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Tag: budget proposals

  • PTBA advises revisiting arrest, prosecution law under sales tax

    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.

  • FBR urged to reduce withholding tax for FMCG distributors

    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.

  • Super tax application may be amended to generate around Rs2 billion

    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.

  • FBR urged to allow one sales tax registration for multiple businesses

    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.

  • FBR advised to stop issuing revision in sales tax rates on petroleum products

    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.

  • FBR suggested relaxing exports restriction to Afghanistan

    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.

  • FBR suggested abolishing regulatory duty on import of phrma raw materials

    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.”

  • FBR advised to allow tax adjustment on telecom services

    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.

  • Chemical merchants advocate FTR continuation for commercial importers

    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.

  • Hafeez Shaikh discusses budget proposals with chambers of commerce and industries

    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.