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Tag: budget proposals

  • FBR suggested reduced corporate tax rate for job creation

    FBR suggested reduced corporate tax rate for job creation

    KARACHI: Federal Board of Revenue (FBR) has been suggested to reduce corporate tax rate by one percent for companies creating 50 or more new jobs in a year.

    Pakistan Business Council (PBC) in its tax proposals for budget 2019/2020 suggested the government to reduce tax rate for companies creating more jobs during a year.

    “One percent lower tax rate for existing companies that create 50 or more new jobs on their own payroll in a year.”

    Giving rationale to the proposal, the PBC said that Pakistan needs to find employment for two million youth each year.

    The PBC further suggested first year depreciation allowance for investment in making upgrades to the provision of facilities (including lifts, ramps) for the specially challenged in the workplace or business.

    It further suggested 0.5 percent lower tax rate for providing livelihoods to specially challenged persons equal to five percent of the workforce.

    Giving rationale to the changes, the PBC said that in order to demonstrate a commitment to creating livelihoods for all and work toward target of sustainable development goal – “By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.”

    It further said that no or limited facilities that allow access in the workplace or business for the specially challenged thereby deterring the disabled from working.

  • Ban foreign cigarettes without health warnings: OICCI

    Ban foreign cigarettes without health warnings: OICCI

    KARACHI: The Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended to the government to impose a ban on the import of cigarettes lacking health warnings, as part of a strategy to deter the rampant smuggling of tobacco products.

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  • PTBA suggests allowing further tax adjustment to suppliers

    PTBA suggests allowing further tax adjustment to suppliers

    KARACHI: Pakistan Tax Bar Association (PTBA) has recommended the Federal Board of Revenue (FBR) to allow adjustment of further tax against input tax.

    The PTBA in its proposals for budget 2019/2020, said that presently further tax has been charged by the registered person on the supplies made to the person who are required to be registered but does not obtain registration is not available for adjustment against input tax in pursuance of section 7(1) of the Sales Tax Act, 1990.

    Moreover, through the Finance Act, 2017, further tax at the rate of 2 percent was also levied on zero-rated supplies.

    The PTBA said that this results in unnecessary increase in cost of doing business and unrest amongst the taxpayers which is creating a negative business environment.

    “Due to this amendment, all zero –rated supplies including exports are subject to further tax.”

    Exports are made to non-resident persons who are not required to be registered with Pakistan tax authorities. Resultantly, the exporters will have the bear the amount of further tax charged to exporters which will badly affect their competiveness in the international market.

    The PTBA recommended that the supplier should be allowed adjustment of further tax against input tax.

    Appropriate clarification should be issued that export sales are not subject to further tax, the PTBA further advised.

    The proposed amendments would put an end to unnecessary litigation, result in reducing the cost of doing business and create trust between taxpayers and tax collector.

    The exporters will not be burdened with extra cost of further tax.

  • Hafeez reviews proposals for budget 2019/2020

    Hafeez reviews proposals for budget 2019/2020

    ISLAMABAD: Dr. Abdul Hafeez Shaikh chaired a meeting on Sunday to review the proposals for budget 2019/2020.
    Shabbar Zaidi, Chairman, Federal Board of Revenue (FBR), gave a detailed presentation about the budget proposals for the upcoming budget.
    He proposed various steps to expand the tax base as well as increase revenue of the country.
    The adviser directed FBR to make tax collection process further easier and initiate measures to broadening the tax base.
    The meeting was also attended by the Adviser to PM on Commerce, Textile, Industry and Production and Investment, Abdul Razak Dawood, Minister of State for Revenue, Muhammad Hammad Azhar and other senior officials of Finance Ministry and FBR.

  • Reduction in corporate tax for E&P companies recommended to attract foreign investment

    Reduction in corporate tax for E&P companies recommended to attract foreign investment

    KARACHI: Federal Board of Revenue (FBR) has been recommended to reduce corporate tax rate for exploration and production companies in order attract foreign investment in this sector and generate more revenue for the country.

    The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020 said that the applicable tax rate for the Oil and Gas Exploration and Production sector is 40 percent.

    Before the promulgation of Income Tax Ordinance, 2001, the tax rate was 50 percent to 55 percent, however, the royalty payment to government was adjusted against the tax liability, resulting in effective tax rate of approximately 35 percent or less.

    Applicability of effective 40 percent tax rate has in fact increased the tax expense of the Oil and Gas Exploration and Production Companies, as against the incentives given to other sectors of the economy, whereby the tax rate will be gradually reduced to 30 percent.

