Syed Zafar Ahmed, President of the Karachi Tax Bar Association (KTBA), has recently submitted a series of important tax proposals for inclusion in the upcoming Finance Bill 2023.
These proposals, sent to the Federal Board of Revenue (FBR) and the Ministry of Finance, aim to introduce crucial reforms that would benefit the economy and taxpayers alike. Here are the key recommendations put forth by the KTBA:
READ MORE: KTBA Proposes Amendments for Fairer Tax Recoveries via Frozen Bank Accounts
1. Restoration of Tax Credits under Section 65D: KTBA suggests restoring tax credits under Section 65D of the Income Tax Ordinance. This move aims to incentivize investment, boost economic growth, promote technological advancements, and enhance productivity in the manufacturing sector. Furthermore, the proposal recommends extending the time limit under sections 65D and 65E until June 30, 2025.
2. Re-introduction of Tax Credit under Section 65A: The KTBA proposes reintroducing a tax credit under Section 65A for manufacturers who make 90% of their sales to registered persons under the Sales Tax Law. Additionally, the association suggests that individuals who make 90% of their purchases from sales tax registered persons should also be eligible for the tax credit.
READ MORE: KTBA Opposes Income Tax Deduction on Gross Salary
3. Removal of Conditions for Greenfield Industrial Undertakings: Currently, Greenfield industrial undertakings must fulfill certain conditions, including the first-time use of processes or technology in Pakistan and approval from the Pakistan Engineering Board. The KTBA proposes eliminating these impractical conditions to promote greenfield projects, encourage innovation, and facilitate the adoption of efficient technologies in the manufacturing sector.
4. Empowering the Commissioner Appeals: The KTBA recommends empowering the Commissioner Appeals to extend the stay of demand beyond the current 60-day limit. This would eliminate the need to seek stays from the Tribunal or the High Court for pending appeals. Additionally, the proposal suggests granting an extended stay of demand until the appeal decision is made.
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5. Restoring the Legal Position for Stay Orders by the Tribunal: Currently, stay orders by the Tribunal expire after 180 days, allowing tax recovery actions despite pending appeals and in violation of court verdicts. The KTBA proposes restoring the legal position to prevent coercive measures and ensure the integrity of judicial decisions.
6. Notice and Recovery Actions: The proposal recommends that a notice must be served before initiating any recovery actions following a Commissioner Appeal order. Furthermore, a mandatory 15-day period should be implemented before any recovery actions can be taken.
7. Removal of Commission Expense Disallowance: KTBA suggests removing the disallowance of commission expenses in excess of 0.2 percent paid to distributors of third schedule items who do not appear in the Active Tax Payer list. This change aims to alleviate the burden on compliant taxpayers penalized for non-compliant distributors, fostering fairness and encouraging business growth in a transparent environment.
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8. Clarity for Trans-Provincial Entities’ WWF/WPPF Deductible Allowance: The KTBA highlights the need for clarity regarding the deductible allowance for Workers’ Welfare Fund (WWF) and Workers’ Profit Participation Fund (WPPF) payments by trans-provincial entities. The current disparity in the law has caused confusion and uncertainty for businesses. The proposal suggests introducing clear criteria, such as manufacturing premises or sales offices, to determine if an establishment qualifies as trans-provincial. This would ensure transparency and consistency in identifying eligible entities for making WWF/WPPF payments to provincial authorities.
9. Proposal to Repeal Section 108B of the Ordinance: KTBA has suggested to repeal Section 108B of the Ordinance, which imposes penalties on taxpayers for the fault or non-compliance of their dealers. The provision, introduced in the Finance Act, 2019, has been deemed irrational and an undue interference in the business affairs of taxpayers. Under Section 108B, 75% of a dealer’s margin is added to the income of the supplier if supplies are made to an unregistered person not on the Active Taxpayers List. Furthermore, the margin of the dealer is fixed at 10% for the purpose of this addition to the supplier’s income. The proposal suggests that the responsibility of targeting non-compliant individuals should lie with the FBR itself, utilizing the data shared by taxpayers on a monthly basis. This would relieve compliant taxpayers of the burden of penalties for the actions of their dealers and allow the FBR to more effectively track down and address non-compliance. By repealing Section 108B, the proposed amendment aims to restore balance and fairness in the tax system, reducing undue interference in the business operations of compliant taxpayers.
