Tag: budget proposals

FBR urged to allow one sales tax registration for multiple businesses

KARACHI: Federal Board of Revenue (FBR) has been urged to allow multiple businesses on one sales tax registration for better documentation of the economy.

In its tax proposals for budget 2019/2020, the Pakistan Tax Bar Association (PTBA) said that after amendment in Sales Tax Act, 1990, through Finance Act, 2008, FBR has directed to cancel multiple registrations under single proprietorship.

It said that proprietor having two businesses faces with the dilemma to show his entire sales under one business, which is creating hardship for his customers in their respective returns.

Moreover, tax department often raise queries as to how a registered person can raise a invoice relating one business if he is registered with the department under another ‘business category’.

“FBR should issue necessary instructions to incorporate multiple business features in its web-portal to facilitate taxpayers,” the PTBA suggested.

The PTBA said that by implementing this suggestion it would result in better documentation of economy and proper maintenance of records of taxpayer.

Highlighting another issue, the PTBA said that the definition of time of supply as amended through the Finance Act, 2013 stating receipt of advance as subject to sales tax, has created number of practical problems because of which sales tax on advance was earlier withdrawn by Finance Act 2007.

The registered persons besides other practical issues has to undertake a tremendous exercise of reconciliation between the books of account where sales is recorded on the basis of delivery of goods with the sales tax returns where sales tax is paid on advance receipts.

Furthermore, this also leads to discrepancies in CREST resulting in hardships to taxpayers as well as to the department.

Therefore, the tax bar proposed withdrawal of the amendment made through the Finance Act, 2013.

It said that it will help taxpayers to avoid unnecessary hassle as well as for the department; as charging of sales tax on advance receipts will not create any additional revenue for the Government.

The PTBA also pointed out ‘hire purchase’ transaction involves periodical installments received/earned over a period of time.

Currently, Sales Tax is being charged on full amount at the time of signing (entered into) of hire purchase agreement.

The registered is burdened with increased amount of output tax on hire purchase sale at the time of sale although the amount is received from the customers in installments.

Definition of time of supply’ may be amended and tax should not be levied at the time of signing of HP arrangement.

Instead, tax should be levied at the time when installment is effected / paid.

Further, the element of interest embedded in such installment should also be excluded for assessment of sales tax.

Charging sales tax on full amount at the signing of hire purchase agreement is not justified and is in conflict with the definition of value of supply which states that it is the consideration which the supplier receives from the recipient for the supply.

June 5, 2019
FBR advised to stop issuing revision in sales tax rates on petroleum products

KARACHI: Federal Board of Revenue (FBR) has been advised to stop practice of issuing revision in sales tax on petroleum products on monthly basis.

The Overseas Investors Chamber of Commerce and Industry (OICCI) in tax proposals for budget 2019/2020, presented suggestions regard powers to issue notifications for change in rate of sales tax – Section 3(2)(b) of Sales Tax Act, 1990.

According to the present law the federal government may, by notification in the official Gazette, declare higher or lower rates of sales tax in respect of any taxable goods, provided that the bill for such change has been passed by the Majlis-e-Shoora.

From 1 July 2016 to date, there have been around half a dozen notifications for changing the rates of sales tax on petroleum products.

The rates have varied from zero percent to 36.5 percent during this period.

The Supreme Court of Pakistan took a suo motu notice for a similar notification on June 21, 2013 and held that the federal government had no authority to levy and recover sales tax without getting the respective bill passed from the National Assembly.

Given the Supreme Court’s verdict on the subject matter, questions arise as to whether the frequent changes in the rates of sales tax for petroleum products are maintainable under law.

Moreover, so many changes on such frequent notice are in itself a challenge for industries which have to go through a lengthy systematic implementation process, each time such rates are notified.

Therefore, the OICCI recommended that that changes in sales tax rates are legally vetted by the Parliament and this monthly practice of issuing notifications at the government’s behest is abolished.

June 4, 2019
FBR suggested relaxing exports restriction to Afghanistan

KARACHI: Federal Board of Revenue (FBR) has been advised to relax export conditions to Afghanistan in order to improve exports and inflows of foreign exchange.

Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020 said that as per SRO 190(I)/2002 dated April 2, 2002, zero rating on Exports under section 4 of the Sales Tax Act is not applicable in respect of supply of certain categories of goods, exported by air or via land route to Afghanistan and through Afghanistan to Central Asian Republics.

Categories of goods specified in SRO 190(I)/2002 have been reproduced below for ready reference:

“(a) manufactured in the Export Processing Zones or in manufacturing bonds;

(b) exported, other than against irrevocable letters of credit, or advance payment, in convertible foreign currency;

(c) exported without fulfilling the conditions prescribed in paragraphs 8, 12B, entry 9 of the Schedule I and Schedule IV to the Export Policy and Procedure Order, 2000; and

(d) specified in the list below, namely: –

(i) cigar, cheroots, cigarillos, and cigarettes of tobacco or of tobacco substitutes;

(ii) dyes and chemicals;

(iii) yarn all types;

(iv) PVC and PMC materials;

(v) polyester metalized film;

(vi) ball bearings;

(vii) vegetable ghee and cooking oil (if exported from Export Processing Zones or manufacturing bonds); and

(viii) all petroleum products whether imported or produced locally (unless there is a Government to Government contract done through oil marketing companies only).”

The ICAP said that similar restrictions, on exports to Afghanistan and through Afghanistan to Central Asian Republic as specified in clause (a), (b) and (d) above are also part of the Export Policy Order, 2016 issued vide SRO 344(I)/2016 dated April 18, 2016.

The ICAP said that goods manufactured in manufacturing bonds are subjected to strict scrutiny by the Customs authorities from import until the final exports stage in accordance with the procedure given in Customs SRO 450(I)/2001 dated June 18, 2001.

Therefore, goods manufactured in the manufacturing bonds are less prone to be used for unscrupulous activities.

The ICAP further noted it understand that restriction on zero rating facility on all items, as per SRO 190(I)/2002 dated April 2, 2002 and SRO 344(I)/2016 dated April 18, 2016, should be revisited, in order to increase overall exports and to prevent other countries like India to capture the market in Afghanistan.

Considering such a situation, the ICAP recommended the following restrictions:

(i) restriction on exports via manufacturing bond be removed and only conditions relating to exports against irrevocable letters of credit, or advance payment, in convertible foreign currency should remain intact owing to the fact that goods manufactured through the manufacturing bond facility are subject to strict scrutiny of the Customs authority;

(ii) for export, other than through manufacturing bond, of goods specified in clause “(d)” of SRO 190(I)/2002 as well as items specified in Schedule III of the Exports Policy Order, 2016, exporters should be made liable to comply with the following conditions:

(a) export transactions must be executed against irrevocable letters of credit, or advance payment, in convertible foreign currency;

(b) zero rating be allowed only in case of exports by Manufacturers from Pakistan to manufacturers in Afghanistan;

(c) where the proof that goods exported have reached Afghanistan has been verified on the basis of a copy of import clearance documents by Afghan Customs Authorities; and

(d) exports should only be routed through authorized export land routes i.e. Torkham, Chaman, Ghulam Khan and Qamar Uddin Karez (when it becomes operational).

It said that restrictions under SRO 190(I)/2002 and SRO 344(I)/2016 were imposed to prevent misuse of zero rating benefits by traders by exporting goods to Afghanistan and thereafter re-importing the same via unlawful means.

The institute believed that a blanket restriction, on all goods manufactured in the manufacturing bond as well as on specific items, instead of bringing the desired results, has dented our Exports market and has also helped the other countries like India, to increase their exports to Afghanistan, which otherwise would have been supplied from Pakistan.

“These suggestions, if implemented in true spirit, will not only increase the overall Exports and Foreign Exchange reserves but will also encourage documented sectors thereby resulting in a major barrier for operations of undocumented sector,” the ICAP said.

June 2, 2019
FBR suggested abolishing regulatory duty on import of phrma raw materials

KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish regulatory duty and reduce customs duty on import of raw materials by pharmaceutical industry.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020 said that through the Finance Act 2008, custom duty on pharmaceutical raw materials was reduced to five percent.

However, there are still many items that are not included in the list of duty reduction.

The OICCI recommended reduction in custom duty and abolishment of regulatory duty on pharma raw materials and packing materials.

