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Category: Trade & Industry

Trade & Industry news covering business developments, industrial growth, manufacturing trends, and economic policies shaping domestic and global markets.

  • FBR recommended to reduce minimum tax for chemical companies

    FBR recommended to reduce minimum tax for chemical companies

    KARACHI: Federal Board of Revenue (FBR) has been urged to reduce minimum tax rate for chemical companies having large turnover with low profit margins.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 submitted to the FBR, recommended that minimum tax rate should be reduced to 0.2 percent for large chemical companies with large turnover with low profit margins.

    It further recommended that clause b of Section 148(7) of Income Tax Ordinance,  2001 as deleted by the Finance Act, 2017 should be restated, which read as follows: “148(7) b fertilizer by manufacturer of fertilizer” to allow adjustment of tax deducted at import stage for fertilizer imported by a fertilizer manufacturer so as not to make it a final tax.

    It recommended that exemption under Clause 42 read with section 153(3) of the Income Tax Ordinance, 2001 be available to all terminals without discrimination. The said clause be re-worded as follows:

    “(42) The provisions of sub-section 3 of section 153 shall not apply in respect of payments received by a resident person for providing services by way of operation of terminal(s) at a sea-port in Pakistan or of an infrastructure project covered by the Government’s Investment Policy, 1997.”

    For the fertilizer industry, the GST on supply of natural gas as feed stock is at 5 percent and as fuel stock is 17 percent. However, the output GST rate on sales of finished goods i.e. urea is 2 percent. This mismatch between input and output GST results in excessive input tax refundable build-up.

    GST rate on supply of natural gas for fertilizer industry should be zero percent.

    For the sales tax rate on raw material of paints, the OICCI made following recommendations:

    i. Sales tax of 25 percent should be imposed on some basic raw materials like Titanium dioxide and other following categories for commercial importers.

    ii. Enforcement measures to be made more effective in consultation with OICCI members, who are established taxpayers, to penalize tax evaders.

    The OICCI highlighted that macro nutrients being imported under Chapter 31 of Pakistan Customs Tariff, enjoy reduced duties and taxes representing only 8 percent of the value imported whilst in case of micronutrients being imported under Chapter 28, the import duties and taxes are quite high representing 29% of import value.

    It recommended to make necessary amendments in the revenue regulation to reduce sales tax and import duties on import of micronutrients.

  • Taxpayers not to worry on system generated past six years audit notices: CCIR

    Taxpayers not to worry on system generated past six years audit notices: CCIR

    KARACHI: Taxpayers should not worry on audit notices of past six years as most of those were system generated and Federal Board of Revenue (FBR) is trying to resolve the issue, a top FBR officials said on Monday.

    While discussing tax issues at Karachi Chamber of Commerce and Industry (KCCI), Dr. Aftab Imam, Chief Commissioner Inland Revenue (CCIR) of Corporate Tax Office (CTO) Karachi explained the issues pertaining to audit notices.

    He said that FBR was well-aware of this issue and it has been observed that most of them were system generated notices and the business community should not worry as FBR was trying its best to resolve this issue.

    “There is no need to re-submit those documents again at the FBR which have already been submitted for audit and only the missing documents should be provided with a covering letter in which it should be clearly mentioned that the following relevant documents have already been provided while the missing documents are being sent,” he added.

    He also assured to analyze the issue of higher turnover tax on yarn traders as compared to the profit margin and look into the possibility of restoring it back to 0.1 percent from 1.5 percent in the next budget.

    The Chief Commissioner CTO mentioned that FBR was seriously working towards creating ease for the business community as the economy would only flourish when the businesses flourish that would automatically improve the tax revenue for the country. “Hence, we want to facilitate the business community and keeping in view FBR’s approach, most of the issues being faced today would be resolved in the next one-an-a-half year as we are very keen to create a tax-friendly environment”, he added.

    He further sought business community’s assistance in identifying those millions of individuals who have been doing businesses of up to billions of rupees but they remain out of the tax net which was the basic reason for the exorbitant tax rates being suffered by the existing taxpayers. “The unregistered individuals have to be taken to task which would reduce the burden on existing taxpayers through reduction in tax rates”, he added.

