The Federal Government of Pakistan has unveiled an extensive array of budgetary measures targeting the Sales Tax and Federal Excise frameworks for the fiscal year 2019/2020.
(more…)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.
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Budget 2019/2020: Salient features of customs duty
ISLAMABAD: The government has announced changes in customs duty regime which included relief and revenue measures.
RELIEF MEASURES
1. To standardize printing and preservation of Holy Quran, import of good quality duty free Art paper is being allowed.
2. Exemption of CD on 18 medicinal inputs/items
3. Exemption of CD on Modular/ Particle Free Operation Theatre
4. Exemption of CD on Medicines for certain rare diseases
5. Incentive to promote tourism by reducing duty on pre-fabricated structures for hotels
INCENTIVIZING LOCAL INDUSTRY:
1. Exemption of CD on more than 1650 raw materials/industrial inputs
2. Reduction of CD on Writing & Printing Papers
3. Exemption of CD on Raw- materials of Paper Industry
4. Exemption of CD on import of Wood
5. Reduction of CD on Glass Board for LED Panel manufacturing
6. Reduction of CD on input goods for paper based Liquid Food Packaging Industry
7. Reduction of CD on Acetic Acid
8. Reduction of CD on Nonwoven fabrics
9. Exemption of CD on Machinery Parts / Accessories for Textile Sector
10. Exemption of CD on Elastomeric Yarn
11. Rationalization of CD on Aluminium Beverage Cans & Inputs thereof
12. Exemption of CD on raw material for hemodialyzers used by kidney patients
13. Tariff rationalization on Home Appliance Sector
14. Reduction of CD on Base Oil as input for Coning Oil, White Oil and other Textile Oils
15. Reduction of CD on Raw Material for Manufacturing of Pre-Sensitized Printing Plates
16. Exemption of CD on Preparations for Metal Surfaces as input for Solar Panels
17. Exemption of CD on Foundation Cloth
18. Reduction of Duty on Wooden Sheets for Veneering
19. Reduction of CD on Oxalic Acid
20. Reduction of CD on Raw Material of Powder Coating Industry
21. Reduction of CD on Raw Material for Paper Sizing Agents
22. Reduction of CD on Bobbins & Spools of Paperboard
23. Exemption of CD for Hydrocracker Industry for oil refining
24. Rationalization of tariff structure for SIM card manufacturing industry
REGULATORY DUTY:
1. Reduction of RD on Mobile Phones
2. Reduction of RD on smuggling prone items and other industrial inputs
3. Reduction of RD on Tyres
REVENUE MEASURES:
1. Increase in rate of Additional Customs Duty for non-essential items
2. Withdrawal of exemption on import of LNG
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Budget 2019/2020: sales tax zero-rating abolished
ISLAMABAD: The government has abolished sales tax zero-rated by rescinding SRO 1125(I)/2011 for export sectors. However, new mechanism of refund has been introduced which would be paid at the time of realization of exports.
SRO 1125(I)/2011 provides for zero-rate of sales tax on inputs and products of five export-oriented sectors i.e. textile, leather, carpets, sports goods and surgical goods.
The objective was to resolve delay in refund payments. However, zero7 rating has created loophole and the benefit is being availed by unintended beneficiaries / non-exporters. Reduced rates for finished goods is also harming revenues.
Huge misuse of SRO on import of fabric and processed fabrics has been reported. To streamline and prevent revenue leakage SRO 1125 is being rescinded.
SRO 1125 be rescinded, thus restoring standard rate of 17 percent on items covered under SRO.
The rate of sales tax on local supplies of finished articles of textile and leather and finished fabric may be raised from current 6 percent for integrated businesses, and 9 percent for others, to 15 percent and 17 percent, respectively.
Zero-rating of utilities (gas, electricity and fuels) allowed to these export oriented sectors through various sales tax general orders be withdrawn.
Refund of sales tax to these sectors be automated, thus ensuring that the sales tax paid on inputs is immediately refunded. Refund Payment Orders (RPOs) shall be immediately sent to SBP for payment as soon as these are generated.
Ginned cotton which is presently exempt is proposed to be subjected to reduced rate of 10 percent
In addition to above, it is also proposed to rescind notification No. SRO. 769 (I)/2009, dated 4th September, 2009, which grants zero-rating on import and supply of polyethylene and polypropylene for manufacture of mono filament yarn and net cloth, being similar in nature to SRO 1125, and that granting zero-rating to local supplies is to be discouraged.
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Share of indirect taxes increases to 60.9 percent: Economic Survey
ISLAMABAD: Despite claims of authorities to increase the share of direct taxes in total revenue, the share of indirect taxes further increased to 60.9 percent in 2018/2019.
The Economic Survey 2018/2019 launched a day earlier, stated that the tax structure in Pakistan is skewed towards indirect taxes.
The share of indirect tax to FBR tax collection remained static around 60 percent over the last one decade.
“For fiscal year 2018/2019, the share of indirect tax collection set at 60.9 percent.”
Within indirect taxes, sales tax posted a growth of 11.8 percent in FY2018 against 2.0 percent increase in FY2017.
Strong aggregate demand and pass through of high international oil prices contributed in sales tax collection during FY2018.
The share of sales tax which constituted 64.4 percent of indirect taxes during FY2018 reduced gradually from 72.3 percent in FY2014.
Similarly, share of sales tax in total FBR tax is gradually coming down since FY2014 from 44.2 percent to 38.6 percent during FY2018.
“For FY2019, sales tax collection target set at Rs 1,700 billion which is 14.5 percent higher than last year collection and (constitute 63.0 percent of indirect tax and 38.3 percent of FBR tax collection target).”
The share of custom duty in indirect taxes has increased gradually from 17.6 percent in FY2014 to 26.4 percent in FY2018.
It is pertinent to mention that the maximum statutory rates of customs duty have been gradually reduced from 125 percent in FY1988 to 20 percent in FY2016 till date.
Consequently, the share of custom duty in FBR tax collection has reduced gradually from 45.7 percent in FY1991 to 15.8 percent in FY2018.
Custom duty collection momentum continued with the same pace and registered a growth of 22.5 percent in FY2018 against 22.8 percent in FY2017.
High aggregate demand, increase in general income level, high imports, higher commodity prices, exchange rate depreciation and fiscal measures such as regulatory duties on non-essential imports and an increase in additional custom duty by 1 percent led to increase in growth of custom duty.
Custom duty collection is estimated at Rs 735.0 billion for FY2019 which reflects an increase of 20.8 percent over last year actual tax collection.
On the other hand, the share of federal excise duty in indirect taxes declined by 9.3 percent in FY2018.
The tax base of Federal Excise Duty (FED) contracted over the years and now is restricted to only few commodities like cigarettes, cement, beverages, and international travel etc. Share of FED in total FBR tax collection has also fallen from 10.1 percent in FY2009 to 5.6 percent in FY2018.
FED registered a growth of 7.9 percent in FY2018 compared to 5.2 percent in FY2017. Collection from cement mainly fueled this growth momentum. FED is projected to Rs 265.0 billion which is 24.1 percent higher as compared with actual last year collection.
The projected share is 6.0 and 9.8 percent of FBR and indirect tax collection, respectively for FY2019.
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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.
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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
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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.
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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.
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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.
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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.