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Tag: budget proposals

  • Business Council identifies anomalies in minimum tax regime

    Business Council identifies anomalies in minimum tax regime

    KARACHI: Pakistan Business Council (PBC) has identified anomalies in minimum tax rates and demanded the levy should be abolished.

    In its budget proposals for 2021/2022 submitted to the Federal Board of Revenue (FBR) the council said that the rate of minimum tax of 1.5 percent is extremely high and unrealistic.

    It identified that as per the judgment of the Sindh High Court in case of Kassim Textile, carry forward and adjustment of Minimum turnover tax is not allowed in cases where the taxpayer reports loss. On the other hand, Lahore High Court, in case reported as 2019 PTD 1994, minimum tax, even in case of loss year, is allowed to be carried forward for adjustment.

    Income Tax Law prescribes that ‘income’ of the Zone Enterprise (located in Notified SEZ) is exempt from tax for 10 years. However, no explicit exemption is provided from Minimum Tax (payable under section 113 of the Income Tax Ordinance, 2001) to Zone Enterprises. SEZ Act, 2012 is a special law governing SEZs and Zone Enterprises granting exemption from all income taxes (which include Minimum Tax also), however, due to ambiguity, tax department does not allow exemption from minimum tax to entities operating in SEZ.

    Section 65D/65E of the Income Tax Ordinance, 2001 provides exemption for 5 years from all income taxes [including minimum tax and final tax] to company formed for operating a new industrial undertaking. On the other hand, no such benefit has been provided to an existing company investing for Expansion or extension to achieve benefits of large-scale manufacturing

    Therefore, the PBC proposed that in order to promote industrialization, Minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audit. For other companies, rate of minimum tax be reduced gradually by 0.2% on an annual basis so that by Tax Year 2025 the rate is 0.5%.

    Moreover, in order to streamline the mechanism of carry forward and adjustment of Minimum tax, minimum tax should also be allowed to be carried forward for adjustment in subsequent years even in case of losses.

    Exemption from minimum tax to all companies operating in SEZ In line with the tax credits under sections 65D/65E, in order to achieve economies of scale to compete with international suppliers, allow exemption for 5 years from all income taxes [including minimum tax and final tax] on income generated from expansion / extension / BMR projects by an existing industrial undertaking subject to the condition that the minimum investment in such extension / expansion project should not be less than $15 million

  • PBC suggests rationalizing sales tax regime

    PBC suggests rationalizing sales tax regime

    KARACHI: Pakistan Business Council (PBC) has suggested rationalizing sales tax regime as higher standard rate of 17 percent is discouraging documentation.

    In its proposals for budget 2021/2022, the PBC said that the high standard tax rate of 17 percent has led to low registration of less than 200,000 while income tax filers are about 2. 8 million.

    Moreover, Tier 1 retailers engaged in the business of finished fabric, and locally manufactured finished articles of textile, textile made-ups, leather and artificial leather are allowed reduced sales tax rate of 12 percent, if their sales transactions are integrated with the FBR system.

    Unfortunately, several income taxpayers are not willing to register owing to high rate and even retailers are not interested in implementing the POS integration as high rate of 12 percent is not attractive, in addition to other issues.

    The Standard rate and POS rate be gradually reduced by 1 percent per year to attract to encourage the unregistered taxpayers to become registered and avail benefits of input adjustment.

    This will increase the documentation of the economy and create a level playing field for the registered taxpayers.

    It is proposed that Section 3(1A) should be rationalized and further tax should not be applicable if:

    a) Buyer in not required to be registered under Sales Sax Act 1990;

    b) Buyer holds FTN; Buyer, being service provider, is registered under respective provincial authority

  • Stock exchange recommends 20 percent tax credit for listed companies

    Stock exchange recommends 20 percent tax credit for listed companies

    KARACHI: Pakistan Stock Exchange (PSX) has recommended a 20 percent tax credit should be granted to listed companies in order to encourage documentation of the economy.

    In its proposals for budget 2021/2022, the PSX said that it is generally observed that when companies opt for a listing on a stock exchange, their profits grow substantially due to effective corporate governance, better disclosures, and ability to raise capital from the market.