    Earlier, President KCCI M. Shariq Vohra, while welcoming Chief Commissioner CTO, appreciated that dedicated efforts and prompt response by Chief Commissioner CTO towards amicably resolving the FBR-related taxation issues being faced by business community. “We hope that the FBR would incorporate maximum number of recommendations given by KCCI in its budget proposals which have been recommended in the larger interest of the country”, he said, adding that it has always been KCCI approach to highlight the general issues which are not faced by a few individuals only but by the majority of stakeholders from a particular sector. “Our proposals for upcoming Budget for FY 2021-22 carry pivotal importance and will have a positive impact on business and investment climate, ease of doing business and overall growth of the economy.”

    He was of the opinion that taxpayers face immense hardships in getting petty issues resolved because of the unnecessary hindrances being creates by FBR officials which not only fetches a bad image for the entire department but also discourages new individuals to come into the tax net which was a very issue that requires immediate attention.

    Shariq Vohra pointed out that many members of the business community have been receiving bulk audit notices nowadays in which huge number of documents for six years old cases of 2014 were being demanded which was not making any sense at all and it appears like an attempt to harass the business community. “The FBR, instead of intensifying the hardships for existing taxpayers, must take practical steps to somehow bring more and more people into the tax net which was in the larger interest of the country as it would not only improve the tax revenue but would also bring down the tax rates that would certainly go in favor of the economy”, he added.

    Former Senior Vice President KCCI Ibrahim Kasumbi, in his remarks, particularly mentioned that the furniture industry comprising workshops, employing artisans and manual labor, has been receiving notices from tax authorities and field officers in many parts of Pakistan and they were being compelled to get registered as Tier 1 retailers which was unjust and not practicable for this trade. Hence, FBR must stop harassing shopkeepers, showroom and workshop owners in the name of registration in Tier-1 and the employment of hundreds of thousands skilled workers artisans and laborers has to be protected while this important industry of traditional hand-crafted furniture has to be preserved.

    He further stated that consumption of black tea in Pakistan was 240,000 tons, but the imports through legal channels was hardly 100,000 tons due to high rates of customs duty, sales tax, regulatory duty (RD) and withholding tax (WHT). The remaining requirement was being fulfilled by smuggling, Afghan Transit Trade, and imports under various exemptions/concessions granted to Provincially Administered Tribal Areas (PATA) and Azad Kashmir. Hence, rates of customs duty, sales tax, RD & WHT have to be rationalized to prevent smuggling and massive leakage of revenue, he added.

  • Foreign investors demand pending refunds payment in six months

    Foreign investors demand pending refunds payment in six months

    KARACHI: Foreign investors operating in Pakistan have demanded to clear all pending sales tax refunds in next six months.

    Overseas Investors Chamber of Commerce and Industry (OICCI), the representative body of foreign investors, in its proposals for budget 2021/2022 demanded that all pending tax refund be cleared within next six months in an orderly/ prearranged manner.

    The OICCI further suggested that verification process for refunds should start automatically as soon as an application for refund is filed by the taxpayer and tax refunds should be cleared within 45 days.

    With introduction of MIS on IRIS, it has become easy to introduce an online self-verification of refund. Wherein taxpayer after applying for refund verification us 170 may be given an option to select CPRNs online against each section wherein tax deduction/ collection has been made and create a virtual verification file for easy processing by assessing officers. In case of any discrepancy, only missing CPRNs will be verified manually.

    It is suggested that inter adjustment of Income tax and Sales tax refunds should be made part of the law.

    A timely settlement of the determined refunds should be made, and if there is a liquidity issue then issuing marketable government bonds/ securities be considered.

    Amend current fixed interest rate of 10 percent to floating interest rate linked with KIBOR, it is suggested.

  • Listed companies should be exempted from electronic tax surveillance

    Listed companies should be exempted from electronic tax surveillance

    KARACHI: Federal Board of Revenue (FBR) has been urged to exempt listed companies from electronic surveillance of business and records.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 said that through SRO 888 of 2020 dated September 21, 2020, a new chapter was introduced in Sales Tax Rules, 2006 whereby all registered persons are made liable to give continuous and full real-time electronic access to the premises, stocks, record, accounts and data, whether maintained electronically or otherwise, as and when required by an authorized officer as provided under section 38 of the Act.

    The OICCI recommended that the scope should be restricted to the taxpayers having series of defaults or misconduct.

    “Other taxpayers especially listed companies should be exempted from this requirement as they are subject to rigorous external audits, internal audit requirements by SECP and tax audits and monitoring by FBR,” it recommended.