    The OICCI recommended that in order to incentivize oil and gas exploration in the country especially after the massive reduction in the international oil prices, the corporate tax rate on E&P sector should be reduced from the current 40 percent to the rate applicable to other corporate sector by making necessary amendments in the Income Tax Ordinance 2001 and Regulation of Mines and Oilfield and Mineral Development (Government Control) Act, 1948.

    Giving rationale, the OICCI said that foreign investment will be encouraged in the country, which will eventually increase the tax collection of the government and will also greatly help to overcome the energy crises in the country.

    The OICCI highlighted another issue of limitation on payment to federal government and taxes, and said that the rate of tax applicable on E&P companies on their Oil & Gas profits are given in their respective PCAs signed with government.

    Under Rule 4AA of Part I of the Fifth Schedule to the Income Tax Ordinance, Super tax has been imposed at 3 percent for E&P companies earning Rs 500million (equivalent to US$ 5million).

    It recommended that it is critical for E&P sector and recommended that the tax applicable should be calculated strictly in accordance with the provisions of the respective PCAs signed between Government and each E&P company and are legally binding, without changes throughout the full Lease period.

    The chamber said that this will remove the negative investment scenario, and potential for litigation – due to the varying interpretations by the FBR from time to time (despite the signed PCAs with Government)

    The OICCI said that tax credits under section 65A and 65B are not currently being allowed to E&P companies by the tax authorities despite the fact that appellate Tribunal decided the matter in favour of E&P companies.

    Therefore, it is suggested that necessary clarification needs to be provided by tax authorities to assessing authorities.

    In view the current energy deficit in the country and recent decision of appellate Tribunal, these credits should be allowed to the E&P companies to promote further investments in this sector.

    Regarding depletion allowance, the OICCI said that clarity over definition of well head value for computation of depletion allowance is required.

    As per clause 3 of Fifth Schedule, depletion is calculated at 15 percent of the gross receipts representing well-head value of production, but not exceeding 50 percent of taxable income.

    E&P industry interprets above by calculating depletion at 15 percent of gross revenue before royalty deduction.

    Tax authorities calculate depletion at 15 percent of Gross Revenue after deduction of royalty.

    Therefore, it is proposed that amendment be introduced in the relevant clause in favor of E&P companies i.e. depletion to be calculated at 15 percent of revenues before royalty deduction.

    The matter is under litigation at High Court level for various E&P companies. Clarification in the definition of Well head value will ease unnecessary burden of these litigations for E&P Companies, the OICCI added.

  • FBR advised to substantially reduce penalties on non-filing, late-filing of tax returns

    FBR advised to substantially reduce penalties on non-filing, late-filing of tax returns

    The Pakistan Tax Bar Association (PTBA) has advised the Federal Board of Revenue (FBR) to significantly reduce penalties imposed on non-filers and late filers of income tax returns and wealth statements.

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  • Installing scanners at Pak-China borders suggested to prevent misuse clearance under CPEC

    Installing scanners at Pak-China borders suggested to prevent misuse clearance under CPEC

    KARACHI: Institute of Chartered Accountants of Pakistan (ICAP) has suggested to install scanners at Pak-China borders to stop misuse customs clearance of goods transported under China – Pakistan Economic Corridor(CPEC).

    The ICAP in its tax proposals for budget 2019/2020 said that CPEC is a journey towards economic regionalization in the globalized world.

    This will deepen and broaden economic links between Pakistan and China and will surly leave a positive impact on other countries of the region.

    The success of CPEC is directly proportional to three factors viz. (a) security arrangements, (b) infrastructural development and (c) smooth e-based Customs operations.

    Whereas, a number of initiatives are being taken, and proposed to be taken, on two fronts viz. security and infrastructure, but Customs operations, have hitherto been given little thought.

    The ICAP presented following recommendations:

    i. “SCANNERS” be introduced / installed at Pak China Borders and at Gwadar / Karachi Port in order to check / verify each and every container with its contents

    to cross verify that the same have been exported / imported without its misuse.

    ii. Scanning image of exports from China border should be compared with scanning image of goods delivered from Gwadar / Karachi port and vice versa for imports until then entry should remain open for scrutiny.

    iii. Chinese exporters / importers should also file the entry in the WeBOC system of China, and Pakistan should have access to the China WeBOC system to mark green the container cleared in the WeBOC.

    Entry to remain open until the same is verified by actual export / import routed through Gwadar / Karachi as such showing the containers not yet cleared or in transit or if not cleared after 7 days of being released from Pakistan port then marked red for being misused.

