KARACHI: In a determined effort to combat money laundering through foreign trade, the government has unveiled strict measures, including up to 10 years imprisonment for offenders and the confiscation of implicated consignments. These proposed reforms are detailed in the Finance Bill 2019, aiming to amend the Customs Act, 1969.
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Customs law amended to recover unpaid amount from exporters
KARACHI: The government has put a check on exporters related to unpaid amount of duty and taxes at the time of export clearance and amended law to recover the same.
Through Finance Bill 2019, it is proposed to amend Section 32(3)(A) of Customs Act, 1969 to apply this check on exporters.
Sub-section (3A) of Section 32 deals with the issuance of show cause notice in the situation where any duty, taxes or charge has not been levied, short-levied or erroneously refunded, discovered as a result of an audit or examination of an importer’s accounts or by any other means.
The Finance Bill 2019 seeks to extend the application of this section to exporters as well.
The existing law under Section 32(3)(A) said:
Notwithstanding anything contained in sub-section (3), where any duty, taxes or charge has not been levied or has been short-levied or has been erroneously refunded and this is discovered as a result of an audit or examination of an importer’s accounts or by any means other than an examination of the documents provided by the importer at the time the goods were imported, the person liable to pay any amount on that account shall be served with a notice within five years of the relevant date requiring him to show cause why he should not pay the amount specified in the notice:
Provided that if the recoverable amount in a case is less than one hundred rupees, the Customs authorities shall not initiate the aforesaid action.
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FBR empowered to impose fee, service charges under Customs laws
KARACHI: Federal Board of Revenue (FBR) has been empowered to impose service charges and date of determination of rate of import duty under Customs Act 1969.
The Finance Bill 2019 has proposed delegation of powers from federal government to the FBR, which included: levy of fee and service charges; date of determination of rate of import duty; date of determination of rate of duty for clearance through the Customs Computerized System; and date for determination of rate of duty on goods exported.
The bill proposed delegation powers to FBR under Section 18D, 30, 30A and 31 of Customs Act, 1969.
Presently Section 18D of Customs Act, 1969 states:
18D. Levy of fee and service charges.- The Federal Government may, by notification in the official Gazette, subject to such conditions, limitations or restrictions as it may deem fit to impose, levy fee and service charges for examination, scanning, inspections, sealing and desealing, valuation check or in respect of any other service or control mechanism provided by any formation under the control of the Board, including ventures of public-private partnership, at such rates as may be specified in the notification.
Presently Section 30 of Customs Act, 1969 states:
30. Date of determination of rate of import duty.- The rate of duty applicable to any imported goods shall be the rate of duty in force;
(a) in the case of goods cleared for home consumption under section 79, on the date on which a goods declaration is manifested under that section; and
(b) in the case of goods cleared from a warehouse under section 104, on the date on which a goods declaration for clearance of such goods is manifested under that section:
Provided that, where a goods declaration has been manifested in advance of the arrival of the conveyance by which the goods have been imported, the relevant date for the purposes of this section shall be the date on which the manifest of the conveyance is delivered at the port of first entry:
Provided further that, in respect of goods for the clearance of which a goods declaration for clearance has been manifested under section 104, and the duty is not paid within seven days of the goods declaration being manifested, the rate of duty applicable shall be the rate of duty on the date on which the duty is actually paid:
Provided further that in case of the goods illegally removed from the warehouse, the rate of duty shall be the rate prevalent either on the date of in-bonding or detection of case or date of payment of the duty and taxes, whichever is higher:
Provided further that in case of exercising option for redemption of fine in lieu of confiscation of the goods seized during anti-smuggling operations, the rate of duty shall be the rate prevalent either on the date of seizure or date of payment of duty and taxes, whichever is higher:
Provided further that the Federal Government may, by notification in the official Gazette, for any goods or class of goods, specify any other date for the determination of rate of duty.
Explanation:- For the purpose of this section “manifested” means that when a machine number is allocated to goods declaration and is registered in Customs record.