    Increased number of listed companies and higher profitability leads to higher tax revenue for the government, including incremental revenues from capital gain tax (CGT).

    Hence it is important to encourage companies to get listed on PSX.

    However, tax credit on enlistment under section 65C has been withdrawn through Second Amendment Act, 2021.

    This tax incentive was a very small carrot with no significant revenue impact.

    Presently, only 10 listed companies are availing this tax credit which we estimate, based on their latest audited financial statements, has a tax revenue impact of Rs. 175 million per annum. Out of these 10 companies, 4 companies are in their 4th or last year of this benefit and 4 companies have recently listed in the current financial year, the PSX said.

    In fact, the tax revenue benefit in the medium term is very large as the documentation of the corporate sector increases and hence tax revenue of Pakistan.

    Further, the CGT collected on these 10 symbols for the 8 months period from July 2020 to February 2021 is Rs.176 million, and, extrapolating based on this 8 months average collection of CGT, the tax collection for the 12 months period could be Rs.264 million, compared to the total estimated tax credits of Rs.175 million availed by these 10 companies.

    The average rate of tax in the Asian region is 21.32 percent; whereas, currently in Pakistan the corporate tax rate is 29 percent.

    As such it is imperative that the corporate tax rate after the tax credit is brought down reasonably to compete with the other regional and global countries.

    Therefore, in order to encourage documentation and create a long term positive impact on tax revenue, there should be reduced rates of tax for listed companies compared to unlisted companies.

    The PSX proposed that to encourage documentation of the economy, the corporate tax rate should be permanently lowered for listed companies, by giving tax credit of 20 percent of tax payable for those companies that meet the prescribed requirements including a minimum free float of 25 percent throughout.

    This will be long term positive for tax revenue.

  • KTBA recommends abolishing alternative corporate tax

    KTBA recommends abolishing alternative corporate tax

    KARACHI: Tax practitioners have recommended to abolish alternative corporate tax (ACT) in the budget 2021/2022 as the levy is increasing cost of doing business.

    The tax bar in its proposals for the upcoming budget 2021/2022 recommended to abolish the ACT.

    As per section 113C of the Income Tax Ordinance, 2001, tax payable by company subject to tax under Division-II Part-I of 1st Schedule or minimum tax shall be higher of corporate tax or ACT.

    The tax bar said that it was increasing cost of doing business and regressive taxation.

    Therefore, the KTBA proposed that ACT Should be abolished.

    There is already a minimum tax regime which imposes tax on the gross turnover U/s. 113, alongside minimum tax regime for supplies, services, under various section of the Ordinance and hence ACT is only increasing  the complexity of the computations.

    Besides, the KTBA has also recommended to reduce the minimum tax rate.

    Currently rate of minimum tax is 1.5% of the turnover. The threshold for turnover in case of individuals and AOPs was decrease from Rs50 million to Rs10 million by the Finance Act, 2016.

    It resulted in increased cost of doing business and regressive taxation.

    The KTBA proposed that minimum tax on listed companies should be abolished and in case of other cases the rate of minimum tax should be gradually reduced by 0.2 percent annually so that by tax year 2025 the rate shall be reduced up to 0.5 percent. The threshold of turnover should be increase to Rs50 million.

    Moreover, minimum tax should also be allowed to be carried forward for adjustment in subsequent year even in case of losses.

    The receipts now brought under Minimum Tax (from Final Tax Regime) should be exempted from this minimum tax.

    Removal of minimum tax will promote industrialization. Decrease in turnover threshold will result the true declaration of turnover and created hardship for taxpayers, the tax bar added.

  • FBR urged to reintroduce income tax credit on registered sales

    FBR urged to reintroduce income tax credit on registered sales

    KARACHI: Federal Board of Revenue (FBR) has been urged to reintroduce income tax credit on registered sales in order to provide incentive to documentation of economy and increase the tax base.

    Karachi Tax Bar Association (KTBA) in its recommendations for budget 2021/2022 submitted to the FBR proposed the reintroduction of tax credit on registered sales.

