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Tag: budget proposals

  • Proposed list of higher withholding tax rates for non-filers

    Proposed list of higher withholding tax rates for non-filers

    KARACHI: A proposed list of higher rates of withholding tax for non-filers of income tax returns has been sent to Federal Board of Revenue (FBR) for broadening the tax base.

    The concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy, said Pakistan Business Council (PBC) in its proposals for budget 2022/2023.

    READ MORE: PSX demands slashing CGT rates on disposal of shares

    Though large amounts are being collected from non-filers, no effort has been made to increase the tax base.

    The non-filers for the most part have built the cost of this government levy into pricing and passed it on to their customers.

    The PBC said in order to broaden the tax base and to achieve increase in overall tax collection without burdening existing tax payers, the policy to increase tax on non-filers / unregistered persons should be implemented specifically in the following cases:

    READ MORE: FBR suggested reduce corporate tax rate for listed companies

    a) unregistered industrial / commercial entities (not having STRN) having bill amount in excess of Rs. 20,000 per month, extra sales tax should be increased from 17 per cent to 30 per cent

    b) After collection of extra tax as referred above for a continuous period of 6 months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.

    c) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs.2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non-compliance, utility companies be directed to disconnect utility connections.

    d) Moreover, in order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies. In case of failure to provide NTN, electricity connection should be disconnected.

    READ MORE: Tax cut suggested on dividend paid by exempt entities

    Considering the fact that all industrial / commercial connections will be linked with NTN, the tax department will then be in a better position to assess the electricity consumed by commercial / industrial users and corroborate the same with amount of sales / production etc. reported in sales tax / income tax return

    e) in order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with them. Thereafter, such commercial/industrial consumers without NTN should be charged advance income tax @ 20 per cent (from existing 5 per cent/12 per cent for industrial and commercial connections respectively) on their utility bills.

    f) Advance tax @7.5 per cent is collected from domestic connections in the name of Non-Filers is collected where monthly bill is Rs.25,000 or more. Rate of advance tax be increased to 30 per cent where monthly bill is in excess of Rs.75,000

    g) All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers so that exempt income is also reported and wealth is reconciled.

    READ MORE: PBC suggests reducing further tax to stop flying invoices

    h) Withholding tax of Rs. 50,000 for non-filers be levied on International business class tickets

    i) Withholding income tax on interest income u/s 151 is 15 per cent for filer and 30 per cent for non-filer. Rate should be increased to 50 per cent for non-filers in case interest income is more than Rs.2,000,000/-

    j) Annual advance income tax @ 20,000 is applicable [under section 234] for non-filers owners of vehicles of 2000cc and above. Amount of tax should be increased to 100,000 for non-filers.

    k) Advance income tax of Rs. 800,000 on purchase of vehicles in excess of 2000cc by non-Filers [under section 231B] should be increased for non-Filers to Rs. 2,400,000 [3 times]

    l) Advance income tax on transfer of vehicles [applicable on 2nd hand buyer] under section 231B(2) should be increased for non-Filers as follows:

    a) Existing rate of Rs75,000 for 2001cc to 2500cc be increased to Rs225,000 [3 times]

    b) Existing rate of Rs100,000 for 2501cc to 3000cc be increased to Rs300,000

    c) Existing rate of Rs125,000 for 3000cc and more be increased to Rs375,000

    READ MORE: Commercial importers misusing tax registration

    m) Advance income tax of Rs. 400,000 on sale of vehicle [2001cc and above] by non-filers before registration [own money] should be increased to Rs1,200,000

    e) Advance income tax is collected on sales of immovable property under section 236C, which is 1 per cent for both filers and non-filers, should be increased for non-filers to 10 per cent for properties of 900 square yards or more

    f) In order to generate tax revenues and to divert funds from unproductive resource to productive area [for import substitution / export promotion industry], holding of land by non-filers should be made more expensive by asking those authorities collecting property tax (cantonment boards / societies / registrar) to collect adjustable advance income tax, from non-Filers, on behalf of the Federal Government as follows:

    g) Rs. 500,000 per year for 800 yards or more but less than 1800 yards

    h) Rs. 1 million per year for 1800 yards and above.