  • Bank account holders should file tax returns, wealth statements

    Bank account holders should file tax returns, wealth statements

    KARACHI: Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) should devise a framework to ensure all customers of financial institutions whose account show turnover above Rs2 million have filed tax returns and wealth statement.

    “This could be done by the financial institutions simply notifying names/CNIC numbers of such customers to FBR without giving access to bank accounts,” this was recommended by Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022.

    The chamber presented its proposals for broadening of tax base:

    FBR should simplify the tax structure of the country by implementing tax reforms recommendations already been submitted by various forums in the past, and also hold regular round table conferences with leading tax and legal experts to review existing laws for increasing the number of taxpayers and taxable entities.

    Tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of NADRA database and other documented sources to ensure that all income earners are NTN holders and “Filers”, with submission of annual income tax/wealth returns and wealth reconciliation statements. FBR and SBP to devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of PKR two million or more during the year, have filed a tax return and wealth statement. This could be done by the financial institutions simply notifying names/CNIC numbers of such customers to FBR without giving access to bank accounts.

    Art exhibition halls, hospitals where doctors practice, hotels and other public places holding large receptions for fashion houses & designers, sale of branded/designer dresses, airlines, travel agencies, etc should provide names and addresses of the respective persons involved in these business activities to the FBR on a quarterly basis. iv. Once the FBR receives the above information, it should be pro-active and pursue potential taxpayers by sending them income tax return forms requiring them to file tax returns – rather than waiting for the tax returns to be filed.

    Section 111(4) of ITO 2001, last amended in 2018, should be further reviewed to restrict tax free inward foreign remittances to immediate family members only.

    Eliminate culture of Amnesty Schemes as it discourages the honest taxpayers.

    Severe, and visible, penalties should be levied to punish tax evaders, starting with evasions of over PKR one million.

    As Pakistan is a signatory to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which became operational from September 2018, regular coordination should be done with relevant authorities of countries, considered as tax heavens for stashing away illegal wealth, for information sharing, and cases of proven tax evasion publicly shared.

    Appropriate laws should be made to enable the government to seize local assets, in equivalent value, or levy appropriate taxes, if any person holds any kind of assets outside the country for which source of income could not be established.

  • Revamping withholding tax regime with maximum five rates recommended

    Revamping withholding tax regime with maximum five rates recommended

    KARACHI: Federal Board of Revenue (FBR) has been urged to revamp withholding tax regime and bring down the existing 50 different tax rates to maximum five rates.

    Overseas Investors Chamber of Commerce and Industry (OICCI), the representative body of foreign investors operating in Pakistan and multinational companies, in its proposals for budget 2021/2022 suggested the FBR to revamp the withholding tax regime, which is one of the key irritants for compliant taxpayers.

    It said that the fact that the ‘Collection and Deduction of Income Tax at Source (Withholding Agents Perspective) (Taxpayer’s Facilitation Guide)’ on the FBR website is of 48 pages highlights the complexity of the withholding tax regime which has more than 30 tax provisions that need to be followed and 50 different tax rates, applicable on nearly all heads of receipts/payments.

    The rate of withholding/advance tax also varies depending upon the nature of transaction, legal/tax status of the parties i.e., company or individual and active or in-active filer.

    Moreover, FBR system does not auto populate taxes withheld in the portal to the credit of the beneficiary.

    Furthermore, different categories of withholding tax (WHT) rates have been prescribed under the ITO 2001, for various types of payments and it has become extremely difficult for the person processing payments to be precise and accurate in applying WHT rates and ensure compliance:

    The complexity for the withholding agent has been further compounded after the introduction of active taxpayers list and different rates for an active and non-active filer.

    The OICCI recommended the following:

    i. Withholding tax regime should be revamped by reducing it to a maximum of five rates for all withholding taxes and the differentiation should be on the basis of active and inactive taxpayers only.

    ii. All taxes withheld should be auto populated in the portal to the credit of the beneficiary.

    iii. Final Taxation Regime should be eliminated, and all withholding taxes should be available for adjustment and the operations wing of FBR should ensure that all persons whose taxes have been deducted file their tax returns.

    iv. Withholding agents should be given incentive in the form of 2% tax credit of the amount collected for facilitating the Government.

    v. In addition to the above administrative/streamlining issues, withholding/ advance tax rates on below transactions should be reconsidered.

    a) Withholding tax rate be reduced to 0.25% for all distributors in line with the withholding taxes applicable on dealers and sub-dealers of fast-moving consumer goods.

    b) Withholding tax rates applicable on services is 8 percent minimum tax regardless of the actual taxable income of the service provider. The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.

    vi. Withholding tax deduction u/s 153 (1)(a) which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list.