Presently Section 30A of Customs Act, 1969 states:
30A. Date of determination of rate of duty for clearance through the Customs Computerized System.- Subject to the provisions of section 155A, the rate of duty applicable to any imported or exported goods if cleared through the Customs Computerized System, shall be the rate of duty in force on;-
(a) the date of payment of duty;
(b) in case the goods are not chargeable to duty, the date on which the goods declaration is filed with Customs.
Provided that where a goods declaration has been filed in advance of the arrival of the conveyance by which the goods have been imported, the relevant date for the purposes of this section shall be the date on which the manifest of the conveyance is filed at the customs-station of first entry:
Provided further that the Federal Government may, by notification in the official Gazette, specify any other date for the determination of rate of duty in respect of any goods or class of goods.
Presently Section 31 of Customs Act, 1969 states:
31. Date for determination of rate of duty on goods exported.- The rate and amount of duty applicable to any goods exported shall be the rate and amount chargeable at the time of the delivery of the goods declaration under section 131:
Provided that where the export of any goods is permitted without a goods declaration or in anticipation of the delivery of such a declaration, the rate and amount of duty applicable shall be the rate and amount chargeable on the date on which loading of the goods on the outgoing conveyance commences:
Provided further that the Federal Government may, by notification in the official Gazette, for any goods or class of goods, specify any other date for determination of the rate of duty.
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Collectors’ power to determine customs values withdrawn
KARACHI: The government has withdrawn the power of Collector of Customs in determination of customs value on his own motion through Finance Bill 2019.
The Finance Bill 2019 proposed to withdraw the powers of the collector of customs to determine customs valuations on his motion under Section 25A(1) and Section 25A(3) of Customs Act, 1969.
The collector of customs presently has powers to determine the customs values under Section 25A.
The sub-section 1 of Section 25A states: Notwithstanding the provisions contained in section 25, the Collector of Customs on his own motion, or the Director of Customs Valuation on his own motion or on a reference made to him by any person or an officer of Customs, may determine the customs value of any goods or category of goods imported into or exported out of Pakistan, after following the methods laid down in section 25, whichever is applicable.
The sub-section 3 of Section 25A states: In case of any conflict in the customs value determined under sub-section (1), the Director-General of Customs Valuation shall determine the applicable customs value.
The powers of determining customs values have now been proposed to be available with Director of Customs Valuation.
Analysts said that this proposal in the Finance Bill 2019 would provide relief to import in clearance of consignments. They said that many arbitrary decisions of Collector have created hassles for the importers in the past and consignments were stuck up for a long time.
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Non-ATL persons to pay double amount of withholding tax on prize bond winning
ISLAMABAD: The government has increased withholding tax by 100 percent on winning of prize bonds for persons not on Active Taxpayers List (ATL).
Through Finance Bill 2019 the government has deleted the term ‘non-filers’ and imposed 100 percent withholding tax on persons not on the ATL, which contains names of persons file their returns by due date of a tax year.
The rate of withholding tax on prize bond, cross-word puzzle and prize on winnings remains unchanged, however, the categorized rates of non-filer are proposed to be abolished.
The amendment proposed through the Finance Bill 2019, the rate of withholding tax on winning of prize bonds and other lottery schemes shall be:
The rate of tax to be deducted under section 156 on a prize on prize bond or cross-word puzzle shall be 15 percent of the gross amount paid.
The rate of tax to be deducted under section 156 on winnings from a raffle, lottery, prize on winning a quiz, prize offered by a company for promotion of sale, shall be 20 percent of the gross amount paid.
For the person winning the prize but not on the ATL shall pay double the amount as withholding tax.
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Commercial importers to file income returns after removal of FTR
ISLAMABAD: Commercial importers will require to file return of income and statement of assets to the tax authorities after the removal of final tax regime.
Tax authorities said that the commercial importers would require to submit details of imports and source of payment for opening the letter of credit (LCs) through their returns.
According to budget commentary by EY Ford Rhodes on Finance Bill, 2019, before the Finance Act, 2018, tax required to be collected under Section 148 on import of plastic raw material imported by an industrial undertaking, falling under PCT headings 39.01 to 39.12, edible oils and packing material is treated as minimum tax.
