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Tag: budget proposals

  • Measures proposed to curb under invoicing by commercial importers

    Measures proposed to curb under invoicing by commercial importers

    KARACHI: Pakistan Business Council (PBC) has recommended the authorities to take additional measures to stop massive under invoicing by commercial importers.

    In its proposals for the budget 2021/2022, the PBC said that across the board massive under invoicing and dumping of imported products has been increasing.

    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.

    There are massive leakages in the Afghan Transit Trade (ATT) and smuggled goods are being openly sold in all major shopping centers of the country.

    Customs however is not willing to act against smuggled products citing lack of cooperation from local authorities.

    The PBC recommended the following:

    a) Values at which import shipments are cleared through PRAL or CARE need to be publicly available.

    b) The Government of Pakistan must insist of Electronic Data Interchange (EDI), for both FTA and non-FTA imports from China. In future the requirement of EDI should be made compulsory for imports from FTA / PTA partner countries.

    c) Depending on industry, the Import Trade Price (ITP) be fixed e.g. on the basis of country of origin, weight, volume etc. after discussion with stakeholders. ITP’s may be fixed for most items prone to mis-declaration such as consumer goods and margins of commercial importers be monitored to assess the value of subsequent supply of imported goods. A certificate to this effect should be issued by auditors of commercial importers.

    d) For items, prone to under invoicing and mis-declaration, FBR should designate one or two ports (including the dry ports) for clearing of import consignments. This will allow better monitoring of the import consignments where chances of mis-declaration are on a higher side.

    e) Additionally, the old Customs General Order 25 needs to be revived with a provision that local manufacturers be given the option to buy at a 15% premium, any consignment which appears undervalued.

    f) Taxes and duties deposited by local manufacturers and commercial importers should be published.

    g) The rate of tax collected from commercial importers be increased by at least by 2%. Presently, tax collected from commercial importers is treated as Final Tax.

    In order to avoid burdening of genuine commercial importers, we would recommend that the income tax collected at import stage be treated as an advance tax.

    h) In order to allow commercial importers to claim adjustment of taxes deducted at import stage, commercial importers should be asked to present certificate from auditors that at least 70% of imported items have been exported or sold to registered manufacturers. This will also help increase the overall tax base.

    i) Monthly sales declared by commercial importers should be matched with sales declared in annual income tax return as well as the credit entries in all business bank accounts. In case of any discrepancy, a reconciliation with justifiable reasons should be submitted by the commercial importers

    j) Online CREST system must be amended in a way to trace sales along with value addition thereon of person to whom supplies were made by Commercial importers.

  • Massive rise in withholding tax rates proposed for non-filers

    Massive rise in withholding tax rates proposed for non-filers

    KARACHI: The concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy. However, no efforts were made to increase the tax base.

    Pakistan Business Council (PBC) in its proposals for budget 2021/2022 submitted to the Federal Board of Revenue (FBR), said that 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.”

    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:

    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 5 percent to 20 percent

    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. 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 @ 30 percent (from existing 12 percent) on their utility bills. Those with NTN but non-filer status be charged at 20 percent WHT.

    f) Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs.1.2 million per year or levy advance income tax withholding of 20 percent.

    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.

    h) Withholding tax on International business class tickets under section 236L is same Rs. 16,000 for filer and non-filer, it should be increased to Rs. 50,000 for non-filers.

    i) Withholding tax @ 5 percent or Rs. 20,000, whichever is higher, is applicable under section 236D on all functions organized by filers as well as non-filers. Rate of withholding be increased for non-filers to Rs. 100,000 as minimum and no WHT from filer

    j) Function halls withholding tax on electric bills should be 30 percent which can be adjusted against tax liability by providing proof of tax deducted from their customers.

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

    l) Annual private motor vehicle tax u/s 234 for non-filers is Rs. 9,000 for 1600cc-1999cc and Rs. 20,000 for 2000 cc and above. Rate for non-filers should be increased to Rs. 50,000 for 1600cc-1999cc and Rs. 200,000 for 2000 cc and above

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

    n) 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:

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

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

  • Cut in tobacco tax under consideration

    Cut in tobacco tax under consideration

    KARACHI: The government is considering to reduce the federal excise duty on cigarettes in order to discourage duty evasion and stop smuggling.

