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Category: Taxation

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  • Determination of fair market value explained

    Determination of fair market value explained

    KARACHI: The fair market value of assets shall be the value of property in open market at the time of purchase, sources in Federal Board of Revenue (FBR) said.

    The FBR sources said that Section 68 of Income Tax Ordinance, 2001 explained the methodology for determining the fair market value.

    Section 68: Fair market value

    Sub-Section (1): For the purposes of this Ordinance, the fair market value of any property or rent, asset, service, benefit or perquisite at a particular time shall be the price which the property 2[or rent], asset, service, benefit or perquisite would ordinarily fetch on sale or supply in the open market at that time.

    Sub-Section (2): The fair market value of any property or rent, asset, service, benefit or perquisite shall be determined without regard to any restriction on transfer or to the fact that it is not otherwise convertible to cash.

    Sub-Section (3): Where the price “other than the price of immoveable property” referred to in sub-section (1) is not ordinarily ascertainable, such price may be determined by the Commissioner.

    Sub-Section (4): Notwithstanding anything contained in sub-sections (1) and (3), the Board may, from time to time, by notification in the official Gazette, determine the fair market value of immovable property of the area or areas as may be specified in the notification.

    Sub-Section (5): Where the fair market value of any immovable property of an area or areas has not been determined by the Board in the notification referred to in sub-section (4), the fair market value of such immovable property shall be deemed to be the value fixed by the District Officer (Revenue) or provincial or any other authority authorized in this behalf for the purposes of stamp duty.

    (6) In respect of immovable property—

    (i) component A of the formula in sub-section (2) of section 37;

    (ii) consideration received as mentioned in Division X of Part IV of First Schedule;

    (iii) value of immovable property as mentioned in Divisions XVIII of Part IV of the First Schedule; and

    (iv) valuation for the purposes of section 111,shall not be less than the fair market value as determined under sub-section (4) or (5).

    Explanation.—(1)For the removal of doubt, it is clarified that the fair market value as determined under sub-section (4) or(5) shall be for carrying out the purposes of this Ordinance only.

    (2) It is further clarified that for the purposes of clauses (i) to (iv) of this sub-section if the fair market value determined under sub-section (4) or (5) is different than the auction price the applicable price shall be the higher of the two.

  • Another key FBR official granted 12-day leave

    Another key FBR official granted 12-day leave

    The Federal Board of Revenue (FBR) is once again in the spotlight as another key official, Ms. Seema Shakil, a BS-21 officer of Inland Revenue Service, has been granted a 12-day leave.

    (more…)
  • No rift in economic team: FBR

    No rift in economic team: FBR

    ISLAMABAD: Federal Board of Revenue (FBR) has strongly rebuffed the reports about rifts in government economy team and due to this the chairman of the revenue authority is on leave.

    (more…)
  • Advance tax on purchase of immovable property to be paid on fair market value

    Advance tax on purchase of immovable property to be paid on fair market value

    KARACHI: Federal Board of Revenue (FBR) will collect advance income tax on sale of immovable properties on the basis of fair market value.

    Sources in FBR said that the purchaser of immovable property shall make payment of advance tax income tax on the amount determined at fair market value not on the DC value or valuation tables notified by the FBR.

    Under Section 236K of Income Tax Ordinance, 2001, advance tax on purchase or transfer of immovable property.

    (1) Any person responsible for registering, recording or attesting transfer of any immovable property shall at the time of registering, recording or attesting the transfer shall collect from the purchaser or transferee advance tax at the rate specified in Division XVIII of Part IV of the First Schedule.

    Explanation,—For removal of doubt, it is clarified that the person responsible for registering, recording or attesting transfer includes person responsible for registering, recording or attesting transfer for local authority, housing authority, housing society, co-operative society and registrar of properties.

    (2)The advance tax collected under sub-section (1) shall be adjustable.

    (3) Any person responsible for collecting payments in installments for purchase or allotment of any immovable property where the transfer is to be effected after making payment of all installments, shall at the time of collecting installments collect from the allotee or transferee advance tax at the rate specified in Division XVIII of Part IV of the First Schedule.

    (4) Nothing contained in this section shall apply to a scheme introduced by the Federal Government, or Provincial Government or an Authority established under a Federal or Provincial law for expatriate Pakistanis:

    “Provided that the mode of payment by the expatriate Pakistanis in the said scheme or schemes shall be in the foreign exchange remitted from outside Pakistan through normal banking channels.”

    The rate of tax to be collected under section 236K shall be 1 percent of the fair market value from a person appeared on Active Taxpayers List (ATL). The rate shall be at two percent of the fair market value from persons not appearing on the ATL.