Furthermore, tax required to be collected on import of goods that are sold in the same condition as they were when imported was treated as final tax.
The Finance Act, 2018 brought a substantive conceptual shift with respect to taxation of commercial importers whereby such tax collection was deemed to be “minimum tax” in respect of such importers.
Due to the aforesaid change in taxability of commercial importers, there were grave concerns shown by the above sector, as this change would have required the commercial importers to declare the financial results for comparison of tax on profits to the minimum tax on imports.
As a result of strong lobbying by commercial importers, amendments were made in Section 148 through the Finance Supplementary (Second Amendment) Act, 2019 whereby tax collected at import stage from commercial importers was again treated as final discharge of tax liability of such importers.
“The Finance Bill 2019 now proposes to restore the position as stood after the amendments made through the Finance Act, 2018 to change the character of such tax collection from “final tax” to “minimum tax”.
“Such commercial importers, pursuant to the proposed amendments will now be required to file a return of income instead of filing a statement in terms of Section 115 of the Ordinance.”
The Bill also proposes amendments in Sub-section (8A) of Section 148 whereby tax collected at the time of import of ships by ship-breakers is also to be treated as ‘minimum tax’.
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Karachi Chamber highlights budget anomalies, urges rectification
KARACHI: President Karachi Chamber of Commerce & Industry (KCCI) Junaid Esmail Makda, while highlighting various Sales Tax and Income Tax anomalies unveiled in the Federal Budget 2019-2020, appealed Prime Minister Imran Khan, State Minister for Revenue Hammad Azhar and Chairman FBR Shabbar Zaidi to rectify all these anomalies on top priority prior to seeking approval of the Budget from the parliament.
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Finance Bill 2019: Revised CGT rates on sale of securities
ISLAMABAD: The Finance Bill 2019 has proposed revised rates of Capital Gain Tax (CGT) on sale of securities under Section 37A of the Income Tax Ordinance, 2001.
According to EY Ford Rhodes Chartered Accountants the rate card for levying tax on capital gains arising on sale of securities as referred to in Section 37A is proposed to be replaced, whereby the category for non-filers and the respective slab rates have been removed.
The rates applicable for tax year 2019 are proposed to be further extended to tax year 2020 as under:
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Finance Bill 2019: severe punishment proposed for offshore tax evasion
ISLAMABAD: The government has proposed severe punishment for tax evasion through Finance Bill 2019.
According to commentary on Finance Bill, 2019 by EY Ford Rhodes Chartered Accountants, the country in the recent past had witnessed a lot of hue and cry in respect of undeclared assets / wealth accumulated and held abroad by resident of Pakistan.
Such non-declaration was exposed to severe criticism both on print and electronic media, ultimately resulting in media trial of persons involved.
“While the existing penalty and prosecution provision may generally cater such tax evasions, the Bill now proposes to severely punish taxpayers involved in offshore tax evasions.”
Although, the term offshore tax evasion has not been particularly defined either by the Bill or the Ordinance, internationally the concept refers to a situation where a taxpayer avoids paying taxes in the home jurisdiction in respect of foreign / offshore assets and income.
Hence, if a Pakistan resident evades paying taxes on its foreign source assets and income, it may be regarded as indulging in offshore tax evasion.
In this back drop following definitions are proposed to be inserted in Section 2 of the Ordinance –
— “Offshore asset” in relation to a person, incudes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan;
— “Offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;
— “Offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioner;
— “specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under the Common Reporting Standard with Pakistan;
— “unspecified jurisdiction” means a jurisdiction which is not a specified jurisdictions.
— “asset move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion; Corresponding penalties, in respect of offshore tax evasion have also been proposed as under:
— Where an offshore tax evader is involved in offshore tax evasion, a penalty of Rs100,000 or an amount equal to 200 percent of the tax which the person sought to evade, whichever is higher, would be applicable.
— Where, in the course of any transaction or declaration made by a person, an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion, a penalty of Rs300,000 or an amount equal to 200 percent of the tax which was sought to be evaded, whichever is higher, would be applicable.
