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Tag: budget proposals

  • Normal corporate tax rate for banking sector recommended

    Normal corporate tax rate for banking sector recommended

    KARACHI: Foreign investors have recommended that corporate tax rates for the banking sector should be aligned with other sectors.

    At present the banking sector is paying 35 percent corporate tax rate as compared with 29 percent corporate tax rate for other sectors.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 submitted to the Federal Board of Revenue (FBR) recommended that corporate tax rates for the banking sector should be aligned with other sectors.

    Further super tax relief, as granted to other industries, should be given to banking sector as well.

    Regarding the issue of Tax Deduction on Profit on Debt under section 151 of Income Tax Ordinance, 2001, the OICCI recommended that there should be a uniform withholding tax rate of 15 percent for all payments of profit on debt by omitting below provision inserted through Finance Act, 2020:

    “Provided that the rate shall be 10 percent in cases where the taxpayer furnishes a certificate to the payer of profit that during the tax year yield or profit paid is rupees five hundred thousand rupees or less”, and Circular be withdrawn, to avoid litigation between banks and department.

    For enhanced rate of tax on Additional income from additional investment in Federal Government Securities (Rule 6C of Seventh Schedule), the OICCI recommended Rule 6C of seventh schedule of Income Tax Ordinance, 2001 should be deleted whereby enhanced rate of 37.5 percent is applied on banks income from additional investment in Federal Government Securities.

    According to Rules for person not appearing in Active Taxpayer List (Section 100BA and Tenth Schedule) if a withholding tax agent is satisfied that a person not appearing in Active Taxpayers List (ATL) is not required to file return, then before deducting tax he will furnish to the Commissioner a notice carrying particulars of taxpayer along with reason on the basis of which it is considered that the person is not required to file a return.

    The OICCI recommended to delete the rule as branch managers are not conversant with tax laws. Alternatively, if FBR is satisfied that a person is not required to file return of income, his CNIC/Name should be included in an Exempt Taxpayer List (Similar to ATL) which should be issued periodically.

    The original provision of the Seventh Schedule should be restored where provision for bad debts as per the Prudential Regulations of SBP and supported by an Auditors certificate was allowable as a tax deduction to the banks. Alternatively, threshold for allowing provision for bad debts should be increased to 2 percent of gross advances to corporate customers.

    The rule 9 of the Seventh Schedule of ITO 2001 should be deleted as it is being misused and leading to unnecessary litigation.

  • Abolishing withholding tax, reducing sales tax rate on telecom services recommended

    Abolishing withholding tax, reducing sales tax rate on telecom services recommended

    KARACHI: Federal Board of Revenue (FBR) has been urged to abolish withholding tax rate at 12 percent on telecom services to promote the accessibility of internet/data services to the low-income group.

    Similarly, Federal Excise Duty (FED) is charged at 17 percent on telecom services which is on higher side as compared to other sectors, and general rate.

    Provincial authorities levy a much lower rate of sales tax on other services. Since sales tax is a consumption tax (on usage), the decrease in sales tax rate will result in increased usage of telecom services and consequently drive tax collection upwards.

    There should be single sales tax rate across all jurisdiction to remove the anomalies and undue hardships being faced by telecom sector in terms of compliances in different jurisdictions, thus, to provide ease of doing business.

    These recommendations have been sent by Overseas Investors Chamber of Commerce and Industry (OICCI) to the Federal Board of Revenue (FBR) for the budget 2021/2022.

    The OICCI further recommended that since the insertion of 9th Schedule in Sales Tax Act, 1990 effective 1st July 2014, the matter is in litigation. This tax should be abolished, ab initio, by accepting the decision of Lahore High Court as the resolution of the matter will result in additional upside on the corporate tax side for the exchequer and eliminate the undue litigations.

    On the issue of advance tax on Auction/ Renewal of telecom licenses at 10 percent under section 236A of Income Tax Ordinance, 2001, the OICCI recommended that this tax should be abolished being irrational and burdensome on CMOs keeping in view the financial/ tax position.

    The chamber said that as large utility providers, Cellular Mobile Operators’ (CMO) are subject to deduction/collection of withholding of income tax on large number of transactions, which increases the cost and complexity of tax compliance and an additional administrative burden for the telecom sector and negatively impacts the overall business environment.

    It is recommended:

    i. Exemption should be given to the telecom sector from deduction or collection of all types of withholding taxes, like banking and oil sector. There will be no loss of revenue to the exchequer as the tax collection mechanism will be simplified in terms of real time payment of advance tax Under Section 147 on quarterly basis.