    Sources said that proposals had been invited from stakeholders to rationalize the duty structure on tobacco industry.

    The sources said that the authorities were considering to reduce the FED rate by 10 percent in the upcoming budget 2021/2022.

    They said that a strong lobby was behind pressure for reduction in the rate for tobacco industry. It is learnt that the duty rate was proposed to cut because of large volume of smuggled cigarettes available in the market.

    Interestingly, the health ministry had proposed to increase the levy in order to discourage the use of cigarettes.

    The sources said that after the proposed reduction on the tobacco industry, the country would become having the lowest amount of taxes on the cigarettes use.

    For the last two years the government was raising the duty rate on the tobacco industry. However, the stakeholders were demanding to reduce the rate in order to stop the smuggling.

    The sources said that total revenue collection from tobacco industry was around Rs130 billion. Meanwhile, the tobacco industry assured that with the proposed reduction in duty the revenue would ultimately increase.

    To some estimates, the country was losing around Rs77 billion due to smuggled cigarettes.

  • Rs5000 banknote proposed to withdraw from circulation

    Rs5000 banknote proposed to withdraw from circulation

    KARACHI: A former chairman of Federal Board of Revenue (FBR) has recommended the government to stop the circulation of Rs5000 banknote and phase out in circulation the banknote within one year.

    Syed Shabbar Zaidi, former FBR chairman, submitted his proposals for budget 2021/2022 to Prime Minister Imran Khan.

    “There has to be gradual evaporation of Rs5000 banknote. A time limit be prescribed up to which Rs5000 note will be valid say June 30, 2022 and in the meantime the same can be exchange with bank. This is completely different from Indian Scheme.”

    Shabbar Zaidi served the FBR as chairman during May 10, 2019 to January 06, 2020. Being a FBR chairman from private sector, he had taken major decisions during his stay despite bureaucratic hurdles.

    The suggestion to stop Rs5000 banknote from legal tender has importance because Prime Minister Imran Khan had on many occasion lauded Shabbar Zaidi.

    The proposal for withdrawal of Rs5000 banknote was not new as it had been submitted time to time for stopping corruption and black economy.

    Sources said that the office of the prime minister had forwarded the proposals of Shabbar Zaidi to the finance ministry for further consideration to make part of final proposals for budget 2021/2022.

  • FBR urged to allow CGT exemption to private companies

    FBR urged to allow CGT exemption to private companies

    KARACHI: Tax practitioners have demanded the Federal Board of Revenue (FBR) to allow capital gain tax (CGT) exemption to private companies in order to encourage corporatization in the country.

    The Karachi Tax Bar Association (KTBA) in its proposals for budget 2021/2022, pointed out that as per section 37, gain on sale of shares of private companies shares is taxed at corporate tax rate.

    “This gain is reduced by 25 percent in case the holding period is more than one year,” the tax bar said.

    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 under section 37A, the gain is exempt on securities acquired before 1 July 2012.

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

    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.

    The proposal has been submitted in order to encourage and benefit corporatization of business.

    The tax bar also highlighted that 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 KTBA suggested. It is proposed that following exclusion after clause (f) in subsection (19) of section 2 be inserted:

    “Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 88 of the Companies Act, 2017 (XIX of 2017)”.

  • Tax on property income should be made final

    Tax on property income should be made final

    KARACHI: The Federal Board of Revenue (FBR) has been urged to rationalize rental income from property and individuals or Association of Persons (AOPs) should be taxes as full and final discharge of tax liability.

    Karachi Tax Bar Association (KTBA) in its proposals for budget 2021/2022 said that the rental income from property, AOP or individual and company (taxable as separate block of income) should be taxed at a uniform rate of 15 percent of the gross rent as full and final discharge of tax liability.