    READ MORE: FBR urged to massively reduce tax rates for return filers

  • PSX demands slashing CGT rates on disposal of shares

    PSX demands slashing CGT rates on disposal of shares

    KARACHI: Pakistan Stock Exchange (PSX) has demanded the government to reduce capital gain tax (CGT) rates on disposal of shares in the forthcoming budget 2022/2023 to attract local as well foreign investors.

    The PSX in its budget proposals submitted to the Federal Board of Revenue (FBR) suggested that CGT rates on listed securities should be brought in line with other regional and OECD countries and with the CGT on sale of immovable property.

    READ MORE: FBR suggested reduce corporate tax rate for listed companies

    This is essential to eliminate the tax driven distortion between different asset classes. Further, the CGT on all derivatives and future contracts traded on PSX to be taxed in line with future commodity contracts traded at PMEX.

    The PSX suggested introduction of registered savings (RSIA) and investment accounts and individual savings account (ISA). It proposed that the government should introduce a mechanism and regulatory structure for the launch of RSIAs or ISAs to help channel savings towards productive investments.

    “These schemes will help channel capital which is invested in unproductive areas and from the large undocumented sector into productive parts of the economy,” the PSX added.

    READ MORE: Tax cut suggested on dividend paid by exempt entities

    The stock exchange suggested grandfather provision for tax treatment for listed companies on the PSX. “In order to encourage companies to list, their tax status should be grandfathered at the time of listing application i.e. no new cases for past tax returns should be opened, except for such pending cases on which proceedings have already been initiated under the Ordinance, before the date of listing application, will continue as per the provisions of law.”

    The PSX urged the authorities to rationalize tax rates for companies listed on the stock exchange. “Reinstatement of the repealed Section 65C of the Income Tax Ordinance, 2001 amended to allow tax credit to certain companies meeting the prescribed requirements of free float.”

    READ MORE: PBC suggests reducing further tax to stop flying invoices

    The stock exchange proposed to eliminate minimum tax regime for listed companies. “Minimum tax regime should be eliminated or reduced for listed companies as such companies are documented and compliant with specific documentation requirements of various statutes,” it proposed.

    The PSX recommended enhanced tax credit for listed small and medium enterprises (SME). “In order to encourage small and medium enterprises to get listed on the SME Board, the rate of tax for such listed SME companies should be lowered by giving tax credit of 50 per cent of tax payable for three to four years and 20 per cent onwards of the tax payable,” it proposed.

    READ MORE: Commercial importers misusing tax registration

    The stock exchange stressed the need for documenting real estate sector and promotion of REITs structures. The PSX recommended: exempt advance tax on property transfer to / from a RIET Scheme; remove sunset clause for all categories of RIET; reduction of minimum tax rate applicable to RMCs in line with Asset Management Companies i.e. 30 per cent.

    In order to unlocking potential of private fund, the PSX suggested: insert proper definition of private fund referring to 2015 regulations; reinstate exemption of profit and gains to be given to all categories of private equity and venture capital including private fund; revision of Capital Gain Tax rates as provided for mutual funds, CIS and REITs; specified exemptions to include private fund.

    READ MORE: FBR urged to massively reduce tax rates for return filers

    For levelling tax for corporates, the stock exchange suggested: inequality of taxation of businesses should gradually be removed by reducing corporate tax rate/increasing tax rates for Association of Persons (AOPs); restoration of exemption on inter-corporate dividend between companies eligible for group taxation.

    The PSX said that provincial sales tax on services – jurisdiction issues should be settled in council of common interest. The wording of the laws enacted by the Sindh Revenue Board, Punjab Revenue Authority and Khyber Pakhtunkhwa Revenue Authority are overlapping. “The matter being of equal relevance to all the provinces and affecting the entire services sector, may be placed on the agenda of the Council of Common Interests so that a sharing formula for each province can be devised.”

    The stock exchange demanded the authorities of consistent and long term tax policies. It said the government must move away from short term measures and frequent changes in tax regime and adopt long term measures to promote savings and investment and development of the capital market.

  • FBR suggested reduce corporate tax rate for listed companies

    FBR suggested reduce corporate tax rate for listed companies

    KARACHI: Pakistan Business Council (PBC) has suggested the Federal Board of Revenue (FBR) to lower the corporate tax rates, especially for listed companies.

    The PBC in its proposals for budget 2022/2023 recommended reduction in corporate tax rate to 20 per cent.