    In such cases, show cause notices be sent to exporters / importers, as the case may be, for further inquiry.

    iv. In case of exports, goods should only be allowed in containers loaded in China and evidence of shipping line booking and Bill of Lading be obtained as proper evidence.

    v. There should also be a set up for custom offices after every 200 km intervals along the routes of CPEC to ensure effective monitoring of transit trade flows.

    vi. In order to ensure swift and smooth monitoring, e-tagging be installed on vehicles carrying cargo.

    When a vehicle crosses the designated customs office at the pre-marked route, the data of cargo movement would automatically enter the system showing location and brief description of goods, etc.

    vii. The online movement of the cargo should be viewed by both customs offices at port of entry and exit. The containers carrying cargo be sealed and de-sealed by customs at entry and exit points respectively. This will ensure safety of the cargo and avoiding en-route pilferage.

    viii. Both Governments must agree to strengthen customs controls at the border and to establish “Electronic Data Interchange” (EDI) linkage between Pakistan and China on “Real Time Basis” to ensure reconciliation of export/ import data of cargo routed through CPEC route.

    ix. In case of imports, evidence of payment of goods by Chinese importer to their suppliers and submission of bank guarantee equivalent to government levies to be collected on China imports by Pakistan Customs before release.

    Transit cargo will be transported from and to China, which needs Customs facilitation as well as monitoring both en-route and entry/exit stations to avoid menace like presently being faced due to Afghan Transit Trade.

    CPEC also envisages establishment of export processing zones, special economic zones and free zones. This requires door-step Customs facilitation to ensure swift clearances of goods without any pilferages.

    More importantly, the duty/tax free goods will be transported across Pakistan, which needs en-route monitoring so that the same are not pilfered en-route, jeopardizing the very essence of CPEC.

    Moreover, any smuggling/pilferage of Chinese goods en-route will have direct and serious repercussions on Pakistani industry and duty paid goods.

    “A case in hand is Afghan Transit trade cargo. It used to suffer from different infirmities, which kept on hindering its smooth operations. These issues ranged from mis-declarations, delays, isolated and partial e-monitoring, en- route pilferages, smuggling etc.”

    A number of adhoc arrangements such as verifications of cross border certificates, random examinations at port of entry and enhancement of anti-smuggling operations etc. were made, but desired results could not be fetched.

  • New tax legislation sought for Islamic banking

    New tax legislation sought for Islamic banking

    KARACHI: Federal Board of Revenue (FBR) has been suggested to draft new legislation for taxation of Islamic banking.

    It is proposed that the audited financial statements of Islamic banks as well as those of Islamic Banking branches/windows operations of conventional banks provided separately in the audited financial statements of conventional banks submitted to the State Bank of Pakistan should be taken as basis of calculation for income tax.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in tax proposals of budget 2019/2020 highlighted:

    Rule 3: Treatment for Shariah compliant banking—

    — Any special treatment for “Shariah Compliant Banking” approved by the State Bank of Pakistan shall not be provided for any reduction or addition to income and tax liability for the said “Shariah Compliant Banking” as computed in the manner laid down in this schedule.

    — A statement, certified by the auditors of the bank, shall be attached to the return of income to disclose the comparative position of transaction as per Islamic mode of financing and as per normal accounting principles. Adjustment to the income of the company on this account shall be made according to the accounting income for purpose of this schedule.

    It is recommended that new legislation to be drafted to provide neutrality in the light of below:

    — The audited financial statements of Islamic Banks as well as those of Islamic banking operations of conventional banks provided separately in the audited financial statements of conventional banks and submitted to the State Bank of Pakistan shall form the basis for the calculation of income tax liability as provided in this Schedule.

    The OICCI said that the objective of Rule 3 of 7th Schedule was to provide tax neutral treatment to IBIs, however, it is difficult to meet the condition of Sub-Rule (2) of Rule 3, keeping in view the diversified nature of Islamic banking transactions and equating each transaction to a conventional equivalence and then getting it certified by the auditor which is time consuming and costly for Islamic Banking Institutions. Moreover, it does not give space for differentiated transactions as each transaction from Income Tax purpose has to be equated with a conventional transaction.

    It is thus proposed that the audited financial statements of Islamic Banks as well as those of Islamic Banking branches/windows operations of conventional banks provided separately in the audited financial statements of conventional banks submitted to the State Bank of Pakistan should be taken as basis of calculation for income tax with additions and deductions as provided in the Seventh Schedule to the Income Tax Ordinance, 2001 which is applicable to the entire banking industry in Pakistan.

  • FBR suggested removing impediments in availing exemption certificates for industrial growth

    FBR suggested removing impediments in availing exemption certificates for industrial growth

    KARACHI: Federal Board of Revenue (FBR) has been suggested to remove restriction of exemption certificates for import of plant and machinery for new projects in order to promote industrial growth in the country.

