Category: Trade & Industry

KARACHI: The concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy. However, no efforts were made to increase the tax base.

Pakistan Business Council (PBC) in its proposals for budget 2021/2022 submitted to the Federal Board of Revenue (FBR), said that though large amounts are being collected from non-filers, no effort has been made to increase the tax base.

“The non-filers for the most part have built the cost of this government levy into pricing and passed it on to their customers.”

In order to broaden the tax base and to achieve increase in overall tax collection without burdening existing tax payers, the policy to increase tax on non-filers / unregistered persons should be implemented specifically in the following cases:

a) unregistered industrial / commercial entities (not having STRN) having bill amount in excess of Rs. 20,000 per month, extra sales tax should be increased from 5 percent to 20 percent

b) After collection of extra tax as referred above for a continuous period of 6 months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.

c) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs.2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non-compliance, utility companies be directed to disconnect utility connections.

d) Moreover, in order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies. In case of failure to provide NTN, electricity connection should be disconnected. Considering the fact that all industrial / commercial connections will be linked with NTN, the tax department will then be in a better position to assess the electricity consumed by commercial / industrial users and corroborate the same with amount of sales / production etc. reported in sales tax / income tax return.

e) In order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with them. Thereafter, such commercial/industrial consumers without NTN should be charged advance income tax @ 30 percent (from existing 12 percent) on their utility bills. Those with NTN but non-filer status be charged at 20 percent WHT.

f) Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs.1.2 million per year or levy advance income tax withholding of 20 percent.

g) All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers so that exempt income is also reported and wealth is reconciled.

h) Withholding tax on International business class tickets under section 236L is same Rs. 16,000 for filer and non-filer, it should be increased to Rs. 50,000 for non-filers.

i) Withholding tax @ 5 percent or Rs. 20,000, whichever is higher, is applicable under section 236D on all functions organized by filers as well as non-filers. Rate of withholding be increased for non-filers to Rs. 100,000 as minimum and no WHT from filer

j) Function halls withholding tax on electric bills should be 30 percent which can be adjusted against tax liability by providing proof of tax deducted from their customers.

k) Withholding income tax on interest income u/s 151 is 15 percent for filer and 30 percent for non-filer. Rate should be increased to 50 percent for non-filers in case interest income is more than Rs.2,000,000/-

l) Annual private motor vehicle tax u/s 234 for non-filers is Rs. 9,000 for 1600cc-1999cc and Rs. 20,000 for 2000 cc and above. Rate for non-filers should be increased to Rs. 50,000 for 1600cc-1999cc and Rs. 200,000 for 2000 cc and above

m) Advance income tax is collected on sales of immovable property under section 236C, which is 1 percent for both filers and non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more

n) Holding of land by non-filers should be made more expensive by asking those authorities collecting property tax (cantonment boards / societies / registrar) to collect adjustable advance income tax, from non-Filers, on behalf of the Federal Government as follows:

o) Rs. 500,000 per year for 800 yards or more but less than 1800 yards

p) Rs. 1 million per year for 1800 yards and above.

KARACHI: Pakistan Business Council (PBC) has urged the Federal Board of Revenue (FBR) to restore laws related to group taxation in the initial form as introduced via Finance Act 2007 and Finance Act 2008.

In its proposals for budget 2021/2022, the business council said that most recently, via Income Tax Laws (Second Amendment) Ordinance, 2021, exemption from the levy of tax on intercorporate dividend between companies eligible under section 59B of Income Tax Ordinance, 2001 (Group Relief) has been revoked.

The PBC proposed group taxation laws should be restored in its initial form as introduced via Finance Act 2007 and Finance Act 2008.

Specifically, the following is being proposed:

Clause 103C of Part I of Second Schedule of ITO, providing exemption from Intercorporate Dividends to group companies eligible under section 59B of the ITO, should be reinstated.

Amendments made in Clause 11B of Part IV of Second Schedule via Finance Act 2015 and Finance Act 2016, should be revoked to ensure exemption from withholding tax is provided on intercorporate dividends exempt under clause 103A and clause 103C of Part I of Second Schedule of ITO.

Through Finance Act 2016, a restriction was introduced by insertion of sub-section 1A in section 59B of ITO such that the surrender of losses is now restricted to the percentage of shareholding. This amendment is against the intent of the legislation and it is recommended that sub-section 1A and its references in section 59B should be removed.

Condition of Group Return Filing introduced in Clause 103A Part I of Second Schedule of ITO Via Finance Act 2015 to claim exemption on Intercorporate Dividend between wholly owned entities (eligible under section 59AA), should be removed.

KARACHI: Pakistan Business Council (PBC) has identified anomalies in minimum tax rates and demanded the levy should be abolished.

In its budget proposals for 2021/2022 submitted to the Federal Board of Revenue (FBR) the council said that the rate of minimum tax of 1.5 percent is extremely high and unrealistic.

It identified that as per the judgment of the Sindh High Court in case of Kassim Textile, carry forward and adjustment of Minimum turnover tax is not allowed in cases where the taxpayer reports loss. On the other hand, Lahore High Court, in case reported as 2019 PTD 1994, minimum tax, even in case of loss year, is allowed to be carried forward for adjustment.

Income Tax Law prescribes that ‘income’ of the Zone Enterprise (located in Notified SEZ) is exempt from tax for 10 years. However, no explicit exemption is provided from Minimum Tax (payable under section 113 of the Income Tax Ordinance, 2001) to Zone Enterprises. SEZ Act, 2012 is a special law governing SEZs and Zone Enterprises granting exemption from all income taxes (which include Minimum Tax also), however, due to ambiguity, tax department does not allow exemption from minimum tax to entities operating in SEZ.

Section 65D/65E of the Income Tax Ordinance, 2001 provides exemption for 5 years from all income taxes [including minimum tax and final tax] to company formed for operating a new industrial undertaking. On the other hand, no such benefit has been provided to an existing company investing for Expansion or extension to achieve benefits of large-scale manufacturing

Therefore, the PBC proposed that in order to promote industrialization, Minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audit. For other companies, rate of minimum tax be reduced gradually by 0.2% on an annual basis so that by Tax Year 2025 the rate is 0.5%.

Moreover, in order to streamline the mechanism of carry forward and adjustment of Minimum tax, minimum tax should also be allowed to be carried forward for adjustment in subsequent years even in case of losses.

Exemption from minimum tax to all companies operating in SEZ In line with the tax credits under sections 65D/65E, in order to achieve economies of scale to compete with international suppliers, allow exemption for 5 years from all income taxes [including minimum tax and final tax] on income generated from expansion / extension / BMR projects by an existing industrial undertaking subject to the condition that the minimum investment in such extension / expansion project should not be less than $15 million