The Federal Board of Revenue (FBR) may be authorized to decide the implementation of payment through digital means.
An amendment has been proposed through Finance (Supplementary) Bill, 2021 to defer the implementation of payment through digital means indefinitely till the time it is notified by the FBR.
PWC A. F. Ferguson & Co. in its memorandum on the finance supplementary bill stated that through the Tax Laws (Third Amendment) Ordinance, 2021, a new Clause (la) was introduced under section 21 which requires every company to make payment for a transaction under a single account head exceeding Rs250,000 through ‘digital means’ from their notified business bank account, subject to certain exclusions. Otherwise, the expense would become inadmissible.
Due to challenges and practical difficulties in the implementation of Clause (la), the Board deferred its implementation from time to time till December 31, 2021.
The bill now proposes to defer its implementation indefinitely till the time it is notified by the Board [FBR].
While introducing Clause (la), the term ‘digital means’ was not defined. It was, although, ought to mean all sort of paperless mode of payments; however, due to lack of proper definition confusion persisted.
The State Bank of Pakistan (SBP) in its instructions issued to banks vide PSP & OD Circular Letter No. 5 of 2021 dated October 15, 2021 listed down following digital modes of payments, which were also considered to be relevant for the purposes of Clause (la):
(a) Online portals/platforms for digital payments/receipts
(b) Online Interbank Fund Transfer services
(c) Online bill/invoice presentment and payments services
(d) Over the Counter (OTC) digital payments services/facilities
(e) Card payments using Point of Sale (POS) terminals, QR codes, mobile devices, ATMs, Kiosk and/or any other digital payments enabled devices
(f) Any other digital/online payment modes
To address this ambiguity, the Bill has proposed to define the term ‘digital means’ as “electronic or digital payments as defined by the State Bank of Pakistan”.
It, therefore, appears that the above instructions of SBP or any other instructions which may be issued by SBP from time to time would be relevant for the purposes of defining ‘digital means’ whenever clause (la) would be implemented.
The introduction of clause (la) apparently disrupted the currently prevailing credit market practices where besides cheques (being a regular mode of payment), post-dated cheques are also used as instrument of security between buyers and sellers.
The government may, therefore, consider bringing innovation in the cheque clearing system as Pakistan’s credit market prefers this mode of payment. The SBP has also been working on introducing QR code system in cheques for seamless same day clearing. This could be integrated with the electronic system of banks for electronic clearing of cheques; thereby, providing the same utility to the customer taxpayers and information to the revenue as any other digital means of payment.