  • Pakistan Customs’ security, integrity at mercy of lappus

    Pakistan Customs’ security, integrity at mercy of lappus

    KARACHI: The sensitive data of Pakistan Customs and integrity of the department are totally at mercy of privately hired persons ‘lappus’ by Customs officers.

    These lappus are not only accessing sensitive data of Pakistan Customs but also doing all illegal work for their bosses, which is commonly known as ‘settlement’.

    The gravity of situation can be gauged with the recent example where a lappu auctioned of huge amount consignments where importer had paid duty and taxes.

    The customs authorities apprehended one person in the case, who was identified as lappu and was working and representing customs officers for the last five to six years.

    According to details a First Information Report (FIR) dated November 15, 2019 was lodged at Research and Development Department, Model Customs Collectorate of Appraisement (East) Customs House, Karachi.

    The FIR was lodged by Shakeel John, Appraising Officer following a crime of removing goods from Shaheen Container Yard after an illegal auction of goods.

    The FIR nominated persons included: Muhammad Zaki; Adeel Ahmed; Meer Rizwan Ali; and concerned staff and management of M/s Pak Shaheen Container Yard.

    In the case three lots of consignments were auctioned valuing over Rs12 million on which importer had paid duty and taxes.

    The importer namely Abid Japanwala made strong protest on illegal auction by customs authorities and demand recovery of his consignments.

    The text of relevant paragraphs of reply submitted by Pak Shaheen to the FIR stated:

    “… an LCL cargo bearing IGM No. 402/18 consisting of 10 pallets STC Copper Foil weighing 6053kgs was imported on 21.08.2018 by M/s. Paramount Radiators and forwarded to Pak Shaheen Container Terminal for clearance by the freight forwarders i.e. Facilities Shipping Agency.

    “Since the cargo was not cleared within the prescribed time period as per Section 82 of the Customs Act, 1969, an auction lot number PS-216-10-18 was assigned to it and the customs was informed accordingly on October 15, 2018.

    “On November 11, 2019, the importer namely Abid Japanwala approached the Terminal and informed that his cargo has been cleared by the customs and requested for rebate in storage charges as his cargo remained at the terminal for more than a year incurring heavy amount of storage charges.

    “On receipt of such request from Japanwala the record of the terminal was checked and it was found that, as per record, the said cargo was auctioned by the Customs and on November 08, 2019 the delivery was made to the bidder Babar Saleem through his agent Mir Rizwan Ali.

    “When Abid Japanwala was informed about the auction of his cargo, he showed his out of charge GD to the Head of Commercial Naveed Nabi Khan and appeared to be shocked and stated that how can his cargo be auctioned when he deposited the Customs duty.

    “After seeing the out of Charge GD, Abid Japanwala was informed that as per customs rules no duty paid consignment can be auctioned and that he should take up his case with Collector (East) directly.

    “He was also given a complete set of auction/delivery documents to take up his case with the Collector (East).

    “We were later informed that the importer approached the Collector (East) along with the auction documents provided by the terminal as it was feared that some unscrupulous element managed to play fraud depriving the importer of his consignment and depriving the client of demurrage charges.”

    The reply further pointed out:

    “… On November 15, 2019, the Customs apprehended one Zaki who was working with the Customs staff at the terminal since last five to six years as customs assistant commonly known as ‘lappu’ and during all these years h ad attained the status of focal person of Customs and for all practical purposes he was representing the customs official.

    “On November 16, 2019, Akmal Durrani, Assistant Collector posted at Pak Shaheen Terminal, called the concerned staff of Customer Services and interrogated them and also took the video recording of November 08, 2019 in which Zaki can been seen taking subject document from his car.”

    The detailed reply by Pak Shaheen Terminal helped the terminal operator to clear its position in this fraud. This resulted that interim challan presented by the customs authorities at the Special Judge Customs and Taxation, Karachi dated December 02, 2019 the name of Pak Shaheen was excluded from the case.

    The revelation of Pak Shaheen in its reply is eye opener for Federal Board of Revenue (FBR) and other relevant authorities that how privately hired persons or lappus were authorized access to customs records.

    This is also surprising that how these unauthorized lappus getting entry to terminal yard.

    The presence of lappus in Pakistan Customs is not new. The lappus are working for long time in the department and conducting official works on behalf of senior customs officials.

    It is commonly known that the customs officers hire these people for their ‘speed money’.

    The lappus as agent create win win situation for both customs officers and importers at the cost of national revenue. As facilitators lappus get huge commission beside their fixed income set by the customs officers.

