KARACHI: A top official of Federal Board of Revenue (FBR) has informed the office bearers of Karachi Chamber of Commerce and Industry (KCCI) that a tax relief package for business community was under consideration in order to dilute the adverse impact of coronavirus pandemic (COVID-19).
(more…)Tag: budget proposals
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Why non-filers happy in paying high withholding tax rates, FPCCI asks FBR
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has expressed concerns over lower number of return filers and asked Federal Board of Revenue (FBR) to identify reasons that why non-filers happy in paying higher rate of withholding tax.
According to a statement on Thursday, the FPCCI has finalize proposals for upcoming budget 2020/2021.
The proposals have been drafted keeping in view of the objectives of (i) Revamping Taxation System (ii) Documentation of Economy (iii) Employment generation through Industrialization (iv) Promoting a responsive and equitable Taxation System (v) Infrastructure Development (vi) Trickledown effect of the fiscal space to the grass root level etc., and would be submitted to the concerned quarters within fortnight”.
This was stated by Mian Anjum Nisar, President, FPCCI and Zakaria Usman, Convener of the FPCCI Budget Advisory Council.
Elaborating the methodology of the budget proposals exercise, they stated that the FPCCI with a consistent commitment to developing and promoting a modern, responsive and equitable taxation system, has formulated these proposals on the basis of impartial, unbiased and transparent manner after taking a painstaking lengthy process which involved incorporating feedback received on matters related to revenue and taxation throughout the year from our members located across the country and input obtained from our member trade bodies, stakeholders, tax practitioners, knowledgeable people etc., through invitation of proposals, organizing workshops and holding a series of Budget Advisory Council meetings wherein these proposals were discussed in detail and some contradictory proposals were re-examined and final proposals were redesigned in line with the best interest of the country.
They informed that the FPCCI Budgetary document consists of three Volumes – Vol-I discusses issues / solution of macroeconomic nature ; Vol-II contains policy issues relevant to Taxation (Sales Tax, FED, Income Tax and Customs) ; while Vol-III contains Industry Specific Proposals received from FPCCI members .
Moreover, the FPCCI would also submit its proposals to meet the challenges being faced by the trade & industry due to outbreak of COVID-19 as its severe and adverse impacts on various aspects of Pakistan’s economy is quite discern which may lead to negative growth rate, deterioration in current and fiscal balance, disruption in supply chain, increased unemployment etc.
The FPCCI Chief Mian Anjum Nisar added, “The Macro Economic proposals contains long term action plan to boost exports ; promotion of Branding ; Enhancing SMEs sector ; Monetary Policy ; Creating Employment Opportunities through industrialization ; Taxpayers Bill of Rights ; Independent Tax Judicial System etc”.
Zakaria Usman, Convener of the Budget Advisory Council disclosed, “In Direct Taxes, it has proposed to the Federal Board of Revenue (FBR) to reduce the tax rates to help increase competitive edge of indigenous products in both local and global markets; broadening of tax base; curtail parallel economy etc., as high tax rates provide incentives for tax evasion and corruption and results in high cost of doing business.
At present the total numbers of NTN holders in Pakistan are over 4 million, however, the FBR has miserably failed to obtain return of income from such NTN holders and increase the number of active taxpayer during the last decade.
They added that according to a study, 2.1 million Pakistanis (individuals) filed income tax returns in 2006-07 which shows that FBR during the last 14 years could not fetch much tax filers, despite prescribing higher withholding tax rates for non-filers”.
“This underscores the need that FBR should conduct a study to find out what has gone wrong that even after penalizing the non-filers, they are happy to pay more by way of advance tax instead of filing returns”.
He proposed that it is desirable that measures should be taken to facilitate to those, who are already existing taxpayers and contributing in the national tax pool in all manners, so that they become goodwill ambassador for FBR.
“Resultantly, since many years, the registered taxpayers are less than 1 percent of the population of our country, which need to be enhanced”, he concluded.
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FBR invites suggestions for phasing out tax exemption, concessions
ISLAMABAD: Federal Board of Revenue (FBR) has invited suggestions from business community and other stakeholders for elimination of tax exemption and concessions.
The FBR on Thursday issued a notification for inviting income tax proposals for budget 2020/2021.
The FBR invited proposals from the stakeholders for phasing out tax concessions and exemptions.
