services under clause (133) of Part I of Second Schedule Rs0.608 billion

    Sales Tax:

    SRO Loss of sales tax due to exemptions projected for FY2019, based On July-March figures:

    SRO 1125(1)/2011, dated 31.12.2011 (leather, textile, carpets, surgical goods etc.) Rs86.7 billion

    Import under 5th Schedule Rs0.59 billion

    Local supply under 5th Schedule Rs53.5 billion

    Imports under 6th Schedule. Rs53.7 billion

    Local supply under 6th Schedule Rs247.3 billion

    Imports under 8th Schedule Rs62.7 billion

    Local supply under 8th Schedule Rs93.3 billion

    Customs Duty

    Concession of customs duty on goods imported from SAARC and ECO countries Rs348.8 million

    Exemption from customs duty on import into Pakistan from China Rs2.5 million

    Exemption from customs duty on import into Pakistan from Iran under Pak-Iran PTA: no loss

    Exemption from customs duty on imports into Pakistan from under SAFTA Agreement Rs1,614.8 million

    Exemption from customs duty on import into Pakistan from China Rs31,620.7 million

    Exemption from customs duty on goods imported from Mauritius Rs6 million

    Exemption from customs duty on import into Pakistan from Malaysia Rs3,162.7 million

    Exemption from customs duty on import into Pakistan from Indonesia under Pak-Indonesia PTA. Rs3,950 million

    Exemption from customs duty on imports from Sri Lanka Rs2,401.6 million

    Conditional exemption of customs duty on import of raw materials and components etc. for manufacture of certain goods (Survey based) Rs4,755.1 million

    Exemption of customs duty and sales tax to Exploration and Production (E&P) companies on import of machinery equipment & vehicles etc. Rs5,725.7 million

    Exemption from customs duty for vendors of Automotive Sector Rs26,604.4 million

    Exemption from customs duty for OEMs of Automotive Sector Rs38,818.8 million

    Exemption from Customs Duty on Cotton Rs2,275.9 million

    Exemption from Customs Duty for CPEC Rs1,009.2 million

    Exemption from Customs Duty for Lahore Orange Line Metro Train Rs749.1 million

    Chapter 99 Exemptions [Special Classification Provisions] Rs10,530.8 million

    5th Schedule Exemptions/ concessions Rs99,558.0 million

  • FBR nominates focal persons for tax amnesty scheme

    FBR nominates focal persons for tax amnesty scheme

    ISLAMABAD: Member Inland Revenue – Policy has been nominated as the chief coordinator for successful implementation of tax amnesty scheme 2019.

    A notification issued on Monday, the FBR designated Inland Revenue officers for the implementation of the tax amnesty scheme 2019.

    The following officers have been nominated as focal persons:

    Dr. Hamid Ateeq Sarwar, Member Inland Revenue – Policy, Chief Coordinator;

    Faiz Ellahi Memon, Chief Commissioner-IR, Large Taxpayers Unit (LTU) Karachi, Coordinator South covering provinces of Sindh and Balochistan;

    Bashir Ullah Khan, Chief Commissioner-IR, Regional Tax office, Rawalpindi, Coordinator North, Province of Khyber Pakhtunkhwa, Islamabad Capital Territory and areas falling within the jurisdiction of RTO Rawalpindi; and

    Asim Majeed Khan, Chief Commissioner-IR, LTU Lahore, Coordinator Central covering province of Punjab (excluding areas falling within the jurisdiction of RTO Rawalpindi).

    The coordinators would further nominate focal persons in each RTO and LTU falling within their jurisdiction for the implementation of asset declaration scheme.

    The FBR asked the chief commissioners-IR to transmit data relating to the asset declaration scheme on daily basis to the Chief Coordinator.

  • PTBA proposes withdrawal of restriction on input claim under Sindh sales tax

    PTBA proposes withdrawal of restriction on input claim under Sindh sales tax

    KARACHI: Pakistan Tax Bar Association (PTBA) has urged the Sindh government to withdraw the restriction on claiming input tax by services rendered by a taxpayer.

    The apex tax bar in its proposals for Sindh budget 2019/2020, said that no input tax is allowed to be claimed on goods or services acquired prior to six months preceding the date of commencement of the provision of taxable services by a taxpayer.

    It is recommended that such restriction should be eliminated.

    That any bar on admissibility of input tax borne by the taxpayer prior to six months preceding the commencement of provision of taxable services is against the basic principal of Value Added Tax (VAT). It is also not justifiable in case of a long term projects.

    Any assessment order can be amended by a tax officer on the basis of any subsequent information, etc. Such powers are arbitrary and unjust and may open the doors for harassment and corruption, the tax bar said.