    READ MORE: Tax cut suggested on dividend paid by exempt entities

    The council in its proposals for reducing the cost of doing business in Pakistan, said all companies except banking companies and companies defined in section 2 of Income Tax Ordinance, 2001 are subject to be taxed at 29 per cent on taxable income

    It recommended that the rate of income tax on companies should be gradually reduced to 20 per cent to align with the taxation rate of other countries in the region.

    READ MORE: PBC suggests reducing further tax to stop flying invoices

    Listed companies should be given the first benefit of the lower taxation rates as compared to other companies to further encourage transparency and documentation.

    The PBC said that through section 113C of Income Tax Ordinance, 2001 Alternate Corporate Tax (ACT) was imposed on companies at the rate of 17 per cent on accounting profits.

    READ MORE: Commercial importers misusing tax registration

    It recommended that Section 113C should be abolished as there is already minimum tax on goods and services

    The council further said that currently under Section 154(3B) of the Ordinance, every direct exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub -Chapter 7 of Chapter XII of the Customs Rules, 2001 shall, at the time of making payment for a firm contract to an indirect exporter shall deduct tax at 1 per cent of the payment made.

    READ MORE: FBR urged to massively reduce tax rates for return filers

    “This 1 per cent tax deduction shall be considered as final tax on the income of the indirect exporter. This clause should be extended to all exporters under various schemes like EFS, EOU etc. to remove differential treatment under various export schemes,” it recommended.

    The Commissioner has been empowered to modify the withholding tax recovery order, companies would thus be required to maintain records and details for an indefinite period of time. Failure to provide such records could be used as a tool by the tax authorities to create undue tax demands in order to achieve their revenue targets.

    READ MORE: FBR urged to make Google pin location must for retailers

    Sub-section (3) of Section 161 should be omitted for avoiding record retention for unlimited period. The limitation of time be provided under the law for initiating and concluding the monitoring of withholding tax proceedings, like those for non-monitoring proceedings which is also important for harmonization.

    Section 15A(1)(h) of Income Tax Ordinance 2001. As per Finance Act 2020, deductibility of administrative collection charges has been restricted to 4 per cent of revenue as compared to 6 per cent previously.

    Renting of property is also a business and various administrative and collection charges are incurred which normally exceed even the 6 per cent threshold.

    The allowable threshold should be allowed on actual basis as is the case in other sources of income or at the very least be restored to 6 per cent of gross rental revenue

  • Tax cut suggested on dividend paid by exempt entities

    Tax cut suggested on dividend paid by exempt entities

    KARACHI: Federal Board of Revenue (FBR) has been urged to reduce rate of income tax on dividend from exempt entities as the higher rate of dividend effectively withdraws the benefit of exemption.

    Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to the FBR, urged to reduce the dividend tax to 15 per cent on dividend received from exempt entities.

    READ MORE: PBC suggests reducing further tax to stop flying invoices

    It said that tax of 25 per cent on dividends from exempt entities introduced via Finance Act 2019 (Division III of Part I of First Schedule) of the Income Tax Ordinance, 2001.

    Through Finance Act 2019, rates of dividend taxation have been increased from 15 per cent to 25 per cent on dividends paid by entities whose income is exempt under the Income Tax Ordinance 2001.

    READ MORE: Commercial importers misusing tax registration

    The higher rate of dividend in such cases effectively withdraws the benefit of exemption or concession intended to be provided e.g., if Government intends to provide concession to SEZ than while providing corporate tax exemption at one end, higher tax incidence on its dividend reduces the benefit at other end.

    Exemptions are associated with some economic objective and higher dividend rate will discourage such economic objectives, the PBC said.

    READ MORE: FBR urged to massively reduce tax rates for return filers

    It recommended that Clause (a) of Division III of Part I of First Schedule of Income Tax Ordinance, 2001 as applicable before Finance Act 2019, should be reinstated, to apply the rate of 15 per cent on dividend received from exempt entities.

    Similarly, amendment be made for the withholding tax rates specified in clause (a) of Division I of Part III of the First Schedule, by reinstating the position prior to Finance Act 2019.

    READ MORE: FBR urged to make Google pin location must for retailers

    Earlier, the PBC recommended to reduce the further sales tax to one per cent in order to discourage flying invoices. The PBC said that at present, general rate of sales tax is 17 per cent and another 3 per cent further tax is also applicable incase supplies are made to unregistered persons.

