Tag: budget proposals

KARACHI: Federal Board of Revenue (FBR) has been suggested to double threshold for collection of withholding tax on consumption of electricity by domestic users.

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KARACHI: Karachi Tax Bar Association (KTBA) has highlighted that genuine Non-Profit Organizations (NPOs) are unable to gent benefit of 100 per cent ax credit.

In its proposals for budget 2022/2023, the tax bar informed the Federal Board of Revenue (FBR) that through Finance Act 2017 an additional condition was inserted to avail the benefit of 100 per cent tax credit.

READ MORE: Changes sought in withholding on non-resident payment

Also, provision for taxation of surplus funds has also been introduced. The condition debarred the NPO could be from having admin and management expenses of more than 15 per cent of its total receipts.

The legitimately collected funds properly invested in specified securities are subjected to tax.

“These harsh provisions was introduced in the wake of the trust gap between the FBR and the NPO’s whereby certain cases found susceptible of the genuineness or negligent toward compliances,” the tax bar said, adding that the condition was imposed across the board on all NPOs regardless of the fact that nature of some of the NPOs activities is such that it is impossible for them to restrict these expenses under the threshold of 15 per cent.

READ MORE: FBR urged to allow all tax adjustment in salary income

This has resulted in many genuine NPOs being unable to claim the benefit of 100 per cent tax credit.

It is recommended that NPO’s should be categorized according to their nature objectives and purposes and not one single standardized rule should be made applicable. The said condition be deleted or a clarification should be issued whereby certain nature of NPO’s are excluded from this condition.

Alternatively, the provision for taxation of surplus funds should not be applicable in case those funds are invested in Federal Government securities.

This will ensure that genuine NPOs are not punished for the compliances under which they have no control.

READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023

The tax bar further informed the FBR that the Rule 214 of the Income Tax Rules, 2002 spells that approval of the Commissioner shall be valid for three years unless withdrawn.

Despite this position as per the Rules, the Commissioner in general issue certificates valid for only one year or even half year.

A clarification is proposed U/s. 2(36) of the Ordinance that approval of Commissioner shall be deemed in conformity with the Rule 214 of the Rules. To bring consistency between the law and the procedures in place.

Entitles not registered as Trust, Society or company. A condition has been imposed a requirement for NPOs to be formed and registered by or under any law as a non-profit organization.

READ MORE: CGT exemption on private company shares suggested

This has caused hardship to the entities that are not registered as Trust, Society or Section 42 company who yet completely fall within the four corners of Non- Profit

The law should be appropriately amended to exclude this requirement. Following amended words are suggested: “formed or registered by or under any law for the time being enforce”

It is a cardinal principal that income tax law is self-regulated law. Its applicability should not be linked with any other statutory status.

KARACHI: Karachi Tax bar Association (KTBA) has sought amendment to withholding on payments to non-resident persons under Section 152(5A) of Income Tax Ordinance, 2001.

The tax bar in its proposals for budget 2022/2023 informed the Federal Board of Revenue (FBR) that in case of payment to non-resident where the payment is not likely to be chargeable to tax, the payer is required to file an intimation to the Commissioner and the Commissioner is required to make an order within 30 days.

READ MORE: FBR urged to allow all tax adjustment in salary income

The period of 30 is on higher side and in certain cases, the non-resident recipient cannot be kept to wait for this long and gets practically in possible. Further, there is no mention in the law that if a Commissioner does not pass an order within 30 days, what should be the outcome.

READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023

The KTBA suggested that the period of 30 days be curtailed to 15 days. Further, a proviso should be inserted that if the taxpayer is not served with an order within 15 days, the notice shall be taken as grant of exemption from withholding tax.

Furthermore, in case of multiple payments of the same nature a formal agreement / approval by the Commissioner for should be treated as enough for all other similar payments.

READ MORE: CGT exemption on private company shares suggested

The desired amendment will save the Commissionerate of the unnecessary administrative hassle, the tax bar added.

It further highlighted payment of Dividend to non-resident persons under Section 152 of the Income Tax Ordinance, 2001.