    Pakistan Tax Bar Association (PTBA) in its tax proposals for budget 2019/2020 said that existing procedures and rules for obtaining exemption certificates for import of plant & machinery and raw material by taxpayers has serious restrictions which causes hardship and increases cost of doing business.

    The PTBA highlighted following issues related to exemption certificates:

    Current income tax rules do not support issuance of exemption certificate for import of raw material by manufacturers starting new business or in the process of expanding the current product or launched a new product etc. These restrictions are hindering industrial growth in the country;

    For qualifying for exemption, maximum import of raw material is restricted to the extent of 125 percent of the material previously imported and consumed;

    In order to qualify for exemption, the law requires minimum tax (equal to higher of last two years tax liability) to be paid before qualifying for exemption. This means that in the case of lower taxable profits due to expansion or operational reasons, the taxpayer will inevitably have a tax refundable in the current year;

    In case of newly established undertakings, tax credit under section 65D of Income Tax Ordinance, 2001 is not being allowed by the department while working out tax liability of the last two years;

    Coupled with a high rate of withholding at 5.5% these restrictions badly affect working capital of the manufacturers; and

    Currently, certificate of exemption from withholding tax on imports under Section 148 of Income Tax Ordinance, 2001 is not allowed to persons who are importing raw material, plant, machinery, equipment and parts for its own use unless they qualify as industrial undertaking.

    The tax paid at import stage on such imports by persons other than the industrial undertaking is treated as a final tax.

    The tax bar recommended that in order to address the issues faced in respect of claim of exemption under section 148 of the ITO, following amendments are proposed:-

    Restrictions in respect of issuance of exemption certificate for new projects / capacity expansions / formula and process changes may be removed which will allow industrial growth in the country;

    Maximum volume restriction be at least enhanced to 150 percent of last year’s raw material imported;

    Requirement to meet the tax payment equal to previous two tax years be abolished and may be linked with payment of advance tax liability for the respective period (as in the case of exemption under section 153);

    Amendments may be made to allow tax credit under section 65D while working out previous year’s tax liability for newly established undertakings already under immense cash-flow burden. This would help eliminate piling up of unnecessary refunds for newly established undertakings; and

    The rate of tax on import of raw material and plant & machinery may be gradually reduced to 1 percent.

    Clause (a) of sub-section (7) of Section 148 should be amended as under:-

    “Raw material, plant, machinery, equipment, parts or any other goods by any person for its own use”.

    In present situation, high rate of withholding at 5.5% coupled with these restrictions badly affect the working capital of the manufacturers. Removal of these hardships would provide incentive to industries and reduction of piling of huge refunds, it said.

  • Demonetizing high denomination currency notes recommended to eliminate avenues for untaxed funds

    Demonetizing high denomination currency notes recommended to eliminate avenues for untaxed funds

    KARACHI: The foreign investors and multinational companies have suggested the government to demonetize high denomination currency notes to eliminate parking lots for untaxed funds.

    The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020 suggested measures to eliminate legally permissible ‘parking lots’ for untaxed funds.

    The OICCI – representative body of foreign investors in Pakistan and multinational companies – suggested that defective mode and manner of valuation of immovable properties should be addressed. “Registration of sale and purchase of real estate should only be on fair market value at the time of the transaction,” it suggested and said necessary information on market value of real estate can be easily obtained.

    It further suggested that sale of all kinds of bearer securities, prize bonds, and other such items should be stopped.

    Appropriate restrictions should be imposed on the hoarding of foreign currencies.

    “High denomination currency notes should be demonetized.”

    The OICCI also suggested introduction of books of account and cash registers.

    The Federal Board of Revenue (FBR) does not have any proper shop-wise record of approximately 35 million SMEs, which are mostly sole proprietorship or partnerships, despite the fact that jurisdictions within the tax offices are location centric, especially for small and medium sized businesses.

    It should be made mandatory for all businesses to maintain books of account and taxes should be levied on ‘net income’ basis only.

    Registration of all retail outlets and electronic cash registers should be made mandatory without any turnover thresholds, which gives rise to tax evasion.

    The installation of these registers should be inspected regularly by tax inspectors.

    The FBR should engage with representatives of small manufacturers, wholesalers and retailers and ensure their buy-in for introduction of these documentation measures so that the previous back-tracking on these actions is not repeated.

    The book keeping requirements /outline be regularly upgraded considering the best practices learnt from other neighboring countries in the region with similar business infra-structure.