    Therefore it is recommended that the taxpayer should first be confronted with a show-cause notice with substantial reasons and definite information/evidence(s) that warrant reopening or amending the assessment order.

    Further, the powers to amend any assessment order should only be vest with the Commissioner or Board only.

    This recommendation would introduce transparency in the tax system for revision of shut and close transactions and provide justice to the taxpayer.

    Highlighting another issue, the PTBA said that the taxpayer is required to retain records for a period of 10 years and show-cause notices may be issued within a period of 8 years from the date of relevant tax period.

    “This is in excess of the statute of limitation provided under the STA and ITO. It will not only put excess burden on the taxpayer, but also dis-incentivizes the tax authorities from taking timely action.”

    The time period for retention of records and assessment of tax should be reduced to 5 years.

    This would save taxpayers from practical difficulties and unnecessary burden while pushing the tax authorities to take more timely action.

    In another proposal, the PTBA said that the tax officer is empowered to ask for any information from a taxpayer without specifying the reason or nature of the case being investigated by him.

    Scope of Section 52(1) should be restricted to specific parties and transactions which are within the jurisdiction of Sindh and are specifically identified by the tax officer instead of fishing and roving enquiries.

    This promotes equity and natural justice and avoids harassment and unnecessary proceedings.

    At present the Sindh Revenue Board (SRB) may arbitrarily empower a Deputy Commissioner to exercise the powers of Commissioner (Appeals).

    This provision should be deleted. Such an amendment undermines the quasi-judicial function and weakens the judicial process by empowering a junior ranked officer to assume the powers of a quasi-judicial authority.

    At present recovery of demand can be initiated at any time after the assessment order is issued.

    Since an appeal may be filed within 30 days from the date of receipt of an assessment order, the recovery proceedings should not be initiated within such time.

    This recommendation would harmonize the Federal and Provincial tax laws.

    The PTBA said that a lot of services mentioned in the First Schedule are without H.S. Code/Tariff Headings which may create difficulties.

    It is suggested that all services should be marked with the respective Tariff Headings in order to avoid confusions on the part of assessing authorities as well as the registered persons.

    This recommendation would bring clarity, equity and harmony in the tax laws.

  • Profit on banking deposits: High tax rate planned for non-filers in budget 2019/2020

    Profit on banking deposits: High tax rate planned for non-filers in budget 2019/2020

    ISLAMABAD: A sharp increase in withholding tax rate (may be up to 30 percent) on profit on banking deposits has been planned for non-filers in order to make it almost impossible to stay remain unregistered, sources said.

    Sources told PkRevenue.com that Federal Board of Revenue (FBR) a large sum of banking system deposits were remained undocumented resulting large number of people out of tax net and massive tax evasion.

    Under Section 151 of Income Tax Ordinance, 2001 the withholding tax rate on profit on debt for filers is 10 percent with no limit on earned amount and 10 percent for non-filers up to Rs 0.5 million. However, 17.5 percent withholding tax rate for non-filers driving profit on debt above Rs0.5 million.

    The sources said that the tax rate for non-filers driving profit on debt above Rs0.5 million may be increased to 30 percent.

    According to State Bank of Pakistan (SBP) the total deposits of the banking system reached to all time high of Rs13.456 trillion by March 2019.

    The sources said that the proposed increase in profit on debt would force the people having undocumented or black money parked in the banking system to file their returns in order to reduce the tax impact.

    In return, the sources said, the FBR would get information of people having large amounts in the banking system.

  • Massive cut in tax exemptions, concessions likely in budget 2019/2020

    Massive cut in tax exemptions, concessions likely in budget 2019/2020

    ISLAMABAD: The government has planned to a massive cut tax in exemptions and concessions in the budget 2019/2020, which is scheduled to be announced on June 11, 2019.

    Sources told PkRevenue.com that the government had committed with the World Bank and other international agencies to withdraw large size exemptions given to various sectors and individuals in order to boost revenue collection, especially in the wake of difficult economic situation.

    The sources said that the Federal Board of Revenue (FBR) had already initiated policy making and would introduce phases to withdraw available tax concessions and exemptions.

    According to Pakistan Revenue Mobilization Program funded by the World Bank, the FBR had already launched several initiatives including ongoing review of tax policy to formulate a medium-term tax policy framework and propose measures to reduce tax expenditure for the budget 2019/2020.

    The cost of tax exemptions and concessions in the fiscal year 2017/2018 was around Rs541 billion, which included: income tax Rs61.78 billion; sales tax Rs281 billion; and customs duty Rs198.15 billion.

    The sources said that in the first phase around 50 percent exemptions and concessions would be withdrawn in the budget 2019/2020.