Section 152 broadly covers withholding tax incidences in the case of non-resident persons. The dividend is excluded from this purview. Bringing withholding tax regime at equity; and entitling non-residents to avail treaty benefits.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

The tax bar proposed that this section should include dividend paid to non-resident which are currently covered under section 150. Dividend to non-residents currently falls in section 150. Though the Board has clarified that DTT rates should apply however amendment in law is required. If fall U/s. 150, reduced treaty rates u/s 152(5) would be applicable for withholding agents for remitting dividend.

KARACHI: The Federal Board of Revenue (FBR) has been urged to allow complete tax adjustment at the time of deduction by employee on the time paid as salary under Section 149 of the Income Tax Ordinance, 2001.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 informed the FBR as per section 149, every person paying salary to employee shall deduct tax from the amount paid at specified rate after making tax adjustment of tax credit U/s. 61, 62, 63 and 64 and other adjustments.

READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023

Complete tax credits though legally available are not adjusted in payroll, the tax bar said.

“This section should include all tax credit under Part X Chapter III as are admissible against salary income,” it suggested.

The current scheme has apparently missed tax credit U/s. 62A. The proposed amendment would cater all the current credits and those to be introduced from time to time.

READ MORE: CGT exemption on private company shares suggested

The tax bar also suggested amendment related to Employer contribution to Provident Fund under Section 12 of the Income Tax Ordinance, 2001.

Under Clause (3), Part I, Sixth Schedule, the employer’s contribution in the recognized provident fund in excess of Rs.150,000 (increased from Rs.100,000 by Finance Act, 2016) is deemed to be income of the employee.

This provision is invalid as the accumulated balance (it includes employer’s contribution) due and becoming payable to an employee participating in a recognized provident fund is totally exempt from tax under Clause (23), Part I, Second Schedule.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

Without prejudice to foregoing, since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution.

Clause (3) Part 1, Sixth Schedule be amended to exempt employer contribution to bring it at par with clause (23) Part 1, Second Schedule.

READ MORE: FBR urged to issue rules for WHT on digital transactions

Alternatively, the threshold be based as Rs 150,000 or 1/10th of the salary whichever is higher.

Since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution, the tax bar said.

KARACHI: The Federal Board of Revenue (FBR) has been urged to grant capital gain tax (CGT) exemption on disposal of shares of private companies after 10 years.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 suggested amendment in Section 37 of the Income Tax Ordinance, 2001 regarding gain on sale of shares of private companies.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

The tax bar said as per section 37 of the Ordinance, gain on sale of shares of private companies’ shares is taxed at corporate tax rate. This gain is reduced by 25 per cent in case the holding period is more than one year.

In case of gain on disposal of immovable property, the gain is exempt in case the holding period is more than 4 years. In case of capital gain on securities U/s. 37A, the gain is exempt on securities acquired before 1 July 2012.

READ MORE: FBR urged to issue rules for WHT on digital transactions

“Hence, investment in shares of Private companies stands at comparative disadvantage,” the KTBA said.

It is proposed that the gain on sale of private company shares should also be allowed exemption in case if the holding period is 10 years or more. In order to encourage and benefit corporatization of business.

The tax bar also recommended amended to Section 2(19)(d) of the Income Tax Ordinance, 2001 regarding buy back of shares.

READ MORE: New import income tax regime should be abolished

As per definition of dividend the distribution made by a company to its shareholders on reduction of capital shall be deemed dividend. This situation is generally referred to as Buy-back of shares.

On the other hand, under Rule 13P of the Income Tax Rules, 2002, the shares buy-back transaction is treated as Capital Gains. Thus, there exists a contradiction among the provisions of Ordinance and Rules.

Contradictory provisions in law that needs to be corrected, the tax bar said, adding that in principal, buy back of shares cannot be equated as alienation of shares and should not be covered U/s. 37A of the Ordinance.

READ MORE: Adjustable advance tax proposed for corporate services

Necessary clarification should be issued and Rule 13P be amended to align within the law in order to align the various provisions of law.

The tax also proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.

The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.

READ MORE: FBR proposed to restore group taxation in original form

The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”

KARACHI: Karachi Tax Bar Association (KTBA) has proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.