    The council said that further tax at 3 per cent incentivizes issuance of flying invoices by unscrupulous persons. In order to discourage issuance of flying invoices and to encourage proper reporting of sales, rate of further tax should be reduced down to 1 per cent or to maximum 1.5 per cent.

    The PBC made this recommendation to document the economy and providing a level playing field for the formal sector.

    READ MORE: FBR’s database mining suggested for new taxpayers

  • PBC suggests reducing further tax to stop flying invoices

    PBC suggests reducing further tax to stop flying invoices

    KARACHI: Pakistan Business Council (PBC) has recommended to reduce the further sales tax to one per cent in order to discourage flying invoices.

    The PBC in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) recommended reduction in further tax to address the issue of flying invoices.

    READ MORE: Commercial importers misusing tax registration

    The PBC said that at present, general rate of sales tax is 17 per cent and another 3 per cent further tax is also applicable incase supplies are made to unregistered persons.

    The council said that further tax at 3 per cent incentivizes issuance of flying invoices by unscrupulous persons. In order to discourage issuance of flying invoices and to encourage proper reporting of sales, rate of further tax should be reduced down to 1 per cent or to maximum 1.5 per cent.

    READ MORE: FBR urged to massively reduce tax rates for return filers

    The PBC made this recommendation to document the economy and providing a level playing field for the formal sector.

    Earlier, the PBC suggested measures for preventing misuse of POS by importers who use fake registration profile of retailer.

    In order to avail / misuse reduced rate of sales tax at 12 per cent on supplies of textile (which is available on supply of finished textile article through integrated POS system for retail outlets), some unscrupulous persons, after importing raw materials get tolling bills issued in their name from other manufacturers.

    READ MORE: FBR urged to make Google pin location must for retailers

    Thereafter, such imported raw material is being sold as finished textile article through POS integrated with FBR system to avail reduced sales tax rate of 12 per cent.

    FBR, view notification dated January 4, 2022 has already clarified that bulk supply through POS is tantamount to be treated as wholesale and hence would be chargeable to standard rate of 17 per cent sales tax.

    READ MORE: FBR’s database mining suggested for new taxpayers

    To prevent this unscrupulous practice, the following should be made mandatory for entities whose imports are over 70 per cent of their output and who have a POS facility:

    a) Should declare the number of their retail shops and

    b) Provide the square ft. retail space, detailed address, and Google pin location of all the retail stores

    c) Report per shop per month sales volume and invoices along with the monthly sales tax return.

  • FBR urged to make Google pin location must for retailers

    FBR urged to make Google pin location must for retailers

    KARACHI: The Federal Board of Revenue (FBR) has been urged to make Google pin location mandatory for Tier-1 retailers to stop misusing sales tax registration for point of sales (POS).

    Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to the FBR proposed to make Google pin location for Tier-1 retailers.

    READ MORE: Commercial importers misusing tax registration

    The PBC suggested measures for preventing misuse of POS by importers who use fake registration profile of retailer.

    In order to avail / misuse reduced rate of sales tax at 12 per cent on supplies of textile (which is available on supply of finished textile article through integrated POS system for retail outlets), some unscrupulous persons, after importing raw materials get tolling bills issued in their name from other manufacturers.

    Thereafter, such imported raw material is being sold as finished textile article through POS integrated with FBR system to avail reduced sales tax rate of 12 per cent.

    READ MORE: FBR urged to massively reduce tax rates for return filers

    FBR, view notification dated January 4, 2022 has already clarified that bulk supply through POS is tantamount to be treated as wholesale and hence would be chargeable to standard rate of 17 per cent sales tax.

    To prevent this unscrupulous practice, the following should be made mandatory for entities whose imports are over 70 per cent of their output and who have a POS facility:

    a) Should declare the number of their retail shops and

    b) Provide the square ft. retail space, detailed address, and Google pin location of all the retail stores

    c) Report per shop per month sales volume and invoices along with the monthly sales tax return.

    READ MORE: Commercial importers’ under invoicing destroying industry

    Earlier, the PBC also highlighted practice of commercial importers misusing tax registration to avail lower rates.