    Furthermore, this measure will also make the tax claims and its verification mechanism more transparent with minimum operational hassles as maintaining the thousands of records especially for advance tax on utility bills and imports is itself a very cumbersome procedure.

    ii. Amendments need to be made in the section 147 for the calculation of tax liability. Currently the calculation of tax liability is based on the last assessed position and turnover of the year. The assessed position should not be used as a basis of calculation of tax liability until and unless an independent forum (i.e. At least Tribunal) has also confirmed the assessed position.

    The OICCI recommended to reduce the custom duty rates for batteries (8507.6000) to 5 percent and to abolish additional custom duty and Regulatory duty, as these batteries are used with solar and power systems and are core asset for telecom infrastructure services provider. Reduction in duties will further encourage alternate energy resources for Telecom sector e.g. Solar etc.

    On the issue of custom duty and Regulatory duty on import of telecom equipment, it is recommended to restore SRO 575, reduce Custom duty to 5 percent and abolish the Additional Custom duty and Regulatory duty as the core assets needs to be imported for provisioning of telecom services.

    The OICCI demanded exemption from advance tax on electricity for Telecom Tower Infrastructure Companies. The chamber said that currently taxpayers can obtain exemption certificate for non-deduction of tax on electricity bills under section 235(3) of ITO 2001 if their income is exempt under the law or by discharging their advance tax liability for the year. Such exemption is not available to telecom service providers as their tax liability is minimum under section 153(3) of the ITO, 2001.

    Enabling provision may be inserted in section 235 of the ITO, 2001 to empower the Commissioner to issue exemption certificate to Service Providers under minimum tax regime for non-deduction of advance tax on electricity bills.

  • Foreign investors demand pending refunds payment in six months

    Foreign investors demand pending refunds payment in six months

    KARACHI: Foreign investors operating in Pakistan have demanded to clear all pending sales tax refunds in next six months.

    Overseas Investors Chamber of Commerce and Industry (OICCI), the representative body of foreign investors, in its proposals for budget 2021/2022 demanded that all pending tax refund be cleared within next six months in an orderly/ prearranged manner.

    The OICCI further suggested that verification process for refunds should start automatically as soon as an application for refund is filed by the taxpayer and tax refunds should be cleared within 45 days.

    With introduction of MIS on IRIS, it has become easy to introduce an online self-verification of refund. Wherein taxpayer after applying for refund verification us 170 may be given an option to select CPRNs online against each section wherein tax deduction/ collection has been made and create a virtual verification file for easy processing by assessing officers. In case of any discrepancy, only missing CPRNs will be verified manually.

    It is suggested that inter adjustment of Income tax and Sales tax refunds should be made part of the law.

    A timely settlement of the determined refunds should be made, and if there is a liquidity issue then issuing marketable government bonds/ securities be considered.

    Amend current fixed interest rate of 10 percent to floating interest rate linked with KIBOR, it is suggested.

  • Listed companies should be exempted from electronic tax surveillance

    Listed companies should be exempted from electronic tax surveillance

    KARACHI: Federal Board of Revenue (FBR) has been urged to exempt listed companies from electronic surveillance of business and records.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 said that through SRO 888 of 2020 dated September 21, 2020, a new chapter was introduced in Sales Tax Rules, 2006 whereby all registered persons are made liable to give continuous and full real-time electronic access to the premises, stocks, record, accounts and data, whether maintained electronically or otherwise, as and when required by an authorized officer as provided under section 38 of the Act.

    The OICCI recommended that the scope should be restricted to the taxpayers having series of defaults or misconduct.

    “Other taxpayers especially listed companies should be exempted from this requirement as they are subject to rigorous external audits, internal audit requirements by SECP and tax audits and monitoring by FBR,” it recommended.

  • FBR urged to allow commercial import of used cars to end auto assemblers monopoly

    FBR urged to allow commercial import of used cars to end auto assemblers monopoly

    KARACHI: Federal Board of Revenue (FBR) has been urged to allow commercial import of used and reconditioned cars of models up to five years old to end monopoly of local car assemblers.

    Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2021/2022 recommended the commercial import of used and reconditioned motor cars up to five years old.

    The chamber said that during the past 40 years, assemblers of automobiles have enjoyed protective duties, exemptions and virtual monopoly in Pakistan’s automobile car market.

    Contrary to initial agreements, the assemblers failed to implement deletion program up to 90 percent. Instead, they are importing CKD while they have created vendors who mostly import auto parts and supply to these assemblers.

    Consequently, the so called vendor industry is only producing low quality and non-mechanical parts which is clearly visible in locally assembled cars.