  • FBR urged to provide option for business principal activity in sales tax registration

    FBR urged to provide option for business principal activity in sales tax registration

    The Karachi Chamber of Commerce and Industry (KCCI) has called upon the Federal Board of Revenue (FBR) to address challenges in the business registration process, emphasizing the need for streamlined options in the IRIS registration form.

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  • Yarn traders demand restoring turnover tax rate at 0.1pc

    Yarn traders demand restoring turnover tax rate at 0.1pc

    KARACHI: Pakistan Yarn Merchants Association (PYMA) has informed the Federal Board of Revenue (FBR) that present turnover tax rate for yarn traders is very high and many traders may resort to shutdown their factories at this high rate.

    Farhan Ashrafi, Vice Chairman of Pakistan Yarn Merchants Association(PYMA) & convener FPCCI’s Central Standing Committee on Yarn Trading and Khurram Bharaa, former SVP, have demanded Muhammad Javed Ghani, Chairman Federal Board of Revenue (FBR) to withdraw 1.5 turnover tax imposed on yarn traders and restore the previous rate of 0.1 percent.

    “Otherwise, the majority of yarn traders will be forced to close their businesses, which are already badly affected by the Corona epidemic and are facing severe financial crunch.”

    A letter to FBR chairman, Farhan Ashrafi informed that PYMA members, who are yarn traders have brought attention towards this important issue, as they were doing business in large volume but unfortunately at nominal rate of profit margin which is 1pc even less.

    By virtue of SRO.333 (I) 2001 dated 02.05.2011, the traders of yarn had been subject to turnover tax at concessional rate 0.1pc, which constitutes about 10pc of their margin. Provision of rate of minimum tax 0.1pc was made under clause 45 (A) second schedule to the income tax ordinance 2001.

     “Because of some oversight traders of yarn were not included in the purview of minimum tax under the first schedule Part-1 (Division IX) of the Income tax ordinance 2001, which would be the correct approach to treat the levy of concessional rate on yarn traders, as is the case with various other sectors and persons”, they added. Due to this lacuna a state of confusion remains about the levy of tax and frequent changes are made in the rate of turnover tax without consultation with stakeholders.

    Khurram Bharaa said that to compound the misery of yarn traders an amendment was made through Finance Act 2020, whereby Yarn Traders have been taken out of the scope of clause 45A (Part IV of 2nd Schedule) and the exemption from application of minimum turnover tax under Section 113 has been withdrawn, which prescribes 1.5pc turnover tax.

    Accordingly, the yarn traders are how subject to turnover tax at the rate of 1.5pc, which is way above their actual margin. Consequently, many traders of yarn have to discontinue their business unless the previous rate of 0.1pc is restored.

    Farhan Ashrafi asked to FBR chairman to remove the anomaly by insertion of the provision of minimum turnover tax at 0.1pc for the yarn traders in the first schedule Part-1 Division IX (exempting yarn traders from minimum 1.5pc tax under section 113 of income tax ordinance 2001).

    He requested Javed Ghani for intervention in the matter will help to rescue the complaint tax-prayers, who are conducting a large volume of trade and sustaining the textile sector of Pakistan.

  • Foreign investors propose abolishing FTR, adjustable all withholding tax provisions

    Foreign investors propose abolishing FTR, adjustable all withholding tax provisions

    KARACHI: Foreign investors operating in Pakistan have suggested the government to abolish Final Tax Regime (FTR) and make all provisions pertaining to withholding tax as adjustable.

    In its proposals for budget 2021/2022, the Overseas Investors Chamber of Commerce and Industry (OICCI) on Wednesday said it had submitted comprehensive taxation proposals for the Federal Budget 2021-2022 which highlight various measures required  to streamline the complex tax regime, incentivize the legitimate tax payer through Ease of Doing Business measures and ensure filing of tax returns by all income earners. 

    Commenting on the Taxation proposals , Irfan Siddiqui, OICCI President, acknowledged that the government has taken various bold measures in the face of many economic challenges, including those emanating from the Covid 19 impact on the local and international trade and business”.