— Any person, who is involved in the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion, from one specified territory to an un-specified territory, shall pay a penalty of Rs100,000 or an amount equal to 100 percent of the tax whichever is higher.
In addition to the above penal exposures, in order to deter the concealment of offshore assets and to maintain effective monitoring of offshore tax evasion, the Bill also proposes to prosecute the tax evader, as provided for under the newly proposed Sections 192B and 195B.
In terms of Section 192B, any person who fails to declare an offshore asset or furnishes inaccurate particulars of an offshore asset where the financial impact of such concealment or furnishing of inaccurate particulars is Rs100,000 or more, the same shall be treated as an offence, punishable on conviction with imprisonment up to 7 years or a fine up to 200 percent of the amount of tax evaded, or both.
Similarly, through Section 195B, the Bill seeks to hold any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in an offshore tax evasion, the same will be treated as an offence punishable on conviction with imprisonment for a term not exceeding 7 years or with a fine up to Rs5 million or both.
The Bill further proposes to insert a new Sub-section in Section 145 of the Ordinance in terms of which the Commissioner is empowered to freeze any domestic asset of a person including any asset beneficially owned by him, where he has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any such asset.
The asset frozen can be held by the Commissioner for a period of one hundred and twenty days or till the finalization of proceedings including but not limited to recovery proceedings under the Ordinance whichever is earlier.
Finally, the Bill proposes to insert Sub-sections (6B) and (6C) in Section 216 of the Ordinance whereby FBR is empowered to publish the names of offshore evaders and offshore enablers in the electronic and print media.
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Finance Bill 2019: CGT on immovable properties revamped
ISLAMABAD: The capital gain tax on the immovable properties has been revamped through Finance Bill 2019 in order to streamline taxation on gains at the time of sale of immovable properties.
According to commentary of EY Ford Rhodes Chartered Accountants on changes brought in Income Tax Ordinance, 2001 through Finance Bill 2019, the taxation of capital gains arising from disposal of capital assets is governed by Section 37 of the Ordinance.
After the introduction of Eighteenth Amendment in the Constitution of Pakistan, 1973, the Finance Act, 2012 introduced a significant amendment inserting Sub-section (1A) in Section 37 of the Ordinance providing for taxation of capital gains arising from disposal of immovable properties.
The rates of tax on such capital gains were applicable depending on the holding period of immovable properties ranging from 5 percent to 10 percent.
However, if the immovable property was disposed of after holding period of three years, the rate of tax is prescribed at zero percent.
“The Bill proposes to revamp the taxation of capital gains from disposal of immovable properties.”
Accordingly, it is proposed to omit Sub-section (1A) from Section 37 along with Division VIII of Part I of the First Schedule which contains rates of tax on such capital gains.
In its place, a new Sub-section (3A) is proposed to be inserted which contains separate mechanisms for computation of capital gain on disposal of (i) open plot, and (ii) constructed property.
The effect of the proposed amendment is that such capital gain (worked out by subtracting cost of the asset from the consideration received) will not be considered as a separate block of income liable to tax at reduced rates of 5 percent, 7.5 percent or 10 percent.
It will instead forms part of total income of the person and therefore, be taxed at the normal rates of tax applicable as per the First Schedule.
The capital gain will, however, be reduced by 25 percent depending on the holding period of the immovable property disposed of.
The reduction of 25 percent will apply if the holding period of open plot exceeds one year but does not exceed ten years and for constructed property from one year to five years.
Where the immovable property is disposed of after holding period of ten years and five years respectively, the capital gain will be taken to be zero.
An interesting outcome of this mode of taxation is that where the capital gain becomes zero depending upon the holding period as discussed above, super tax under Section 4B of the Ordinance will not apply for, there would not be any income recognizable for the purpose of computation of super tax.
The reduction of 50 percent of tax payable in respect of capital gains on disposal of immovable property on the first sale of immovable property acquired or allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or serving personnel of Federal and Provincial Governments, being original allottees of the immovable property, duly certified by the allotment authority remains intact as for this purpose Clause (9A) is also proposed to be inserted in Part III of the Second Schedule to the Ordinance.