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Category: Taxation

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  • Amended payment procedure for imported vehicles issued

    Amended payment procedure for imported vehicles issued

    ISLAMABAD: The ministry of commerce has issued notification to implement amendment payment procedure for customs clearance of imported motor vehicles.

    The ministry issued SRO 1625(I)/2019 dated December 30, 2019 to amend Import Policy Order, 2016.

    As per amendment: “Provided that in case the Pak Rupee depreciates or government increases the import duties or taxes after receipt of remittance and before filing of the goods declaration, which results in shortfall of remitted amount against payable duties and taxes, the importer shall be allowed to meet the shortfall through local sources.”

    The commerce ministry through SRO 52(I)/2019 dated January 15, 2019 made it mandatory that payment for customs clearance of import motor vehicles shall be made out of foreign exchange.

    Further, the proof of payment through banking channel was also made mandatory.

    According to the SRO 52:-

    “All vehicles in new/used condition to be imported under transfer of residence, personal baggage or under gift scheme, the duty and taxes shall be paid out of foreign exchange arranged by Pakistan Nationals themselves or local recipient supported by bank encashment certificate showing conversion of foreign remittances to local currency, as under:

    (a) the remittance for payment of duties and taxes shall originate from the account of Pakistani national sending the vehicle from abroad; and

    (b) the remittance shall either be received in the account of Pakistani national sending the vehicle from abroad or, in case, his account is non-existent or inoperative, in the account of his family.”

  • Up to 75% capital gain tax exempt on immovable property sale

    Up to 75% capital gain tax exempt on immovable property sale

    KARACHI: The government has exempted capital gain tax up to 75 percent in case an immovable property sold by government employees of army personnel after completion of three years.

    According to BDO Audit Consultancy Firm, Clause (9A) of Part III of Second Schedule provides a 50 percent exemption on capital gain derived on first sale of immovable property acquired or allotted to ex-servicemen and serving personnel of Armed forces or ex-employees or serving personnel of Federal and Provincial Governments, being original allottees of immovable property.

    The Tax Laws (Second Amendment) Ordinance, 2019 has further exempted capital gains up to 75 percent in case the property is sold after completion of three years from date of acquisition.

  • 100% tax exemption allowed on inter-corporate dividend

    100% tax exemption allowed on inter-corporate dividend

    KARACHI: The government has allowed 100 percent exemption on inter-corporate dividend to companies entitled to group relief.

    Analysts at Topline Securities on Tuesday said that as per the Tax Laws (Second Amendment) Ordinance 2019 issued on Dec 28th, the government has allowed 100% tax exemption on inter-corporate dividends, to companies entitled to group relief.

    To avail group relief, one of the company in the group has to be a public company listed on a registered stock exchange in Pakistan, and the holding company has to directly hold 51 percent or more of the share capital of the subsidiary company.

    Where none of the companies in the group is a listed company, the holding company shall hold directly 75 percent or more of the share capital of the subsidiary company.

    To recall, the Finance Act 2016 excluded entities entitled to group relief from the exemption on inter-corporate dividend entirely.

    The Finance Supplementary (Second Amendment) Act, 2019 addressed the issue, however allowed relief on tax liability up to the percentage of shareholding in the subsidiary, given that the company has registered itself for group relief.

    Tax Laws (Second Amendment) Ordinance 2019, has now allowed 100 percent relief on tax liability on dividends received from a subsidiary given that the company has registered itself for group relief.

    Our checks on few holding companies suggest following potential impacts on unconsolidated accounts based on last full year financials, the analysts said.

  • FBR chairman on 14 days leave

    FBR chairman on 14 days leave

    The Chairman of the Federal Board of Revenue (FBR), Syed Muhammad Shabbar Zaidi, is set to take a 14-day leave, according to an official notification issued on Tuesday. The leave is effective from January 6, 2020, to January 19, 2020.

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  • FBR to launch simplified tax return form for small traders

    FBR to launch simplified tax return form for small traders

    ISLAMABAD: Federal Board of Revenue (FBR) is set to launch simplified income tax return form for small retailers, sources said on Tuesday.

    “The FBR is likely to issue the return form for small return forms in pursuance to the agreement between the tax authorities and traders associations signed on October 30, 2019,” a senior tax official said.

    The official said that the FBR had finalized all the formalities to facilitate the small traders as envisaged in the agreement.

    The FBR has already extended the last date for filing income tax returns for tax year 2019 up to January 31, 2020.

    Certain relaxation to traders have already been announced through Tax Laws (Second Amendment) Ordinance, 2019.

    The term “trader” has been defined to mean an individual engaged in business of buying and selling of goods in the same state, including a retailer and a wholesaler but excluding a distributor.