The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.

READ MORE: FBR urged to issue rules for WHT on digital transactions

The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”

READ MORE: New import income tax regime should be abolished

It proposed that a new head of income in Section 11 of Income Tax Ordinance 2001 should be added as income from disposal and trading of real estate containing progressive taxation, without allowing any exemption as to holding period and quantum of gain:

Where holding period is two years the rate of tax on gain should be 20 per cent

Where holding period is five years the rate of tax on gain should be 17.50 per cent

READ MORE: Adjustable advance tax proposed for corporate services

Where holding period is ten years the rate of tax on gain should be 15 per cent

Where holding period is more than ten years the tax on gain should be 10 per cent

The tax bar further proposed a separate definition of income from disposal and trading of real estate.

READ MORE: FBR proposed to restore group taxation in original form

Other regulatory amendments recommended by the tax bar are included: Restriction of individual holding of real estate properties [save Single member company]- Transfer of Properties Act 1882 to be amended; A separate ‘Real Estate Regulatory Authority’ is suggested; Aside Director General Commissioner be empowered to seek report from valuer on any transaction of Real Estate Trading

Giving rationale to the proposal, the KTBA said this will strengthen the taxation system and will able to collect tax from elite class.

KARACHI: The Federal Board of Revenue (FBR) has been urged to notify procedures and rules in the forthcoming budget 2022/2023 for deducting withholding tax (WHT) on digital transactions.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 proposed the FBR to make rules regarding digitalization of economy.

READ MORE: New import income tax regime should be abolished

The tax bar said that on the eve of digitalization of economy, novel transaction/ settlement forums are emerging. These include, online marketplace, digital payment etc.

Due to lack of specific guidelines and procedures, the taxpayers are facing difficulty in applying withholding tax provisions while making payments for buying goods where the transaction involve, seller, online portal, banker etc. simultaneously.

READ MORE: Adjustable advance tax proposed for corporate services

“The FBR should issue special procedures and rules to prescribe mode and manner of withholding of tax in case of purchase of goods or services by prescribed persons,” the tax bar recommended. Giving rationale, it said the amendment would provide clarity in law would preclude unnecessary tax disputes.

Earlier, the tax bar recommended that twelfth schedule should be abolished, and all imports should be categorized as industrial undertakings or in other respective categories as it stood prior to amendment vide Finance Act 2020.

READ MORE: FBR proposed to restore group taxation in original form

It is further recommended that exemption procedure under clause 72B Part IV 2nd Schedule that was revoked should be restored. Rate of tax should be reduced from 5.5 per cent to 1 per cent for all Industrial Undertakings to be adjustable tax.

Separate scheme should be introduced for service sector allowing collection of tax at import stage to be adjustable tax i.e. enabling exemption from this collection of tax.

Addressing the unnecessary hassle particularly for industrial undertaking.

Reinstatement of exemption to curtail staggering refund and bring recipe for taxpayers. To address the issue faced by the service sector.

READ MORE: Taxpayers should not be penalized for dealers’ fault

KARACHI: The tax authorities have been urged to abolish the advance income tax regime at import stage and reinstate the previous regime through budget 2022/2023.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023, recommended the Federal Board of Revenue (FBR) to amend advance tax at import stage under Section 148 of the Income Tax Ordinance, 2001.

READ MORE: Adjustable advance tax proposed for corporate services

The tax bar said the scheme of tax to be collected at import stage has been revamped in Finance Act 2020 as follows: All imports have been categorized as Part I, Part II and Part III of the Twelfth Schedule chargeable at the rate of 1 per cent, 2 per cent and 5.5 per cent, respectively; the advance tax collected under section 148 of Income Tax Ordinance, 2001 is treated as minimum tax except in case of Industrial undertaking for their own use and falling in Part I, and II of Twelfth Schedule.

In case of goods classified under Part III of the Twelfth Schedule which are used both as raw material and finished goods, the Board may by notification in the official Gazette, specify that goods imported by a person or class of persons as raw material for its own use shall be treated as classified under Part II of the Twelfth Schedule, subject to such conditions and procedure as may be prescribed.

