Karachi, January 13, 2024 – The Federal Board of Revenue (FBR) has recently showcased a series of impactful measures implemented during the fiscal year 2022-23, aimed at promoting ease of doing business in Pakistan.
The annual performance review highlighted key reforms and changes across various tax-related aspects, demonstrating the government’s commitment to fostering a business-friendly environment.
Disclosure of Beneficial Ownership
One of the noteworthy measures unveiled pertains to the disclosure of beneficial ownership. Previously, companies and Association of Persons (AOPs) were not obligated to reveal the natural individuals serving as ultimate beneficial owners. In a bid to enhance transparency and align with international best practices, companies and AOPs are now mandated to disclose details about their beneficial owners who are natural persons. This move aims to eliminate potential obscurities created by intervening companies and trusts.
Depreciation and Initial Allowance
The Finance Act of 2020 introduced restrictions on claiming a depreciation deduction by fifty percent for depreciable assets used in a person’s business for the first time. In a recent update, this restriction has been lifted, allowing a person introducing a depreciable asset for the first time to claim a hundred percent depreciation deduction. Additionally, the cost limit for depreciable assets, specifically passenger transport vehicles not used for hire, has been raised from two and a half million rupees to seven and a half million rupees. Immovable property or structural improvements to immovable property are now excluded from the eligible depreciable asset definition for initial allowance purposes.
Export of Services
The tax regime for exporters of Information Technology (IT) and IT-enabled services has been simplified. The previous 100% tax credit regime under section 65F has been withdrawn, and a reduced final tax rate of 0.25% is now applicable for exporters registered with the Pakistan Software Export Board (PSEB). Furthermore, the tax rate on foreign commission due to an indenting commission agent has been reduced from 5% to 1%.
Elimination of Certain Tax Credits and Deductible Allowances
Several tax credits and deductible allowances available to individuals, such as those for investment in shares, insurance, and health insurance, have been omitted. These changes are in line with a corresponding adjustment in section 149.
Minimum Tax
The minimum tax rate on the turnover of Oil Marketing Companies has been reduced from 0.75% to 0.5%.
Revamping of Alternate Dispute Resolution Mechanism
The alternate dispute resolution mechanism has undergone significant changes with the Finance Act of 2022. Notable modifications include the eligibility of disputes involving tax liability exceeding one hundred million for settlement, allowing taxpayers to bring disputes involving both fact and law for settlement, and a revamped committee structure for dispute resolution.
Withholding Tax on Imports for Industrial Undertakings
Changes in withholding tax on imports include the adjustability of tax collectible from industrial undertakings on goods imported for own use. For imports of edible oil, packaging material, paper and paperboard, and plastics, a minimum tax has been imposed. The rate of withholding tax on certain goods has been increased from 2% to 3.5% for commercial importers.
Automated System of Collection and Deduction of Withholding Taxes
To streamline the withholding tax collection and deduction mechanism, the FBR has introduced the Synchronized Withholding Administration and Payment System (SWAPS) under section 164A of the Ordinance. SWAPS aims to automate the process, integrating withholding agents with the Board for real-time withholding tax deposits and auto-populated withholding statements.
These initiatives collectively represent a significant step forward in creating a more business-friendly environment, streamlining processes, and enhancing transparency in Pakistan’s economic landscape. The FBR continues to focus on such reforms to support sustainable economic growth and attract investment in the country.