    The World Bank on Pakistan report said multiple exemptions and discounted rates to select industries, economic actors, and economic activities (e.g. sugar, textiles, and fertilizer industries; ‘associations’ in the real estate sector; imports for infrastructure projects under the China-Pakistan Economic Corridor) are granted in each year’s budget law, which distort competition and economic actors’ incentives. In FY2017/18, Pakistan’s tax expenditure (i.e., tax revenue foregone due to exemptions and concessional rates) was estimated at 2 percent of GDP, primarily due to exemptions from General Sales Tax (GST) and customs duties.

    “Substantial exemptions also apply to property taxes, whereby properties below a certain size are exempted regardless of location, while revenue is also lost due to unrealistically low valuations used for taxation purposes.”

    The Capital Gains Tax (CGT) returns negligible receipts due to the zero rate applied to capital gains from the sale of immovable property after more than four years of ownership, and rates of 5-10 percent for properties sold after one to four years of ownership, the report said.

    The present PTI-led government has issued a roadmap for stability, growth and productive employment issued in April 2019 and stated that tax policy has to balance the revenue objective with equity and growth objectives.

    Presently tax policy has a predominant revenue focus and as such is likely to create distortions in the economy which can adversely affect the growth and equity objectives.

    In addition, even the revenue objective is compromised by large scale exemptions. To correct this shortcoming, the government intends the following:

    i) Enact a law to ensure that no tax exemption is allowed through law or notification without an estimate of its cost independently by the tax department as well as the concerned ministry. Such cost will be made public before notification of the exemption.

    ii) Review all existing exemptions, with the purpose of eliminating as many of those as possible. Even if an exemption is to be retained its cost will be determined and made public. Ministry of Finance to publish annually a statement of tax expenditures to show how much revenue is being foregone due to exemptions.

    iii) Ensure that all exemptions, existing or newly proposed, will have a sunset clause (ideally not more than 5 years).

    iv) Publish a list of all government owned, quasi-government and government-linked enterprises availing tax exemption/concession in any way along with quantification of the tax expenditure. In addition, a plan be prepared for phasing out of these concessions.

    v) Withdraw FBR powers to issue SROs to grant exemptions. This power will vest only with the Parliament.

    vi) Ensure that all non-procedural existing SROs will expire at the end of the fiscal year. Steps taken over the last two years to incorporate all exemptions granted through SROs to be made part of the body of law.

  • Salary income threshold may be revisited after huge tax loss

    Salary income threshold may be revisited after huge tax loss

    ISLAMABAD: The government may restore threshold of taxable salary income to June 30, 2018 level in the budget 2019/2020 after facing Rs50 billion revenue loss in the current fiscal year and considering difficult economic situation in the year ahead.

    Sources said reverting tax rates for salary persons to the June 30, 2018 position was under consideration for budget 2019/2020. However, no decision in this regard has been taken so far, the sources said.

    The new threshold may be between Rs600,000 and Rs800,000 for tax exempt income and further tax slabs may be notified accordingly, the sources said.

    In Finance Act, 2018 the rates of taxes upon salary income were considerably reduced and the threshold was increased from Rs.400,000 to Rs.1,200,000.

    However, in order to ensure income tax return filing a token tax of Rs1,000/year was imposed on salary persons deriving income between Rs400,000 and Rs800,000 and tax of Rs2,000/year was imposed on persons deriving salary between Rs800,000 to Rs1,200,000.

    These changes brought about a substantial decrease in the withholding taxes collected through various government and private withholding agents.

    Revenue impact of this change remained Rs.32.4 billion during the period from July 2018 to February 2019, according to a report of FBR sent to ministry of finance.

    It is estimated that total revenue loss on this account would be around Rs.50 billion in the current Financial Year, it added.

  • FBR to target large taxpayers for detailed field audit

    FBR to target large taxpayers for detailed field audit

    ISLAMABAD: Federal Board of Revenue (FBR) to conduct tax audits of large taxpayers, who are selected through an automated risk-based tool.

    According to World Bank’s updated report on ‘Pakistan Revenue Mobilization’ said that according disbursement linked Indicators (DLI) the FBR required to conduct tax audits on cases selected through an automated risk-based tool, informed by analysis of integrated data from multiple sources.

    It sets targets for detailed field audits of large taxpayers, thereby making an efficient use of resources for the highest impact.

    Riskbased audit is essential to deterring tax evasion and increasing compliance, especially for large taxpayers who use complex tax evasion techniques.

    It also benefits compliant taxpayers, as it spares them the hassle and cost of ineffective mass audits and reduces the discretion of FBR officials to pick cases for audit.

    The World Bank program also required the FBR to implement—through licensed agents—electronic production monitoring for high-risk sectors (e.g., sugar, cement, fertilizer) and electronic tracking of production, distribution, and sale of final products (tobacco, beverages).