READ MORE: FBR proposed to restore group taxation in original form

Besides, exemption procedure under clause 72B Part IV 2nd schedule revoked.

Onerous requirement for Industrial undertakings felt under Part III for e.g. Automobile sector engaged in Assembly/ Manufacturing and falling within mischief of Part III.

The regime resulted in staggering of refunds particularly if taxpayer has discharged his tax liability for obtaining exemption U/s. 153 of the Ordinance and Increased cost of doing business for service sectors.

READ MORE: Taxpayers should not be penalized for dealers’ fault

The KTBA recommended that twelfth schedule should be abolished, and all imports should be categorized as industrial undertakings or in other respective categories as it stood prior to amendment vide Finance Act 2020.

It is further recommended that exemption procedure under clause 72B Part IV 2nd Schedule that was revoked should be restored. Rate of tax should be reduced from 5.5 per cent to 1 per cent for all Industrial Undertakings to be adjustable tax.

READ MORE: FBR urged to restore first year allowance

Separate scheme should be introduced for service sector allowing collection of tax at import stage to be adjustable tax i.e. enabling exemption from this collection of tax.

Addressing the unnecessary hassle particularly for industrial undertaking.

Reinstatement of exemption to curtail staggering refund and bring recipe for taxpayers. To address the issue faced by the service sector.

KARACHI: The tax authorities should introduce adjustable advance income tax for entire corporate service sector in the forthcoming budget 2022/2023.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) highlighted minimum tax on corporate service providers under Section 153(1)(b) of the Income Tax Ordinance, 2001.

It said that after the amendments made by the Finance Act, 2015, the tax withholding at source is a minimum tax for Corporate Service providers.

READ MORE: FBR proposed to restore group taxation in original form

Withholding of 8 per cent of income tax and that too inclusive of the amount of service tax of 13 per cent, automatically implies a fictional profit of over 30 per cent which is completely irrational and devoid of any sound logic. “This has resulted in unreasonable tax liabilities for a number of service providers. The exception provided to fourteen (14) service sectors under Clause (94) is again a blatant discrimination with other service sectors,” the tax bar said.

Therefore, the KTBA proposed that the position prior to Finance Act, 2015 is re-enacted and the tax withheld at source is considered as adjustable advance tax invariably for whole of the corporate service sector entities. Consequent to above, concept of reduced rates for prescribed sectors which has created further litigation would become redundant.

READ MORE: Taxpayers should not be penalized for dealers’ fault

“This will not only lower the cost of business for service sector entities but will also bring the desired level of growth in Corporate Service Sector. It will also encourage the unregulated service providers to incorporate companies for the purpose, thereby coming under the umbrella of regulated sector,” it added.

The tax bar also highlighted companies whose accounts are prepared on accrual basis are being subjected to tax twice on a single transaction and are unable to claim refund because both the tax are minimum tax.

It said that companies whose income falls under normal tax regime with a caveat of minimum tax are required to prepare return and pay tax on accrual basis of accounting whereas tax deduction is made on their revenue on receipt basis.

READ MORE: FBR urged to restore first year allowance

In Year 1, the company receives advance against revenue and no revenue is recorded in its accounts. Income tax would be deducted on advance received against revenue, which will be treated as minimum tax whereas since there is no revenue in its financial statement, there would be no corporate tax payable. Hence, minimum tax deducted would be the tax liability of the company.

In year 2, revenue would be booked in the financial statement of the advance received last year and the company would be required to pay corporate tax in year 2 on the same transaction in which the company has already paid income tax in year 1.

The KTBA proposes the following amendment:

“Provided where the minimum tax exceeds the tax due under normal tax regime, the excess shall be eligible for carry forward for set off in the following three succeeding tax years.”

READ MORE: Abolishing minimum tax suggested for listed companies

Provided further that such deduction shall be minimum tax in respect of amount subjected to witholding of tax in the tax year in which the related revenue is recognized. With the proposed amendment, this anomaly will be addressed. Else, an amendment to be made under the Ordinance for companies being taxed under normal tax regime with minimum.

These amendments will resolve the anomaly explained in the implication column and the company would not be jeopardize by subjecting it to tax twice on the same income.