All pharmaceutical raw materials should be added to Table A of Part-II of Fifth Schedule to the Pakistan Customs Tariff, it further recommended.

The OICCI pointed out another issued saying that as already highlighted in the Supreme Court Human Right Case No. 93336 of 2018, FBR to allow Sales Tax exemption for Goods defined in Medical Devices Rules – 2017 under DRAP Act, 2012 with their respective headings of Customs Act 1969 imported and locally manufactured.

The OICCI recommended that a new Serial No.4A to be inserted in Part II of the First Schedule to reduce the rate of tax from 5.5 percent to 1 percent on import of pharmaceutical raw materials and finished goods for filers.

It said that presently the rate of tax at import of pharma raw materials and finished goods is very high considering the price constraints on pharmaceutical products and significant devaluation of currency over past months.

The pharma sector is highly dependent on import due to non-availability of raw materials and medicine in finished form in as local substitutes.

The OICCI also suggested sales tax zero rating on pharmaceutical inputs. It said that sales tax being paid on packaging material utilities and other supplies used in manufacturing pharmaceutical products is adding to the product cost.

Since the final product is exempt from Sales Tax, the tax paid can neither be passed on to the consumer nor can be claimed as input tax. This is also against the philosophy of sales tax which is supposed to be borne by the consumer.

It recommended that local supply of medicines/drugs should be classified under Zero-rating, instead of the current “exempt” status from levy of sales tax, so that the pharma industry, whose selling prices are regulated by the government, may claim input tax credits on taxable inputs.

“Alternatively, the taxable raw materials and packing materials, whether imported or locally procured may be notified as exempt from sales tax, if purchased by a pharma manufacturer.”

June 2, 2019
FBR advised to allow tax adjustment on telecom services

KARACHI: Federal Board of Revenue (FBR) has been urged to allow adjustment of withholding tax on services provided telecom sector.

The Overseas Investors Chamber of Commerce and Industry (OICCI) in tax proposals for budget 2019/2020 recommended that the eight percent minimum tax regime should be withdrawn and should be made adjustable.

The OICCI said that through Finance Act, 2016, an amendment was made in Section 153(1)(b) of the Income Tax Ordinance, 2001 whereby the 8 percent withholding tax deducted against the services provided by telecom companies, along with other service providers, have been subjected to a charge of minimum tax instead of adjustable regardless their actual income or loss.

This tax has thus changed the character of income tax from a direct tax to an indirect tax as the amount of charge would no longer be applicable on the quantum of income actually earned even under the standard income tax rules.

Furthermore, the exorbitant rate of 8 percent will seriously erode the profitability, or further increase the losses, of the telecommunication industry which according to independent reports is in shackles and is already the victim of discriminatory taxation.

Consequent to the above amendment in the law, non-issuance of exemption certificates under Section 153(1)(b) on Income Tax Ordinance, 2001 of the Income Tax Ordinance, 2001 in view of the imposition of the minimum tax has also increased the administrative burden of both the telecommunication companies and the withholding tax monitoring units of FBR as the tax that was previously deposited lump-sum as advance tax is now being collected by thousands of corporate customers across Pakistan.

June 2, 2019
Chemical merchants advocate FTR continuation for commercial importers

KARACHI: Chemical merchants have strongly advocated continuation of Final Tax Regime (FTR) for commercial importers in the upcoming budget.

In a statement issued on Saturday Shahid Vaseem, Chairman, Pakistan Chemicals & Dyes Merchants’ Association (PCDMA), said that because commercial importers pay 6 percent advance non-adjustable tax at import stage, whereas industrial importers of same raw material pay only 5.5 percent adjustable/refundable advance tax or avail tax exemption certificate facility, therefore it was not justified to withdraw Final Tax Regime (FTR) from Commercial importers without giving them options of claiming tax refund and facility for issuance of Tax exemption certificate if excess tax is already paid at import stage.

In meeting with PCDMA memebers and leading importers of industrial Raw Materials, Chairman PCDMA, said that assessed value for calculation of customs levies of an industrial raw material whether it is imported by industrial importer or commercial importer; remains same either on the basis of valuation ruling (if available), international scan (if available) or custom data; therefore, chances of under-invoicing eliminated on import of industrial raw materials.