It said that the FBR is currently engaged in the formulation of proposals for the Finance Bill 2020. In order to benefit from the collective wisdom of all the stakeholders for the improvement of tax policy, proposals have been invited for the upcoming budget 2020/2021.
The FBR said that input/suggestions in the following areas shall be appreciated as a genuine contribution towards framing or a broad based and workable tax policy:
i. Broadening of tax base for a wider participation in revenue generation efforts;
ii. Taxation of real income on progressive basis;
iii. Phasing out of tax concessions and exemptions;
iv. Removal of tax distortions and anomalies;
v. Facilitation of taxpayers and ease of doing business;
vi. Promoting equity in taxation by introducing measures where incidence of tax is higher or affluent classes.
The FBR asked all the stakeholders to send their proposals by February 07, 2020.
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PTBA proposes withdrawal of restriction on input claim under Sindh sales tax
KARACHI: Pakistan Tax Bar Association (PTBA) has urged the Sindh government to withdraw the restriction on claiming input tax by services rendered by a taxpayer.
The apex tax bar in its proposals for Sindh budget 2019/2020, said that no input tax is allowed to be claimed on goods or services acquired prior to six months preceding the date of commencement of the provision of taxable services by a taxpayer.
It is recommended that such restriction should be eliminated.
That any bar on admissibility of input tax borne by the taxpayer prior to six months preceding the commencement of provision of taxable services is against the basic principal of Value Added Tax (VAT). It is also not justifiable in case of a long term projects.
Any assessment order can be amended by a tax officer on the basis of any subsequent information, etc. Such powers are arbitrary and unjust and may open the doors for harassment and corruption, the tax bar said.
Therefore it is recommended that the taxpayer should first be confronted with a show-cause notice with substantial reasons and definite information/evidence(s) that warrant reopening or amending the assessment order.
Further, the powers to amend any assessment order should only be vest with the Commissioner or Board only.
This recommendation would introduce transparency in the tax system for revision of shut and close transactions and provide justice to the taxpayer.
Highlighting another issue, the PTBA said that the taxpayer is required to retain records for a period of 10 years and show-cause notices may be issued within a period of 8 years from the date of relevant tax period.
“This is in excess of the statute of limitation provided under the STA and ITO. It will not only put excess burden on the taxpayer, but also dis-incentivizes the tax authorities from taking timely action.”
The time period for retention of records and assessment of tax should be reduced to 5 years.
This would save taxpayers from practical difficulties and unnecessary burden while pushing the tax authorities to take more timely action.
In another proposal, the PTBA said that the tax officer is empowered to ask for any information from a taxpayer without specifying the reason or nature of the case being investigated by him.
Scope of Section 52(1) should be restricted to specific parties and transactions which are within the jurisdiction of Sindh and are specifically identified by the tax officer instead of fishing and roving enquiries.
This promotes equity and natural justice and avoids harassment and unnecessary proceedings.
At present the Sindh Revenue Board (SRB) may arbitrarily empower a Deputy Commissioner to exercise the powers of Commissioner (Appeals).
This provision should be deleted. Such an amendment undermines the quasi-judicial function and weakens the judicial process by empowering a junior ranked officer to assume the powers of a quasi-judicial authority.
At present recovery of demand can be initiated at any time after the assessment order is issued.
Since an appeal may be filed within 30 days from the date of receipt of an assessment order, the recovery proceedings should not be initiated within such time.
This recommendation would harmonize the Federal and Provincial tax laws.
The PTBA said that a lot of services mentioned in the First Schedule are without H.S. Code/Tariff Headings which may create difficulties.
It is suggested that all services should be marked with the respective Tariff Headings in order to avoid confusions on the part of assessing authorities as well as the registered persons.
This recommendation would bring clarity, equity and harmony in the tax laws.
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Proposals for budget 2019/2020 finalized; salary persons may get increase; rise in additional customs duty likely
ISLAMABAD: The ministry of finance has finalized proposals for budget 2019/2020 and will get approval from the Cabinet before presenting in the Parliament on June 11, 2019.
Prime Minister Imran Khan will chair the cabinet meeting on Monday in which the budget with record deficit will be approved.
The sources said that the cabinet would approve budget with estimated Rs3,000 billion deficit.
According to the proposals, the budget allocation for the defence would be around Rs1,250 billion, which will less than the allocation for the outgoing fiscal year.