    According to PwC A F Ferguson Chartered Accountants the concessions provided to traders are as under:

    (i)The general rate of minimum tax payable (under section 113 of the ITO 2001) has been reduced from 1.5 percent to 0.5 percent for tax year 2020 for traders having turnover up to Rs. 100 million. However, for traders who have filed income tax returns for tax year 2018, the tax liability for tax years 2019 and 2020 should not be less than the tax liability for tax year 2018, to become eligible for reduced rate of Minimum Tax of 0.5 percent.

    (ii)Individual having turnover of Rs. 50 million or more in any of the preceding tax years is liable to deduct tax under section 153 while making payments against supply of goods, services and contracts.

    Through the Second Amendment Ordinance, traders being individuals having turnover upto Rs. 100 million have been exempted from deducting tax under section 153 while making payment against supply of goods, services and contracts. The Board is expected to clarify the year with respect to which turnover of Rs100 million will be calculated by the trader.

  • Auction of confiscated motor vehicles to be held on Jan 09

    Auction of confiscated motor vehicles to be held on Jan 09

    KARACHI: Pakistan Customs has announced an auction of confiscated motor vehicles, set to take place at the Anti-Smuggling Organization (ASO) on January 09, 2019.

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  • Higher inflation jacks FBR’s revenue collection up: SBP

    Higher inflation jacks FBR’s revenue collection up: SBP

    KARACHI: Higher inflation has jacked up the revenue collection for Federal Board of Revenue (FBR) besides other factors including increase in tax rates and reinstatement of tax on telecom services, State Bank of Pakistan (SBP) said on Monday.

    The SBP in its quarterly report on state of economy for July – September 2019/2020 said that the overall FBR taxes grew 15.2 percent in first quarter of 2019/2020, compared to the 8.8 percent rise noted in the same quarter of the last fiscal year.

    This higher growth can be attributed to: (i) an increase in sales tax rates; (ii) reinstatement of taxes on telecom services; (iii) an upward revision of tax rates on various salary slabs; (iv) increase in interest rates and higher tax on profit on debt;3 (v) upward revision in the federal excise duty (FED) rates; and (vi) the abolishment of the zero rating regime on five export-oriented sectors.

    “In addition to these measures, the impact of higher inflation also boosted revenue mobilization.”

    For 2019/2020, the SBP’s projections at the start of the year (July 2019) clocked in at an elevated range of 11-12 percent. Not only was this range higher than previously projected, but it was also in excess of the medium-term target of 5-7 percent.

    Despite this improvement, the FBR managed to achieve only 17.3 percent of the annual target of Rs 5,555.0 billion for 2019/2020. “This means that tax revenues would require a substantially higher growth in the remaining 9 months of the year to achieve the full year target.”

    Moreover, import-related taxes, representing nearly half of FBR taxes, would remain under stress due to the ongoing declining trend in imports. Dutiable imports, in particular, declined sharply in the first quarter of 2019/2020.

    Encouragingly, the fiscal authorities have introduced some initiatives to facilitate business and individual tax payers and to broaden the tax base.

    For instance, in order to provide hassle-free refunds to exporters, the FBR has introduced the Fully Automated Sales Tax e-Refund (FASTER) system for tackling refund claims within 72 hours.

    The FBR has also launched a mobile application, “FBR Tax Asaan,” to facilitate taxpayers in paying sales tax and claiming refunds.

    In addition, video tutorials are prepared and uploaded online to guide taxpayers in filing their income tax returns.

    These efforts to simplify and streamline the taxation mechanism have also contributed to the improvement in Pakistan’s ranking in the World Bank’s Ease of Doing Business: the digitization of tax collecting procedures was cited as one of the drivers of the improvement in the country’s ranking. In addition, the government has continued its drive to increase documentation in the economy.

    However, businesses are resisting some of these documentation measures, such as the CNIC condition on business-to-business (B2B) and business-to-consumer (B2C) transactions.

  • KTBA seeks FBR clarification on tax ordinance

    KTBA seeks FBR clarification on tax ordinance

    KARACHI: Karachi Tax Bar Association (KTBA) on Monday urged Federal Board of Revenue (FBR) to issue necessary clarification related to issues in recently promulgated tax ordinance.

    The KTBA sent a letter to Syed Shabbar Zaidi, Chairman, FBR and pointed out anomalies in the Tax Laws (Second Amendment) Ordinance, 2019 for clarification.

    The KTBA highlighted that Sub-section 4 has been added to section 73 of Sales Tax Act, 1990, under which sales to an unregistered person by a registered manufacture cannot be made for more than Rs10 million in a month and Rs100 million in a year, failing which input tax will be disallowed proportionately.