Shahid Vaseem said in his opinion by imposing similar rate of sales tax on industrial raw materials will also eliminate the issue of imports by non-genuine industrial importers and excess imports by the genuine industrial importers, who just import big volumes of industrial raw materials to sale in market at huge profit due to less rate of tax and in some cases got extra ordinary benefits of various SROs. Which resulted in loss of billions of rupees to government revenue.

Shahid Vaseem demanded the Government to provide a level-playing field for commercial importers who are importing industrial raw material and supply these essential raw materials to industries in SME segment. At import stage commercial importers are paying 17+3= 20 percent sales Tax as compared to 17 percent only, if same items are imported directly by industrial importers, this renders our customer industries in SME segment un-competitive in local as well as export markets, thereby eliminating job opportunities and hurting exports of value-added goods.

He explained that 3 percent Additional Sales Tax on import of Industrial Raw Materials if imported by Commercial Importers is irrational and unjustified, because 3 percent ADDITIONAL Sales Tax can only be applied if the Value Addition on raw material is assumed 17.65 percent, which is not possible because there is no process of value addition involved and no inputs such as Land, Buildings, Machinery, Labor, Electricity and Gas etc. are used by commercial importers of same industrial raw materials.

On the contrary the value addition by manufacturers is assumed as 10 percent only and the GST is charged at the rate of 1.7 percent despite all the above inputs.

He claimed that by implementing same rate of taxes and extending benefits of various SROs to commercial importers, similar to the industrial importers of Raw materials for one year will result in significant drop in import volume by the industrial importers, which will prove the misuse of reduce tax facility by the industrial importers and will provide opportunity to the government to identify non-genuine industrial importers who are only existing for importing raw materials for commercial sales.

June 1, 2019
Hafeez Shaikh discusses budget proposals with chambers of commerce and industries

ISLAMABAD: Dr. Abdul Hafeez Shaikh, Adviser to Prime Minister on Finance and Revenue on Thursday met presidents of various chamber of commerce and industries to discuss proposals for budget 2019/2020.

The Presidents and representatives of Lahore, Faisalabad, Sialkot, Karachi and Federation of Chambers of Commerce and Industry were at the meeting.

The representatives of various chambers briefed the adviser about problems and challenges being confronted by the economy of the country.

They gave various suggestions aimed at improving the economy and industrial sector of Pakistan.

The delegation proposed ways and means to enhance the export of the country.

The delegation also gave proposals for the budget 2019/2020.

In order to facilitate the business community and attract foreign investment, the adviser informed that the government was focusing on improving the ease of doing business.

He stated that the role of private sector was highly important in improving the economy of the country and urged the members of business community to play their role to increase the volume of exports.

He assured that the proposals of the chambers would be considered and a business-friendly budget would be presented.

Apart from the representatives of the chambers, the meeting was attended by Adviser to PM on Commerce, Textile, Industry and Production and Investment, Abdul Razak Dawood, Minister of State for Revenue, Muhammad Hammad Azhar, Secretary Finance, Naveed Kamran Baloch, Chairman, FBR, Shabbar Zaidi and Adviser, Ministry of Finance, Dr. Khaqan Najeeb.

May 31, 2019
ICAP proposes restricting powers of Directorate General Intelligence and Investigation

KARACHI: Institute of Chartered Accountants of Pakistan (ICAP) has proposed restricting powers of Directorate General of Intelligence and Investigation (I&I) as multiple powers of tax authorities are causing hardship for taxpayers.

The ICAP in its tax proposals for budget 2019/2020 said that the Federal Board of Revenue (FBR) through SRO 115 (I)/2015 dated February 09, 2015 conferred upon the Directorate General (Intelligence and Investigation), Inland Revenue, the powers of the Chief Commissioner/Commissioner:

— to exercise powers and perform functions under Sections 174, 175, 176, 177 (other than power to initiate audit), 178, 179, 180, 181, 182, Part III, Part XI of Chapter X, Sections 205 and 221; and

— to investigate Suspicious Transactions Reports (STRs) or other assets of persons or classes of persons impounded by any department or agency of the Federal or Provincial government and prepare/transmit reports to respective RTOs or LTUs for the purpose of application of Section 111 and for taking appropriate action under the Income Tax Ordinance, 2001.