    Irfan Siddiqui added:  “OICCI members are fully conscious that the continuing spread of Covid-19 poses exceptional challenges to the government and have therefore decided not to seek a number of taxation relief measures which, under normal circumstances, would have been justified to boost FDI and align Pakistan to compete with other regional countries.”

    OICCI has strongly recommended that the Minimum Tax regime should be rationalized with a lower level general tax rate and immediately reduced to 0.2 percent  for certain industries, like oil refining and oil marketing companies, with high turnover and low/government regulated  margins.

    “Moreover, Withholding tax regime (WHT) with over 45 rates is cumbersome and needs to be immediately rationalized to 5 rates for filers. Final Tax regime should be abolished and all withholding taxes should be made adjustable. FBR should ensure that all those persons who have been subjected to withholding taxes should file regular tax returns.”

    OICCI Secretary General , Abdul Aleem , giving further details of the key Taxation proposals from the chamber highlighted the need to introduce one unified Sales Tax rate of 13  percent, as applicable in Sindh, and one common tax return form throughout the country, filing of a single tax return with FBR instead of separate ST returns to the authorities in every province. He also stated Income Tax rebate of 2 percent for Shariah Compliance investment have not been effective and the intent of the regulators will not be realized until these are aligned with SECP Shariah regulations. 

    M. Abdul Aleem also stated that OICCI has recommended for substantial increase in FED on unmanufactured tobacco to arrest massive tax evasion in the tobacco industry. This together with introduction of Track and Trace Monitoring system will boost FBR revenue significantly. OICCI also proposed introducing stringent controls and penalties for illicit trade across the whole value chain. Pending review and revision of Afghan Transit Trade agreement (ATTA) , there is need to harmonize duty and tax rates to remove incentive for duty evasion. 

    Highlighting the need for Ease of Doing Business and promoting tax culture in the country , OICCI has recommended that the Tax regime should be simplified with massive reduction in the number of tax payments and filing of various forms/returns. Pending tax refunds should be settled withing 45 days and inter-adjustment of income/sales tax refunds be allowed in the law.

    In line with the latest focus in the country on digitization of the economy, FBR and associated tax authorities need to substantially upgrade their use of digital technology, data analytics, including Artificial Intelligence tools to effectively use a strong data base already available in the country from NADRA and other documented sources  so as to ensure that all income earners regularly comply with the tax requirements. 

    In conclusion, Abdul Aleem observed that OICCI members believe in the potential of Pakistan , despite challenges, which can be harnessed with positive and regular engagement of relevant authorities and private sector.

    There is need to continuously  improve and align policies and practices in Pakistan with the best in the region, to be able to attract sizeable FDI in the  manufacturing , IT and services export  and other job creating sectors.

  • Karachi Chamber welcomes appointment of Hammad Azhar as Finance Minister

    Karachi Chamber welcomes appointment of Hammad Azhar as Finance Minister

    KARACHI: Karachi Chamber of Commerce and Industry (KCCI) on Wednesday welcomed the government decision to appoint Hammad Azhar as the finance minister of the country.

    Chairman Businessmen Group (BMG) & Former President KCCI Zubair Motiwala and President KCCI Shariq Vohra, while warmly welcoming the appointment of Hammad Azhar as Federal Finance Minister, stated that the business & industrial community of Karachi highly appreciates and fully supports Prime Minister’s prudent decision and hopes that the newly appointed Finance Minister would take necessary practical steps to deal with some of the major economic crises being faced by the country.

    In a joint statement, Chairman BMG and President KCCI pointed out that Hammad Azhar will have to devise effective strategies on war-footing basis to deal with the menace of inflation which has terribly affected the lives of entire population, besides taking practical steps to bring down the exorbitant cost of doing business.

    Uncertainty continues prevails in every nook and corner of the country as the COVID-19 pandemic still remains largely active and the overall situation, which was already very challenging, has been worsening day by day. It seems that the third spell of the deadly virus was more dangerous and it has triggered a lot of anxiety amongst various businesses therefore, the next budget has to be declared as a “Relief & Rescue Budget”, they added.

    They opined that this change at the helm of affairs at the Ministry of Finance just ahead of budget has triggered some anxiety amongst business community and was likely to create a challenging situation hence, the government will have to take confidence building measures by taking the Karachi Chamber on board in the policy making process whether it was pertaining to SBP’s autonomy, budget making or any other taxation related issue.