    Considering the implication of the phrase of unregistered person [i.e. singular term] used in drafting of the law, instead of the phrase unregistered persons [plural term], it implies that the restriction is applicable on sales to a single unregistered person instead of cumulative sales to all unregistered person(s).

    In order to ensure that intent of law is not suffered by any legal infirmity due to any unintended or inadvertent drafting, the clarification must be issued in this respect on urgent note, it added.

    It further pointed out that in addition to the above, it should also be clarified as to whether the all unregistered person will be effected or only those unregistered person who actually were required to be registered in Sale Tax but didn’t ?

    In the event, the law is intended to cover all unregistered persons, without any discrimination, certain serious ramification would follow because of the fact that Manufacturers won’t be able to make sale to various Government/other authorities, armed forces hospitals, Universities, Charities & EPZ entities, which by law, are not required to be registered at all, in the first place.

    The KTBA said that it is important to define the category of unregistered person who should not suffer due to any adverse implication of the law. Hence, a clarification is necessitated in this context.

    The tax bar further highlighted the amendments introduced related to business license.
    Through the Tax Laws (Second Amendment) Ordinance, 2019, various penalties have been prescribed for person who has not obtained business license, while the procedure to obtain business license has not been prescribed as yet.

    It is not possible to get a Business License either for any person or for any tax commissioner to issue one.

    An unnumbered and undated draft SRO was issued by the FBR in July 2019, whereby Draft rules 83A to 83E were proposed in the Income Tax Rules, 2002 for the purpose, which were not finalized yet.

  • Procedure for conducting audit of transfer pricing cases unveiled

    Procedure for conducting audit of transfer pricing cases unveiled

    KARACHI: The Director General of International Tax Operations has been empowered to select and conduct transfer pricing audit of cases under section 230E of Income Tax Ordinance 2001.

    Federal Board of Revenue (FBR) in explanation to Tax Laws (Second Amendment) Ordinance, 2019 said that previously, there was no provision which specified the procedure to be adopted for conducting transfer pricing audit of taxpayers.

    It has now been specified that transfer pricing audit of cases selected by the Director General of International Tax Operations shall be conducted as per procedure laid down in 177 of the Ordinance.

    Moreover, the right to conduct transfer pricing audit under section 230E of the Ordinance shall not prejudice the right of the Commissioner to determine transfer price at arms length in transactions between associates while conducting audit under section 177 or 214C of the Ordinance or whilst making amendment under section 122 of the Ordinance.

    Tax experts at PwC A F Ferguson Chartered Accountants said that Section 230E was introduced in the Income Tax Ordinance, 2001 through the Finance Act, 2017 for establishing a separate Directorate for conducting transfer pricing audit of taxpayers.

    Through the Finance Supplementary (Second Amendment) Act, 2019, Section 230E was substituted so as to establish Directorate General of International Tax.

    However, no specific procedure or mechanism for transfer pricing audit was prescribed in the said section which was causing ambiguity amongst the field officers and taxpayers.

    Through the Second Amendment Ordinance, necessary amendment has been made in Section 230E to prescribe that transfer pricing audit is to be conducted as per the procedure laid down in section 177 and other provisions of the Ordinance.

    This way, the ambiguity relating to the transfer pricing audit procedure has now been removed, the experts said.

  • Traders associations nominate representatives to determine turnover for tax registration

    Traders associations nominate representatives to determine turnover for tax registration

    ISLAMABAD: Traders associations has nominated their representatives for determination of business turnover for mandatory tax registration.

    FBR spokesman said that traders associations had assured of income tax registration of medium and large size retailers.

    The spokesman said that the FBR had agreed to genuine demands of small traders and necessary amendments had been introduced through Tax Laws (Second Amendment) Ordinance, 2019.

    According to the FBR the condition of CNIC (Computerized National Identity Card) had become part of the law and it was genuine demand of traders to reduce the minimum income tax.

    The traders were demanding to reduce the minimum tax because it was high considering their returns and it was the reason the traders were reluctant to declare their details.

    In order to ensure filing declaration by the retailers the minimum tax rate has been rationalized, the spokesman said. Further to provide ease in doing business the traders have been excluded from collecting withholding tax.

    The spokesman said that traders associations had assured to cooperate with the FBR for bringing medium and large size retailers into the tax net.

    In this regard the traders associations had nominated their representatives to determine the turnover of traders for mandatory tax registration.

    The traders associations also assured to cooperate with the FBR to resolve audit related issues. The spokesman said that the FBR wanted to better working relations with the trade community for betterment of the economy.