An amount of Rs2,500 billion has been proposed for the payment of interest on the loan, the sources said.
The government may allocate Rs925 billion for the federal development expenditures.
The Federal Board of Revenue (FBR) may be assigned Rs5,500 billion as tax target for the fiscal year 2019/2020. While, the estimated earning from non-tax revenue may be at Rs1,250 billion.
The tax proposals would include:
Sales tax on sugar would be increased from 17 percent from existing 8 percent.
Income tax has been proposed on the earning of middle-man.
Increase in duty and taxes has been proposed poultry, electron and several other items.
Increase in additional customs duty is recommended from 2 percent to 3 percent.
Abolishing zero rating for five export sectors is also part of proposals. It is worth mentioning that the prime minister has already announced to abolishing subsidy to zero-rated sector.
The government likely introduce soft loan program for youth. An amount of Rs5 billion would be allocated for establishing agriculture institute.
Decrease in fertilizers prices would be recommended.
The government employees and pensioners may get increase of 10-15 percent. The proposal of increasing pay and pension would get approval at the cabinet meeting.
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Profit on banking deposits: High tax rate planned for non-filers in budget 2019/2020
ISLAMABAD: A sharp increase in withholding tax rate (may be up to 30 percent) on profit on banking deposits has been planned for non-filers in order to make it almost impossible to stay remain unregistered, sources said.
Sources told PkRevenue.com that Federal Board of Revenue (FBR) a large sum of banking system deposits were remained undocumented resulting large number of people out of tax net and massive tax evasion.
Under Section 151 of Income Tax Ordinance, 2001 the withholding tax rate on profit on debt for filers is 10 percent with no limit on earned amount and 10 percent for non-filers up to Rs 0.5 million. However, 17.5 percent withholding tax rate for non-filers driving profit on debt above Rs0.5 million.
The sources said that the tax rate for non-filers driving profit on debt above Rs0.5 million may be increased to 30 percent.
According to State Bank of Pakistan (SBP) the total deposits of the banking system reached to all time high of Rs13.456 trillion by March 2019.
The sources said that the proposed increase in profit on debt would force the people having undocumented or black money parked in the banking system to file their returns in order to reduce the tax impact.
In return, the sources said, the FBR would get information of people having large amounts in the banking system.
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Massive cut in tax exemptions, concessions likely in budget 2019/2020
ISLAMABAD: The government has planned to a massive cut tax in exemptions and concessions in the budget 2019/2020, which is scheduled to be announced on June 11, 2019.
Sources told PkRevenue.com that the government had committed with the World Bank and other international agencies to withdraw large size exemptions given to various sectors and individuals in order to boost revenue collection, especially in the wake of difficult economic situation.
The sources said that the Federal Board of Revenue (FBR) had already initiated policy making and would introduce phases to withdraw available tax concessions and exemptions.
According to Pakistan Revenue Mobilization Program funded by the World Bank, the FBR had already launched several initiatives including ongoing review of tax policy to formulate a medium-term tax policy framework and propose measures to reduce tax expenditure for the budget 2019/2020.
The cost of tax exemptions and concessions in the fiscal year 2017/2018 was around Rs541 billion, which included: income tax Rs61.78 billion; sales tax Rs281 billion; and customs duty Rs198.15 billion.
The sources said that in the first phase around 50 percent exemptions and concessions would be withdrawn in the budget 2019/2020.
The World Bank on Pakistan report said multiple exemptions and discounted rates to select industries, economic actors, and economic activities (e.g. sugar, textiles, and fertilizer industries; ‘associations’ in the real estate sector; imports for infrastructure projects under the China-Pakistan Economic Corridor) are granted in each year’s budget law, which distort competition and economic actors’ incentives. In FY2017/18, Pakistan’s tax expenditure (i.e., tax revenue foregone due to exemptions and concessional rates) was estimated at 2 percent of GDP, primarily due to exemptions from General Sales Tax (GST) and customs duties.
“Substantial exemptions also apply to property taxes, whereby properties below a certain size are exempted regardless of location, while revenue is also lost due to unrealistically low valuations used for taxation purposes.”
The Capital Gains Tax (CGT) returns negligible receipts due to the zero rate applied to capital gains from the sale of immovable property after more than four years of ownership, and rates of 5-10 percent for properties sold after one to four years of ownership, the report said.