    The KTBA said that the tax credit would provide incentive for documentation of economy and increase of the tax base a tax credit of 2.5 percent of tax liability was offered to manufacturers given in the year 2009 making 90 percent of their sales to persons registered under the Sales Tax Law.

    The tax credit was increased to 3 percent by Finance Act, 2016. However, this Tax credit was deleted by Finance Act, 2017.

    Years of efforts to document the economy has been pushed backwards and that too without any warning and rationale.

    The KTBA said that the tax credit should be re-introduced. Further this tax credit on 90 percent sales should be extended to persons making 90 percent of purchases from persons registered under the Sales Tax Act, 1990 as well.

    It will encourage the much-desired documentation of the economy.

  • Stock exchange recommends elimination of minimum tax

    Stock exchange recommends elimination of minimum tax

    KARACHI: Pakistan Stock Exchange (PSX) has recommended elimination of minimum tax regime for listed companies in order to promote documentation in the country.

    The PSX in its proposals for budget 2021/2022 recommended the elimination of minimum tax regime for listed companies. It said that though the concept of minimum tax is prevalent in a few other countries, however, in other countries, as a principle, it is levied only in cases where high-income taxpayers don’t pay any tax due to different tax exemptions available to them.

    The PSX proposed that minimum tax regime should be eliminated from listed companies as such companies are strongly compliant towards specific documentation requirements of various statutes.

    Giving rationale to the proposal, the stock exchange said that the application of minimum tax on listed companies has resulted in discouraging documentation of the economy.

    Listed companies have significant documentation and regulatory requirements and need to engage external auditors to audit their business affairs.

    The stringent regulations keep the listed companies strongly compliant towards filing of income tax / sales tax returns, paying quarterly advance taxes, adjustment of withholding taxes on sales and purchases and consequently filing withholding statements, statements on final taxation and fulfilling various other requirements which resultantly align their books of accounts with the statutory requirements and provide a comfort zone to the authorities and stakeholders over the reported numbers.

    However, the levy of minimum tax puts downward impact on the earnings of listed company despite having current and brought forward losses.

  • KTBA presents proposals for budget 2021/2022

    KTBA presents proposals for budget 2021/2022

    KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday presented proposals for budget 2021/2022 to the Federal Board of Revenue (FBR).

    In its proposals the KTBA said that the tax-to-GDP ratio was a soaring issue for country’s economic managers. “On the other hand, tax measures undertaken in Pakistan have traditionally created higher taxation on formal economy and under taxation on information economy,” it added.

    Primarily, it is because of over dependence over withholding tax regime as well as due to higher tax expenditure and concessions/exemptions.

    In addition to above many studies have concluded that there are gap in agriculture and property income in Pakistan which otherwise are under-taxed hence misused.

    “Besides, there are distortions in collection of General Sales Tax on goods and services and full tax collection on this core is yet to be exploited,” it added.

    In addition to above, a host of tax exemption/concessions have already been withdrawn by way of Tax Laws (Second) Amendment Ordinance, 2021 which was believe will become part of budget proposals.

    It is however the country needs a lot more drastic measures to bring its tax to GDP ratio at desired level.

    The KTBA suggested that federal and provincial governments should harmonize their differences in order to remove the gaps and distortions and to improve tax collection from agricultural, property and GST.

    The tax bar said that the proposals were completed keeping in view following features and categories:

    — Salvaging the manufacturing sector

    — Proposal for salvaging the corporate sector

    — Taxation and withholding tax regime under Section 148 and 153 of Income Tax Ordinance, 2001.

    — Proposals regarding taxation of property income

    — Capital gains taxation on securities

    — Proposal for changes in taxation of salary income

    — Proposal for changes in taxation of non-residents

    — Proposal for change in Non-Profit Organizations

    — Withholding tax provisions

    — Proposal for Appellate proceeding

    — Proposal for departmental proceeding

    — Proposal for simplifying filing and other periodic compliance

    — Broadening the scope and equitable of the law.