    The tax bar said that at present for every person except companies the income from property is chargeable to tax at the rate specified in Division (VIA) of Part-I of the First Schedule, which is considered to be their final tax liability and they are not allowed any expenditure against gross rent, except option provided under sub-section (7) of section 15A of the Income Tax Ordinance, 2001.

    The companies are required to pay normal tax (current at 29 percent) on such income after adjustment of admissible expenditure out of gross rent.

    The tax rate on rental income has been gradually increased from 20 percent to 35 percent for individuals and AOPs vide the Finance Act, 2019.

    Apart from that the lessor is also required to pay Sindh Sales Tax at 3 percent to SRB. It makes the total tax impact very unfair and exorbitant.

    The current taxation framework makes the total tax impact on property income very unfair and exorbitant.

    The KTBA further suggested that rental income taxable under normal tax regime should be allowed to be adjusted against business loss. The restriction imposed through Finance Act, 2013 needs to be reconsidered.

    The impact of taxes (direct and indirect) on rental income will be rationalized. Investors will be encouraged to declare their genuine rental income.

  • KTBA presents tax proposals for salary income

    KTBA presents tax proposals for salary income

    KARACHI: The Karachi Tax Bar Association (KTBA) has presented income tax proposals for salary income for incorporating in the Finance Bill 2021.

    In its proposals for budget 2021/2022, the tax bar highlighted the issue related to taxation of notional income.

    It said that the difference between the benchmark rate and the actual rate of interest is charged where actual rate of interest is charged at less than the benchmark rate by the employers on concessionary loans provided to the employees or otherwise it is treated as perquisite chargeable to tax

    The tax bar said the taxation of this notional income is highly unjust since it taxes the notional income of the salaried person, which is against the basic principle of taxation since this notional income will never ever be received by the taxpayer.

    The KTBA proposed that the taxation of marginal income on loans obtained from the employer below benchmark rate should be exempted for lower threshold amounts. The minimum threshold of the loan amount on which the provisions of Section 13(7) of Income Tax Ordinance, 2001 may not apply should be raised to at least Rs.2,500,000/- from the existing limit of Rs.1,000,000/-.

    It is further suggested that benchmark rate currently fixed at ten percent be based on Kibor rate.

    Giving rationale to the proposal, the KTBA said that the change would result in facilitation and easement of salaried taxpayers.

    The tax bar highlighted the issue of withholding tax on salary income.

    It said as per section 149 of the Income Tax Ordinance, 2001, 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 of the Ordinance and other adjustments.

    Complete tax credits though legally available are not adjusted in payroll run.

    The KTBA proposed that this section should include all tax credit under Part X Chapter III as are admissible against salary income.

    Giving rationale to the proposal, the KTBA said that the current scheme has apparently missed tax credit under section 62A of the Income Tax Ordinance, 2001. The proposed amendment would cater all the current credits and those to be introduced from time to time.

    The KTBA also highlighted the issue of employer contribution to Provident Fund.

    It said Under Clause (3), Part I, Sixth Schedule of the Ordinance, 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.

    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.

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

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

    Giving rationale to the proposal, the KTBA said that 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.

    To another proposal, the KTBA said that as per clause (13)(iv) of part – I, there is existing limit of Rs.75,000/-.

    Gratuity exemption not indexed for inflation, it added.

    It should be increased to Rs.300,000/-, the KTBA proposed.

    Considering the inflationary effect since the current limit as set at the promulgation of Ordinance has remained unchanged.

    Similarly, the KTBA highlighted that as per clause (23A), withdrawal of 50 percent of balance is exempted subject to fulfillment of conditions.

    It said that it was an inadequate exemption.

    It is proposed to increase the exemption to the extent of withdrawal of actual amount invested in the pension fund and additional amount to be taxed at the rate of tax applicable on salaries.

    To exempt the portion of investment made in pension funds.

  • PSX recommends reduction in withholding tax on margin financing transactions

    PSX recommends reduction in withholding tax on margin financing transactions

    KARACHI: Pakistan Stock Exchange (PSX) has recommended to reduce the rate of withholding tax on the gross income earned on margin financing (MF) transactions from 10 percent to 2.5 percent.