The present PTI-led government has issued a roadmap for stability, growth and productive employment issued in April 2019 and stated that tax policy has to balance the revenue objective with equity and growth objectives.
Presently tax policy has a predominant revenue focus and as such is likely to create distortions in the economy which can adversely affect the growth and equity objectives.
In addition, even the revenue objective is compromised by large scale exemptions. To correct this shortcoming, the government intends the following:
i) Enact a law to ensure that no tax exemption is allowed through law or notification without an estimate of its cost independently by the tax department as well as the concerned ministry. Such cost will be made public before notification of the exemption.
ii) Review all existing exemptions, with the purpose of eliminating as many of those as possible. Even if an exemption is to be retained its cost will be determined and made public. Ministry of Finance to publish annually a statement of tax expenditures to show how much revenue is being foregone due to exemptions.
iii) Ensure that all exemptions, existing or newly proposed, will have a sunset clause (ideally not more than 5 years).
iv) Publish a list of all government owned, quasi-government and government-linked enterprises availing tax exemption/concession in any way along with quantification of the tax expenditure. In addition, a plan be prepared for phasing out of these concessions.
v) Withdraw FBR powers to issue SROs to grant exemptions. This power will vest only with the Parliament.
vi) Ensure that all non-procedural existing SROs will expire at the end of the fiscal year. Steps taken over the last two years to incorporate all exemptions granted through SROs to be made part of the body of law.
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PTBA advises revisiting arrest, prosecution law under sales tax
KARACHI: Pakistan Tax Bar Association (PTBA) has advised the Federal Board of Revenue (FBR) to revisit law related to arrest and prosecution under Sales Tax Act, 1990.
In its tax proposals for budget 2019/2020, the apex tax bar said that under the existing law, every director and officer of the Company is liable to be arrested if the officer has reasons to believe that such director or officer is personally responsible for actions of the Company contributing tax fraud.
Accordingly, a person who is a nominee director or employee director can be held responsible for the liability of the company.
The PTBA said that as per interpretation of the law nominee or employee directors be who are not involved in the administrative matters of a taxpayer are being held responsible for the liability of the taxpayer.
“It is a trite law that before any coercive action is taken against any person; it is the duty of the Revenue Officer to provide proper opportunity of being heard and pass a judicious order to establish that the act of the registered person is willful and there was an element of mens rea.”
In the Income Tax Ordinance, 2001 such matters are covered under Section 139 thereof which comprehensively deals with the liability both in case of company and association of Persons. “Section 139 needs to be replicated in the Sales Tax Act, 1990 on the similar lines.”
The PTBA said that the proposed amendment would protect interest of the nominee/employee directors.
Pointing out the issue of recovery of arrears under sales tax law, the PTBA said under Section 48 which deals with recovery of arrears does not provide any time limit to initiate the recovery proceedings.
“By virtue of section 45B of the Act, a registered person aggrieved by any decision, may file an appeal within thirty days of the date of receipt of the order. On the contrary, under Rule 71 of the Sales Tax Rules, proceeding of recovery of impugned tax may be initiated after thirty days from the date of order.”
In addition, recovery proceedings may be initiated as soon as Commissioner Inland Revenue (Appeals) confirmed the Order under Section 45B of the Sales Tax Act or Section 33 of the Federal Excise Act.
The PTBA said that the section 45B, 48 and the rule are not harmonized. Sometimes order is served to the registered person after many days of the date of order and the recovery proceedings may be initiated under the Rule even if the time limit provided for filing of the appeal has not lapsed.
Therefore, it is recommended that Rule 71 should be amended to provide commencement of recovery proceedings after thirty days from the date of receipt of the order.
Similarly, time limit of 30 days from the date of receipt of the order should be provided in section 48 to bring harmony between the Act and Rules.
The PTBA suggested that thirty days shall also be allowed for initiation of recovery proceedings in case demand is confirmed by the Commissioner Inland Revenue (Appeals) while disposing appeals filed under section 45B of STA and 33 of FEA.
Giving rationale to the proposal, the PTBA said that it would keep harmony between the Act and the Rules in the spirit of natural justice.
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FBR urged to reduce withholding tax for FMCG distributors
KARACHI: Federal Board of Revenue (FBR) has been urged to reduce withholding tax rate to 0.2 percent for distributors of Fast Moving Consumer Goods (FMCG) companies as higher rate is increasing the cost of doing business.