    So far the assemblers have only drained Pakistan’s foreign exchange reserves to the tune of billions of dollars.

    Quality of automobiles produced by the assemblers is so poor that not a single unit of these cars has ever been exported to any country.

    Despite such poor quality, artificial shortage is created to fetch a premium on the early delivery and allow undocumented investors to exploit genuine buyers.

    The chamber said that import of reconditioned cars more than 3 years old model has been restricted to favor the assemblers and exploit the middle class people of Pakistan who can no more afford to buy even a small 660cc to 1000cc imported or local car.

    Ironically, import of brand new cars of high capacity and premium brands is allowed which only benefits the elite. Middle class consumers have been deprived of their right to purchase reasonably priced used/reconditioned cars which have a better quality and safety standard than the locally assembled new vehicles.

    Clearly there is an element of corruption, connivance and vested interest involved in formulating auto-policies. Unfortunately, the vested interests are also resisting to change the policy to allow import of reconditioned cars by reducing the Tariff rates and also permit import of cars of up to five year old models.

    The chamber further said that enough protection has been given for decades to assemblers.

    The chamber has given a comprehensive tariff plan for import of used and reconditioned cars.

  • Bank account holders should file tax returns, wealth statements

    Bank account holders should file tax returns, wealth statements

    KARACHI: Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) should devise a framework to ensure all customers of financial institutions whose account show turnover above Rs2 million have filed tax returns and wealth statement.

    “This could be done by the financial institutions simply notifying names/CNIC numbers of such customers to FBR without giving access to bank accounts,” this was recommended by Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022.

    The chamber presented its proposals for broadening of tax base:

    FBR should simplify the tax structure of the country by implementing tax reforms recommendations already been submitted by various forums in the past, and also hold regular round table conferences with leading tax and legal experts to review existing laws for increasing the number of taxpayers and taxable entities.

    Tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of NADRA database and other documented sources to ensure that all income earners are NTN holders and “Filers”, with submission of annual income tax/wealth returns and wealth reconciliation statements. FBR and SBP to devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of PKR two million or more during the year, have filed a tax return and wealth statement. This could be done by the financial institutions simply notifying names/CNIC numbers of such customers to FBR without giving access to bank accounts.

    Art exhibition halls, hospitals where doctors practice, hotels and other public places holding large receptions for fashion houses & designers, sale of branded/designer dresses, airlines, travel agencies, etc should provide names and addresses of the respective persons involved in these business activities to the FBR on a quarterly basis. iv. Once the FBR receives the above information, it should be pro-active and pursue potential taxpayers by sending them income tax return forms requiring them to file tax returns – rather than waiting for the tax returns to be filed.

    Section 111(4) of ITO 2001, last amended in 2018, should be further reviewed to restrict tax free inward foreign remittances to immediate family members only.

    Eliminate culture of Amnesty Schemes as it discourages the honest taxpayers.

    Severe, and visible, penalties should be levied to punish tax evaders, starting with evasions of over PKR one million.

    As Pakistan is a signatory to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which became operational from September 2018, regular coordination should be done with relevant authorities of countries, considered as tax heavens for stashing away illegal wealth, for information sharing, and cases of proven tax evasion publicly shared.

    Appropriate laws should be made to enable the government to seize local assets, in equivalent value, or levy appropriate taxes, if any person holds any kind of assets outside the country for which source of income could not be established.

  • Revamping withholding tax regime with maximum five rates recommended

    Revamping withholding tax regime with maximum five rates recommended

    KARACHI: Federal Board of Revenue (FBR) has been urged to revamp withholding tax regime and bring down the existing 50 different tax rates to maximum five rates.

    Overseas Investors Chamber of Commerce and Industry (OICCI), the representative body of foreign investors operating in Pakistan and multinational companies, in its proposals for budget 2021/2022 suggested the FBR to revamp the withholding tax regime, which is one of the key irritants for compliant taxpayers.

    It said that the fact that the ‘Collection and Deduction of Income Tax at Source (Withholding Agents Perspective) (Taxpayer’s Facilitation Guide)’ on the FBR website is of 48 pages highlights the complexity of the withholding tax regime which has more than 30 tax provisions that need to be followed and 50 different tax rates, applicable on nearly all heads of receipts/payments.

    The rate of withholding/advance tax also varies depending upon the nature of transaction, legal/tax status of the parties i.e., company or individual and active or in-active filer.

    Moreover, FBR system does not auto populate taxes withheld in the portal to the credit of the beneficiary.