  • Karachi Tax Bar suggests reduction in corporate tax rate

    Karachi Tax Bar suggests reduction in corporate tax rate

    KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday suggested reduction of corporate tax rate to 25 percent from existing 29 percent in order to promote documentation of economy and discouraging tax evasion.

    The KTBA in its recommendations for the budget 2021/2022, stated that currently corporate rate of tax in Pakistan is 29 percent which due to Workers Welfare Fund (WWF) and Worker Welfare Participation Fund (WWPF) goes up to 36 percent which is higher than the average tax rate in Asia i.e. 21.32 percent.

    The higher corporate rate is increasing cost of doing business and regionally uncompetitive position.

    The KTBA proposed that the corporate rate of tax should be decrease up to 25 percent by gradually decreasing 1 percent every year.

    The rate of tax on small companies should also gradually be reduced to 15 percent.

    Income of WPPF should be exempted from tax. The excess of WPPF as deposited in WWF fund should be also as a credit against WWF levy.

    The KTBA said that the high rate of tax is encouraging tax evasion and discouraging documentation of economy and corporatization.

    It is also disincentive for foreign and local investment, it added.

  • Removal of sunset clauses on CGT exemptions for real estate sector demanded

    Removal of sunset clauses on CGT exemptions for real estate sector demanded

    KARACHI: Pakistan Stock Exchange (PSX) has pointed out that at present timelines for exemption from Capital Gain Tax (CGT) are discouraging long-term investors from entering the Real Estate Sector.

    Moreover, different Real Estate Investment Trust (REIT) categorization have created distortion and excluded commercial and mixed-use REIT projects, the PSX highlighted the issue in its proposals for the upcoming budget 2021/2022.

    It further said that higher rate of tax on dividends as compared to mutual funds (enhanced through Finance Act 2019, rate of tax on dividend from REITs Schemes was enhanced from 15 percent to 25 percent.

    Sale of real estate to a REIT scheme at market value is a paper transaction required to transfer title of real estate in the name of trustee.

    Furthermore, REIT Scheme is exempt from income tax when 90% income is distributed as dividend and therefore advance tax cannot be adjusted.

    The PSX proposed exemption from CGT provided in clause 99A, Part 1, 2nd schedule of Income Tax Ordinance, 2001 should be applied to all categories of REITs (mix-use projects)

    – Remove sunset clauses

    • June 2023 for Developmental REIT Scheme and Rental REIT Scheme.

    — Rate of tax on dividend, which is 25% at present, be synchronized with mutual funds15 percent [First schedule, Part-1, Division-Ill, paragraph B]

    — Exempt advance tax on property transfers to/from a REIT Scheme u/s 236C & 236K.

    Giving rational to the proposals, the PSX said it will promote documented real-estate will attract more investments particularly by companies with disclosure of actual prices and income. Revenue impact will be positive as it will generate indirect and additional revenues from allied businesses.

  • Withholding tax exemption sought on commodity future contracts

    Withholding tax exemption sought on commodity future contracts

    KARACHI: Federal Board of Revenue (FBR) has been urged to exempt withholding tax on transactions made for future contracts at commodity exchange.

    The Pakistan Stock Exchange (PSX) in budget proposals 2021/2022 submitted to the FBR, highlighted the issue and stated that currently, buyer of a commodity withholds tax (4 percent-9 percent) from seller before making payment with the exception of growers.

    This tax adds cost and puts the investors at a disadvantageous position when dealing in actual commodity exchange at PMEX in futures contracts/e-WHR5 as grain markets are not documented and as such this tax is actually not being paid.

    The stock exchange proposed to exempt commodity futures contracts and EWRs from the application of section 153 of the Income Tax Ordinance, 2001 like these are exempt from GST under SRO 445(1)12004 June 14, 2004.

    It will be only applicable on physical settlement of futures contract by exchange of delivery of underlying commodity. On contract, CGT is already applicable.

    Giving rationale to the proposal, the PSX said that development of regulated and organized commodity markets will greatly benefit the agriculture sector.

    Revenue impact will be neutral to positive due to adjustability of withholding tax while documentation leading towards more income tax from traders and related parties.