    These lappus have direct interaction with importers on those consignments where misdeclaration made. The customs officers are no where or have no direct links in such illegal activities.

    The dangerous aspect of presence of lappus is access to sensitive data of Pakistan Customs, which has also strategic importance.

    Recently, Prime Minister Imran Khan pointed out massive corruption in Pakistan Customs. Although the prime minister quoted exaggerated amount but the instant case may be an example that how much the customs collectors are earning through illegal means.

    The Federal Board of Revenue (FBR) has issued many warnings to field formations to avoid the presence of unauthorized persons working within their jurisdictions. But all in vain as presence of lappus are still in the key places of Pakistan Customs.

    FBR chairman Shabbar Zaidi, in May 2019 soon after becoming chairman, while taking notice of presence of large number of visitors for making the entire clearance system doubtful, had ordered Customs Wing to strictly restrict, entry into Customs Houses, only to the concerned traders, their authorized representatives and members and relevant trade bodies/ associations.

  • Tax return to be valid on submission of information

    Tax return to be valid on submission of information

    KARACHI: Submission of relevant particulars or information shall make a return of income a valid document.

    Officials at Federal Board of Revenue (FBR) said that taxpayers should ensure making all relevant entries before filing income tax return in order to avoid hassle at the time of scrutiny,

    They said that although the tax authorities treated the income tax return as assessment order when it is filed to the FBR’s portal. However, when it is selected under defined parameters or identification of any concealment the missing entries can make problems for taxpayers, they added.

    The officials also said that a taxpayer should also ensure the payment of tax as calculated on the basis of tax chart for the relevant year for which the return is filed.

    They said that a return of income –

    (a) shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed;

    (b) shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer;

    (c) shall be signed by the person, being an individual, or the person’s representative where section 172 applies;

    (d) shall be accompanied with evidence of payment of due tax as per return of income;

    (e) shall be accompanied with a wealth statement as required under section 116; and

    (f) shall be accompanied with a foreign income and assets statement as required under section 116A.

  • PM to announce tax relief package for traders on January 20

    PM to announce tax relief package for traders on January 20

    ISLAMABAD: Prime Minister Imran Khan is set to unveil a tax relief package for traders on January 20, 2020, as confirmed by Syed Shabbar Zaidi, the chairman of the Federal Board of Revenue (FBR), on Saturday.

    (more…)
  • WCO members accept HS 2022 for customs tariffs

    WCO members accept HS 2022 for customs tariffs

    KARACHI: Member countries of World Customs Organization (WCO) have accepted HS 2022, the seventh edition of the Harmonized System (HS) nomenclature used for the uniform classification of goods traded internationally all over the world.

    It shall come into force on January 01, 2022, said a statement issued by WCO.

    The HS serves as the basis for Customs tariffs and for the compilation of international trade statistics in 211 economies (of which 158 are Contracting Parties to the HS Convention).

    The new HS 2022 edition makes some major changes to the Harmonized System with a total of 351 sets of amendments covering a wide range of goods moving across borders.

    Here are some of the highlights:

    Adaption to current trade through the recognition of new product streams and addressing environmental and social issues of global concern are the major features of the HS 2022 amendments.

    Visibility will be introduced to a number of high profile product streams in the 2022 Edition to recognize the changing trade patterns.

    Electrical and electronic waste, commonly referred to as e-waste, is one example of a product class which presents significant policy concerns as well as a high value of trade, hence HS 2022 includes specific provisions for its classification to assist countries in their work under the Basel Convention.

    New provisions for novel tobacco and nicotine based products resulted from the difficulties of the classification of these products, lack of visibility in trade statistics and the very high monetary value of this trade.

    Unmanned aerial vehicles (UAVs), commonly referred to as drones, also gain their own specific provisions to simplify the classification of these aircraft.

    Smart phones will gain their own subheading and Note, which will also clarify and confirm the current heading classification of these multifunctional devices.

    Major reconfigurations have been undertaken for the subheadings of heading 70.19 for glass fibres and articles thereof and for heading 84.62 for metal forming machinery. These changes recognize that the current subheadings do not adequately represent the technological advances in these sectors, leaving a lack of trade statistics important to the industries and potential classification difficulties.

    One area which is a focus for the future is the classification of multi-purpose intermediate assemblies. However, one very important example of such a product has already been addressed in HS 2022. Flat panel display modules will be classified as a product in their own right which will simplify classification of these modules by removing the need to identify final use. Health and safety has also featured in the changes. The recognition of the dangers of delays in the deployment of tools for the rapid diagnosis of infectious diseases in outbreaks has led to changes to the provisions for such diagnostic kits to simplify classification. New provisions for placebos and clinical trial kits for medical research to enable classification without information on the ingredients in a placebos will assist in facilitating cross-border medical research. Cell cultures and cell therapy are among the product classes that have gained new and specific provisions. On a human security level, a number of new provisions specifically provide for various dual use items. These range from toxins to laboratory equipment.