    Considering the fact that most of the commercial importers have been misusing the lower rate of tax otherwise available to manufacturers, therefore, FBR has reduced down the rate of tax at import stage to 1 per cent/2 per cent/5.5 per cent [on the basis of HS codes] for manufacturers as well as commercial importers.

    READ MORE: FBR’s database mining suggested for new taxpayers

    However, instead of making rate of tax at par for both commercial importers and manufacturers, PBC recommends to place system-based controls to track those commercial importers involved in under invoicing and importing under the garb of registration as manufacturers.

  • Commercial importers misusing tax registration

    Commercial importers misusing tax registration

    KARACHI: The Pakistan Business Council (PBC) has alleged that commercial importers are misusing registration as manufacturers to avail reduced tax rates on imports.

    (more…)
  • FBR urged to massively reduce tax rates for return filers

    FBR urged to massively reduce tax rates for return filers

    KARACHI: The Federal Board of Revenue (FBR) has been urged to massively reduce the withholding tax rates for annual filers of income tax returns in order to ease burden on compliant taxpayers.

    Pakistan Business Council (PBC) in its proposals for budget 2022/2022 submitted to the FBR, recommended reduction in withholding tax rates for return filers.

    READ MORE: Commercial importers’ under invoicing destroying industry

    It said difference in withholding tax rate between filers and non-filers is nominal. Discrimination in tax treatment of filers and non-filers is commendable.

    “However, this has now become a revenue measure with no effort to use the data collected to increase documentation and broaden the tax base,” the PBC said.

    READ MORE: FBR’s database mining suggested for new taxpayers

    It recommended that the withholding tax regime should be simplified by reducing the number of withholding provisions.

    The current withholding tax guide available on FBR website is a 48-page document as of 2021, which clearly shows the complexity of the regime from compliance and ease of doing business aspects.

    READ MORE: PBC recommends restriction on cash above certain limit

    “There needs to be a significant distinction in the withholding income tax rates charged from non-filers as compared with the rates for filers. The rates of filers need to be reduced so that not only the burden of complaint taxpayers is reduced, but also the cost of doing business for non-complaint persons is increased.”

    Earlier, the PBC urged the tax authorities to monitoring under invoicing and mis-declaration by commercial importers as those are destroying local industry.

    READ MORE: FBR proposed to exempt withholding tax on telecom services

    It further said that information regarding values at which various custom check posts clear import consignments is not publicly available. This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues.

    “Values at which import shipments are cleared through PRAL or CARE need to be publicly available,” the PBC recommended.

  • Commercial importers’ under invoicing destroying industry

    Commercial importers’ under invoicing destroying industry

    KARACHI: Pakistan Business Council (PBC) has said massive under-invoicing especially by commercial importers is destroying domestic industry across the board.

    (more…)
  • FBR’s database mining suggested for new taxpayers

    FBR’s database mining suggested for new taxpayers

    KARACHI: Federal Board of Revenue (FBR) has been suggested for mining its database in order to identifying new taxpayers and ease burden on the existing taxpayers.

    The Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to the FBR, said that the country had low taxpayer base which resulted in reliance on the existing taxpayers.

    READ MORE: PBC recommends restriction on cash above certain limit

    “The number of taxpayers needs to be significantly increased – the narrow taxpayer base is leading to greater pressure on the existing taxpayers.”

    There is need to document the economy and provide level playing field to the formal sector.

    READ MORE: FBR proposed to exempt withholding tax on telecom services

    The PBC suggested mining of FBR’s database to identify new taxpayers and those not fully discharging their liabilities.

    The FBR has got access to financial data in various forms including the monthly statements submitted by withholding tax / collecting agents as per various sections. Information as per Statement under sections 165A, 165B, 175A of Income Tax Ordinance, 2001 and NADRA, FIA, Bureau of Immigration and Overseas Employment records are also available.

    READ MORE: Zero rate tax demanded for pharmaceutical API imports

    “This can be a start to bringing new taxpayers in the net. In addition, the FBR has also collected data about tax paid by non-filers on vehicles, immovable property and on gains made in the Stock Market,” it added.

    Earlier, the PBC also recommended restriction on use of cash above certain limit. “Restrictions on use of cash above a certain limit would also assist,” the PBC said.

    READ MORE: OICCI recommends tax amendment for FMCG