    It will increase compliance by reducing the risk of under-declaration of output, sales, and corporate profits, the report said.

    The DLI related to new taxpayers with taxable incomes/sales identified through automated data sharing and ICT-based BI

    (number)will ensures that the FBR will use the new ICT equipment and software that enables the BI and data mining tools to identify unregistered or noncompliant taxpayers.

    It also disincentivizes the registration of individuals and firms without taxable income or sales, thereby avoiding inefficient use of FBR resources and negative impacts on micro firms and economically weaker households.

  • PTBA advises revisiting arrest, prosecution law under sales tax

    PTBA advises revisiting arrest, prosecution law under sales tax

    KARACHI: Pakistan Tax Bar Association (PTBA) has advised the Federal Board of Revenue (FBR) to revisit law related to arrest and prosecution under Sales Tax Act, 1990.

    In its tax proposals for budget 2019/2020, the apex tax bar said that under the existing law, every director and officer of the Company is liable to be arrested if the officer has reasons to believe that such director or officer is personally responsible for actions of the Company contributing tax fraud.

    Accordingly, a person who is a nominee director or employee director can be held responsible for the liability of the company.

    The PTBA said that as per interpretation of the law nominee or employee directors be who are not involved in the administrative matters of a taxpayer are being held responsible for the liability of the taxpayer.

    “It is a trite law that before any coercive action is taken against any person; it is the duty of the Revenue Officer to provide proper opportunity of being heard and pass a judicious order to establish that the act of the registered person is willful and there was an element of mens rea.”

    In the Income Tax Ordinance, 2001 such matters are covered under Section 139 thereof which comprehensively deals with the liability both in case of company and association of Persons. “Section 139 needs to be replicated in the Sales Tax Act, 1990 on the similar lines.”

    The PTBA said that the proposed amendment would protect interest of the nominee/employee directors.

    Pointing out the issue of recovery of arrears under sales tax law, the PTBA said under Section 48 which deals with recovery of arrears does not provide any time limit to initiate the recovery proceedings.

    “By virtue of section 45B of the Act, a registered person aggrieved by any decision, may file an appeal within thirty days of the date of receipt of the order. On the contrary, under Rule 71 of the Sales Tax Rules, proceeding of recovery of impugned tax may be initiated after thirty days from the date of order.”

    In addition, recovery proceedings may be initiated as soon as Commissioner Inland Revenue (Appeals) confirmed the Order under Section 45B of the Sales Tax Act or Section 33 of the Federal Excise Act.

    The PTBA said that the section 45B, 48 and the rule are not harmonized. Sometimes order is served to the registered person after many days of the date of order and the recovery proceedings may be initiated under the Rule even if the time limit provided for filing of the appeal has not lapsed.

    Therefore, it is recommended that Rule 71 should be amended to provide commencement of recovery proceedings after thirty days from the date of receipt of the order.

    Similarly, time limit of 30 days from the date of receipt of the order should be provided in section 48 to bring harmony between the Act and Rules.

    The PTBA suggested that thirty days shall also be allowed for initiation of recovery proceedings in case demand is confirmed by the Commissioner Inland Revenue (Appeals) while disposing appeals filed under section 45B of STA and 33 of FEA.

    Giving rationale to the proposal, the PTBA said that it would keep harmony between the Act and the Rules in the spirit of natural justice.

  • FBR to reduce withholding tax provisions under World Bank program

    FBR to reduce withholding tax provisions under World Bank program

    ISLAMABAD: Federal Board of Revenue (FBR) is required to reduce number of withholding provisions to strengthen the income tax and take out this system from indirect taxes.

    According to funding approved by the World Bank for Pakistan Revenue Mobilization Project, the FBR is required to reduce the scope of withholding regime.

    The World Bank said that the funding requires a reduction in the types of transactions subject to income tax withholding.

    “It contributes directly to transparency of the tax system, given that the withholding regime transforms income taxes into indirect taxes, which are less visible to taxpayers. It will also greatly reduce compliance costs for firms that have to act as withholding agents.

    The World Bank also approved funds for transparent tax system for Pakistan. The World Bank said that under this funding the authorities require detailed reporting of tax expenditure in the annual budget documentation with disaggregated information about the cost and beneficiaries of each exemption and concession.

    “It is important to broadening the tax base because it exposes the revenue foregone due to each exemption/concession, and the industries that benefit.”

    The World Bank also stressed on coordination of the FBR with provinces. Under this funding program the FBR needs to reach agreements with the provinces on automated sharing taxpayer information, the methodology for calculating GST input adjustments, and common updated property valuation tables.

    “This coordination will enable the FBR and the provinces to broaden their respective tax nets. Coordination can be facilitated through the newly established Fiscal Coordination Committee, comprising the federal and provincial governments.”