    Protection of society and the fight against terrorism are increasingly important roles for Customs. Many new subheadings have been created for dual use goods that could be diverted for unauthorized use, such as radioactive materials and biological safety cabinets, as well as for items required for the construction of improvised explosive devices, such as detonators.

    Goods specifically controlled under various Conventions have also been updated. The HS 2022 Edition introduces new subheadings for specific chemicals controlled under the Chemical Weapons Convention (CWC), for certain hazardous chemicals controlled under the Rotterdam Convention and for certain persistent organic pollutants (POPs) controlled under the Stockholm Convention. Furthermore, at the request of the International Narcotics Control Board (INCB), new subheadings have been introduced for the monitoring and control of fentanyls and their derivatives as well as two fentanyl precursors. Major changes, including new heading Note 4 to Section VI and new heading 38.27, have been introduced for gases controlled under the Kigali Amendment of the Montreal Protocol.

    The changes are not confined to creating new specific provisions for various goods. The amendments also include clarification of texts to ensure uniform application of the nomenclature. For example, there are changes for the clarification and alignment between French and English of the appropriate way to measure wood in the rough for the purposes of subheadings under heading 44.03.

    Given the wide scope of the changes, there are many important changes not mentioned in this short introduction. All interested parties are encourage to read the Recommendation carefully (to be published soon).

    Implementation

    While January 2022 may seem far off, a lot of work needs to be done at WCO, national and regional levels for the timely implementation of the new HS edition. The WCO is currently working on the development of requisite correlation tables between the current 2017 and the new edition of the HS, and on updating the HS publications, such as the Explanatory Notes, the Classification Opinions, the Alphabetical Index and the HS online database.

    Customs administrations and regional economic communities have a huge task to ensure timely implementation of the 2022 HS Edition, as required by the HS Convention.

    They are therefore encouraged to begin the process of preparing for the implementation of HS 2022 in their national Customs tariff or statistical nomenclatures. The WCO will step up its capacity building efforts to assist Members with their implementation.

  • Desk audit recommended for increasing amount paid with returns

    Desk audit recommended for increasing amount paid with returns

    ISLAMABAD: The Federal Board of Revenue (FBR) has expressed concerns over lower than expected tax payment with return despite significant increase in return filing, a report said.

    A FBR report said that the trend for filing of income tax returns had not been satisfactory in Pakistan.

    Keeping in view very low compliance, FBR had initiated a Broadening of Tax Base (BTB) drive few years back, which had not started paying dividends in shape of growth in the number of filers.

    The income tax returns which were just 1.5 million in Tax Year 2016 have crossed the two million mark first time in the history of FBR.

    During Tax Year 2017 the number of income tax filers reached to 1.9 million and in Tax Year 2018 2.2 million.

    During TY 2018 the number of return filers increased by 17.1 percent or 316,526 in absolute terms.

    This performance in terms of number of returns is satisfactory but payment with returns has a meager growth of 3 percent, which is the matter of concern.

    The desk audit of filed returns can be helpful increasing the amount paid with returns.

  • No advance tax on domestic electricity consumers on billed amount below Rs75,000

    No advance tax on domestic electricity consumers on billed amount below Rs75,000

    KARACHI: The domestic consumers of electricity whose monthly billed amount is below Rs75,000 are not liable to pay advance income tax.

    According to Section 235A of Income Tax Ordinance, 2001, the domestic electricity consumers are subject to payment of advance income tax, officials of Federal Board of Revenue (FBR) said.

    As per tax rate, a domestic consumer is liable to pay 7.5 percent advance income tax in case of above monthly bill is Rs75,000 or above.

    However, there is zero percent advance income tax in case the monthly billed amount is below Rs75,000.

    Section 235A. Domestic electricity consumption.-

    (1) There shall be collected advance tax at the rates specified in Division XIX of Part IV of the First Schedule on the amount of electricity bill of a domestic consumer.

    Explanation.— For removal of doubt, it is clarified that for the purposes of this section, electricity consumption bill referred to in sub-section (2) means electricity bill inclusive of sales tax and all incidental charges.

    (2) The person preparing electricity consumption bill shall charge advance tax under sub-section (1) in the manner electricity consumption charges are charged.

    (3) Tax collected under this section shall be adjustable against tax liability.