The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020, said that the distribution of FMCG is a high turnover and low margin business.
This fact has also been acknowledged to some extent by the FBR by prescribing minimum taxation rate for the distributors of FMCG Companies at 0.2 percent of their turnover i.e. reducing the basic rate of minimum tax by 80 percent.
The OICCI suggested that the basic rate of withholding tax under section 153 for distributors of FMCG sector should be reduced to 0.2 percent in line with section 113 of income tax ordinance, 2001.
Giving rationale, it said that the high rate of withholding tax is increasing the cost of doing business as the existing withholding tax rate is higher than the net margin of distributors.
Another proposal, the OICCI said that ‘Aerated waters’ is the only item within food and beverage industry that is subject to both sales tax (third schedule of the Sales Tax Act, 1990) and FED (First Schedule of Federal Excise Act, 2005), while all other beverages (like: Juices, Tea & Milk based drinks) are only subject to sales tax at 17 percent.
Earlier in 2011-2012, FED rate was reduced from 12 percent to 6 percent with commitment that it shall be eliminated in 2 to 3 years but this was not implemented.
The OICCI recommended that the Federal Excise Duty (FED) should be decreased from 11.5 percent to 8.5 percent, and eliminated gradually.
The chamber pointed out that after the withdrawal of 58R of Special Procedure Rules, 2007, relating to the payment of Extra Tax on Specified Goods vide SRO 608(I) 2014 dated 02/07/2014, Large Trading Houses are now unable to issue sales Tax Invoice to Customers.
Resultantly, all Professional Customers are inclined to directly purchase from Manufacturers as they are issuing Sales Tax Invoice to their Customers.
Therefore, it recommended that Rule 58R which was withdrawn vide SRO 608(I) 2014 be restored only for Large Trading Houses operating as Wholesale-cum-retail under Chapter-XII.
Giving rationale, it said that it would create level playing field for Large Trading Houses.
The OICCI also submitted proposal for input Sales Tax on purchase of electrical and gas appliances.
The Sales Tax Act, 1990 does not permit adjustment of Input Sales Tax on purchase of electrical and gas appliances (including visi-coolers & industrial gas appliances etc.) under section 8(1)(h) of the Act.
The Act should be amended to allow for adjustment of such input sales tax.
Visi-Coolers are an integral part of beverage business and inadmissibility of input tax places beverage business at a disadvantage vis-à-vis other businesses, besides such inadmissibility escalates the cost of doing business.In other industries, it is reiterated, that all input tax relatable to ‘taxable supplies made or to be made’ is admissible. Removal of restriction shall provide level playing field.
The OICCI on the issue of further tax on sales to retailers, said with reference to section 14 of the Act, retailers are required to obtain sales tax registration excluding those retailers who are required to pay sales tax through their electricity bill.
Moreover, as per section 3(1A) further tax at the rate of 3 percent is to be charged where supplies are made to unregistered person other than those mentioned in SRO 648 dated July 9, 2013.
Therefore it is recommended that retailers who pay their sales tax through electricity bill to be excluded from further tax through inclusion in SRO 648 dated July 9, 2013.
It will clear the ambiguity regarding applicability of further tax on these retailers.
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Super tax application may be amended to generate around Rs2 billion
KARACHI: Federal Board of Revenue (FBR) may recommend amending application of super tax in the forthcoming budget 2019/2020 to generate around Rs2 billion.
FBR sources said that the tax authorities had recommended amendments to Section 4B of Income Tax Ordinance, 2001 through Finance Bill, 2019.
The sources said that it had been recommended to apply super tax on the income computed under Fourth, Fifth, Seventh and Eighth Schedules ‘other than brought forward depreciation and brought forward business losses.
According to the recommendation, the proposed amendment would bring uniform chargeability of super tax to all taxpayers including taxpayers falling within the purview of Fourth, Fifth, Seventh and Eighth Schedules of Income Tax Ordinance, 2001.
As per the ordinance the fourth schedule covers insurance companies, fifth schedule covers exploration and production companies, seventh schedule for banking companies and eighth schedule covers capital gains and National Clearing Company Pakistan Limited.
The sources said that the proposed amendment will help the FBR to generate around Rs2 billion as revenue.