The ICAP recommended that the law should be amended so that the authority of Director General Intelligence and Investigation is exercised only to investigate Suspicious Transactions Reports (STRs) or other assets of persons or classes of persons impounded by any department or agency of the Federal or Provincial government and prepare / transmit reports to respective RTOs or LTUs for the purpose of application of Section 111 and for taking appropriate action under the Income Tax Ordinance, 2001 and should not exercise the powers under various sections of the Ordinance.

The creation of parallel authorities for the purpose of sections 174, 175, 176, 177, 178, 179, 180, 181, 182, Part III, Part XI of Chapter X, Sections 205 and 221 is causing problems to the taxpayers.

May 30, 2019
PTBA suggests reducing record retention time to five years under Sindh tax laws

KARACHI: Pakistan Tax Bar Association (PTBA) has submitted budget proposals 2019/2020 to Sindh Revenue Board (SRB) suggesting to reduce time limit for retaining records to 5 years from 10 years.

The apex tax bar said that under present legislation a 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 Sales Tax Act and Income Tax Ordinance. It will not only put excess burden on the taxpayer, but also disincentivizes the tax authorities from taking timely action.

It is therefore recommended that the time period for retention of records and assessment of tax should be reduced to five years.

This would save taxpayers from practical difficulties and unnecessary burden while pushing the tax authorities to take more timely action.

The PTBA also highlighted the issue 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.

Therefore it is recommended that such restriction should be eliminated.

Giving rationale to the suggestions, the PTBA said 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 VAT. It is also not justifiable in case of a long term projects.

Regarding assessment order, the apex tad bar said that it 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 PTBA suggested 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.

The PTBA further pointed out 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.

May 30, 2019
FBR urged to extend tax credit to investment in infrastructure

KARACHI: Federal Board of Revenue (FBR) has been urged to extend tax credit facility to investment in factory building and manufacturing related infrastructure.

Pakistan Tax Bar Association (PTBA) in its tax proposals for budget 2019/2020 said that tax credit under section 65E of Income Tax Ordinance, 2001 is restricted to investment in plant and machinery.

Tax credit under section 65D is available only at the time of setting up a new industrial undertaking. No tax credit is given on subsequent expansion of such an industrial undertaking since section 65E restricts eligibility to companies formed before 01 July, 2011.

Expansion of plant or undertaking a new project involves investment in factory building and manufacturing related infrastructure and as such, these types of investments should also be made eligible for tax relief.

Expansion is also possible in industrial units’ set-up after 01 July, 2011.

It is, therefore, recommended that tax credit under section 65E should also be extended to investment in factory building and manufacturing related infrastructure.

Applicability of section 65E to only such companies’ setup after 01 July, 2011 may be relaxed to include industrial undertakings formed thereafter as well, which undergo expansion.

An increased availability of tax credits may act as an incentive to new investment since the investors foresee tax benefits which they may practically be able to utilize.

The tax bar further highlighted that tax credits under sections 65B and 65E are restricted to investment in plant and machinery.

The rational behind these tax credits is not the purchase of plant and machinery but industrial expansion and increased economic activity. In this regard, it may be appreciated that expansion of business (and the consequent increase in economic activity) is not achieved from plant and machinery in isolation and is, for all practical purposes, not possible without an appropriate support structure.

In order to streamline section 65B(4) with the wordings of section 65B(1), the following wording, in bold, may be inserted:-

“65B (4) make an investment for the purposes of extension, expansion, balancing, modernization and replacement of the plant and machinery.”

An explanation be added to sub-section (1) of Section 65B:-

“For removal of doubts, for the purposes of this section, it is declared that the words “purchase of a plant and machinery” includes all direct expenses which are necessary to make the Plant and Machinery in a workable condition and also includes factory buildings and manufacturing related infrastructure.”

Tax credit under Section 65E should also be extended to investment in factory building and manufacturing related infrastructure, the PTBA recommended.

The proposed amendment/modification in tax credits will clarify the ambiguity for the companies’ set-up before first day of July, 2011 and shall promote industrial expansion and increased economic activity.

May 28, 2019