    Furthermore, different categories of withholding tax (WHT) rates have been prescribed under the ITO 2001, for various types of payments and it has become extremely difficult for the person processing payments to be precise and accurate in applying WHT rates and ensure compliance:

    The complexity for the withholding agent has been further compounded after the introduction of active taxpayers list and different rates for an active and non-active filer.

    The OICCI recommended the following:

    i. Withholding tax regime should be revamped by reducing it to a maximum of five rates for all withholding taxes and the differentiation should be on the basis of active and inactive taxpayers only.

    ii. All taxes withheld should be auto populated in the portal to the credit of the beneficiary.

    iii. Final Taxation Regime should be eliminated, and all withholding taxes should be available for adjustment and the operations wing of FBR should ensure that all persons whose taxes have been deducted file their tax returns.

    iv. Withholding agents should be given incentive in the form of 2% tax credit of the amount collected for facilitating the Government.

    v. In addition to the above administrative/streamlining issues, withholding/ advance tax rates on below transactions should be reconsidered.

    a) Withholding tax rate be reduced to 0.25% for all distributors in line with the withholding taxes applicable on dealers and sub-dealers of fast-moving consumer goods.

    b) Withholding tax rates applicable on services is 8 percent minimum tax regardless of the actual taxable income of the service provider. The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.

    vi. Withholding tax deduction u/s 153 (1)(a) which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list.

  • FBR urged to provide option for business principal activity in sales tax registration

    FBR urged to provide option for business principal activity in sales tax registration

    The Karachi Chamber of Commerce and Industry (KCCI) has called upon the Federal Board of Revenue (FBR) to address challenges in the business registration process, emphasizing the need for streamlined options in the IRIS registration form.

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  • FTO proposes initiating criminal prosecution against smugglers

    FTO proposes initiating criminal prosecution against smugglers

    ISLAMABAD: Federal Tax Ombudsman (FTO) has recommended that tax authorities should initiate criminal prosecutions against persons involved in smuggling or selling non-duty paid goods.

    In its proposals for budget 2021/2022, the FTO recommended measures on the issues of smuggling, misdeclarations, under-invoicing and non-transparent auctions.

    In order to effectively check the smuggling, it was recommended that criminal prosecution should be initiated against the persons/owners of the showrooms involved in business of Non-Duty Paid (NDP) vehicles, fuel pumps of smuggled oil and storage godowns of other smuggled items, from whom the NDP goods were recovered as provided in the Customs Act, 1969 read with the Prevention of Smuggling Act, 1977.

    Installation of scanners on the ports was recommended to be given top priority. It was emphasized that if government invested herself in this project, it will raise the potential of higher revenue and more effective check on misdeclaration of description or quantity of imported goods.

    So far two scanners have been added at Karachi Ports in addition to one already installed there. Two scanners have also been installed at Jamrud and Torkham, Peshawar.

    It was recommended to provide a mechanism in law for cross-matching of value declared on export documents of exporting station to import documents at importing station.

    Federal Board of Revenue (FBR) was asked to prescribe Model Auction Rules for auction through electronic means and prepare/operationalize an auction module in the WeBOC system to bring transparency and efficiency in the auctions.

    According to FBR, under the WeBOC-Glo initiative (an enhanced version of WeBOC), an electronic auction module has been developed and deployed in the system. This module envisages online registration of bidders who can bid for all auctionable goods displayed on website by the Customs authorities. Pilot is being run at Karachi Port (South Asia Port Terminal only).

    In view of constant complaints about delayed clearance at the border stations, generators should be provided on priority for speedy passengers/goods clearances and maintenance of IT and infrastructure support.

  • FTO recommends disabling sales tax registration as soon application for de-registration received

    FTO recommends disabling sales tax registration as soon application for de-registration received

    ISLAMABAD: Federal Tax Ombudsman (FTO) has recommended disabling sales tax registration as soon application received for de-registration.

    The FTO submitted proposals for budget 2021/2022, stating that in order to stop misuse of registration for issuing fake invoices, immediate disabling of the registration was proposed in electronic system as soon as the application for de-registration was received.

    Sales Tax Registration of commercial importers was proposed to be allowed only to Income Tax filers along with other necessary cautions (i.e. declaration of Pakistan Customs Tariff (PCT) headings of the products they trade in) to check bogus registration.

     Following budget proposals were also sent to FBR:

    • to provide for immediate disabling of the registration in electronic system, pending final de-registration, as soon as the application for de-registration was received;

    • to prescribe a list of documents/records to accompany the de-registration applications for the purpose of sub-rule (2) of rule 11; and

    • suitable amendment to be made in rule 12(a)(vii) so that the Commissioner shall issue the orders of revocation of suspension within two weeks from the last date prescribed for issuance of show cause notice.