    The PSX in its proposals for budget 2021/2022 said that MF facility is available to all Trading Rights Entitlement Certificate (TREC) holders against net ready market purchases of their clients and proprietary positions.

    NCCPL provides a system to MF participants for recording and settlement of ME transactions, with financing terms and conditions pre-determined by the Margin Financee and Margin Financier.

    Margin financing facility is made available only in Eligible Securities notified by the SECP. Presently, the rate of tax on gross income of the Financier is 10 percent without deduction of any expenditure to earn such income. Whereas, in most cases the funds are borrowed from financial institutions for such ME transactions.

    The cost involved in Margin Financing includes financing cost payable to financial institution, trading, clearing and depository charges and other administrative cost which means that the amount deducted as advance tax will not be fully adjusted against the tax liability of most brokers, resulting in claims for tax refunds that are not time bound.

    The PSX proposed to reduce the rate of withholding tax on the gross income earned on MF transactions from 10 percent to 2.5 percent.

    Alternatively, it is proposed to charge 10 percent on the net income (spread) earned on such financing.

    Giving rationale to the proposals, the stock exchange said that reduction in the rate of tax on MF transactions will help develop the market and increase tax collection by Federal Board of Revenue (FBR) because ten years back, the size of similar market for margin transactions was several times higher.

  • Under-invoicing by commercial importers destroying industry: PBC

    Under-invoicing by commercial importers destroying industry: PBC

    KARACHI: The Pakistan Business Council (PBC) has informed the higher authorities that the massive under-invoicing, especially by commercial importers, is destroying domestic industry.

    In its proposals for budget 2021/2022 the PBC pointed out that across the board massive under invoicing and dumping of imported products has been increasing.

    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 Government of Pakistan must insist of Electronic Data Interchange (EDI), for both Free Trade Agreement (FTA) and non-FTA imports from China & other major trading partners China & other major trading partners.

    In future the requirement of EDI should be made compulsory for imports from FTA / PTA & major trading partner countries.

    The rate of withholding tax on imports for commercial importers should be at least 2 percent higher than what it currently is and the Withholding tax should be considered as an adjustable advance tax.

    Valuation Ruling should be issued in consultation with Brand owners, i.e., who have valid registration of the brands under relevant intellectual property laws.

  • FBR urged to restore group tax laws in actual form

    FBR urged to restore group tax laws in actual form

    KARACHI: Pakistan Business Council (PBC) has urged the Federal Board of Revenue (FBR) to restore laws related to group taxation in the initial form as introduced via Finance Act 2007 and Finance Act 2008.

    In its proposals for budget 2021/2022, the business council said that most recently, via Income Tax Laws (Second Amendment) Ordinance, 2021, exemption from the levy of tax on intercorporate dividend between companies eligible under section 59B of Income Tax Ordinance, 2001 (Group Relief) has been revoked.

    The PBC proposed group taxation laws should be restored in its initial form as introduced via Finance Act 2007 and Finance Act 2008.

    Specifically, the following is being proposed:

    Clause 103C of Part I of Second Schedule of ITO, providing exemption from Intercorporate Dividends to group companies eligible under section 59B of the ITO, should be reinstated.

    Amendments made in Clause 11B of Part IV of Second Schedule via Finance Act 2015 and Finance Act 2016, should be revoked to ensure exemption from withholding tax is provided on intercorporate dividends exempt under clause 103A and clause 103C of Part I of Second Schedule of ITO.

    Through Finance Act 2016, a restriction was introduced by insertion of sub-section 1A in section 59B of ITO such that the surrender of losses is now restricted to the percentage of shareholding. This amendment is against the intent of the legislation and it is recommended that sub-section 1A and its references in section 59B should be removed.

    Condition of Group Return Filing introduced in Clause 103A Part I of Second Schedule of ITO Via Finance Act 2015 to claim exemption on Intercorporate Dividend between wholly owned entities (eligible under section 59AA), should be removed.