KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended the government to eliminate culture of amnesty schemes as such measures encourage tax evaders.
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FBR recommended tax exemption to inter-corporate dividend
KARACHI: Federal Board of Revenue (FBR) has been suggested to allow tax exemption to inter-corporate dividend for promoting group formation and consolidation and strengthen the overall corporate structure in Pakistan.
Pakistan Tax Bar Association (PTBA) – the umbrella of tax bars in the country – in its tax proposals for budget 2019/2020, said that through Finance Supplementary (Second Amendment) Act, 2019 a new clause in Part I of the Second Schedule of Income Tax Ordinance, 2001 was inserted, which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed group relief under section 59B, computed according to the following formula:-
A x B/C; Where,
A is the amount of dividend;
B is the shareholding of the company receiving the dividend in the company distributing the dividends; and
C is the total ordinary share capital of the company distributing the dividend.
The PTBA said that pursuant to the provisions of clause (103A) of Part I of the Second Schedule, any income derived from inter-corporate dividend was exempt for group companies entitled to group taxation under section 59AA or group relief under section 59B.
The Finance Act, 2015 then added a condition, that such exemption would only be available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded entities entitled to group relief under section 59B from the exemption entirely.
The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers of taxation on dividends issued by group entities.
This resulted in corporate structures becoming inefficient due to multiple taxation of the same income, on mere distribution within the group, even though no value addition was taking place. This also led to substantial litigation from various groups.
Although, to cater the above problem an exemption has been introduced via the Second Supplementary Act, 2019, it is imperative to note that the newly inserted clause provides a relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually been surrendered between the two entities and even then, only to the extent of the shareholding that the parent entity has in its subsidiary. In effect, this means that:-
— since the provisions of section 59B require listing within a specified period, the relief would not be available to private groups unless they are willing to list;
— the relief would be available only to the entities actually surrendering or receiving the losses, and not all companies within the entire corporate structure;
— based on a literal interpretation, the holding company (i.e. the entity receiving the dividend) may not be able to claim the exemption if the losses under group relief are transferred from one subsidiary to another (i.e. between sister concerns);
— since a company cannot surrender its losses for more than three years, this is not an indefinite relief; and
— the benefit may practically be availed only in specific cases since a company, both receiving dividends and availing group relief in the same year, is normally only possible in structures where a holding company has several subsidiaries.
Overall, this has significantly watered-down relief compared to the demands of the corporate sector, the benefit of which may likely be availed in very few cases that may comply with all the conditions.
It is therefore recommended to exempt inter corporate dividends as it was used to be prior to the amendments brought about by the Finance Act, 2016.
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FBR advised to restore tax credit to sales tax registered persons
KARACHI: Federal Board of Revenue (FBR) has been proposed to restore tax credit to sales tax registered persons for documentation of the economy.
In its tax proposals for budget 2019/2020, the Pakistan Tax Bar Association (PTBA) said that the provisions of this section were applicable in case of sales made to the sales tax registered tax registered person.
The tax credit of 3 percent of tax payable was available to the seller for sales being made to the registered persons, however to promote documentation and registration with tax authorities it was suggested that this incentives should also be made available on purchases from registered persons as well.
“The government abolished this incentive available to the sellers instead of extending this credit to the purchasers as well,” the PTBA said.
It recommended that the application of above tax credit of making 90 percent sales to sales tax registered persons be restored and also be extended to persons making 90 percent of purchases from persons registered under the Sales Tax Act, 1990.
This change would enhance the number of sales tax registered person and documentation of the economy, the PTBA added.
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FBR restructuring proposed to make autonomous body
KARACHI: The government has been proposed to make Federal Board of Revenue (FBR) as an autonomous body on similar line as State Bank of Pakistan.
The Overseas Chamber of Commerce and Industry (OICCI) in its budget proposals for 2019/2020 suggested restructuring of FBR as an independent governing body.
It suggested that FBR should be made an autonomous body on similar lines as State Bank of Pakistan, SECP, and Internal Revenue Services (IRS) of United States.
FBR should operate and work in a corporate governance structure with a Board of Directors, vested with powers like that of the Boards of Public listed companies.
The Chairman of FBR and fifty percent of the Board members may be nominated by the government (Ministries of Finance, Law, and Commerce) and, the remaining fifty percent Board members should be nominated by bodies like OICCI, PBC and ICAP.
A transparent accountability system in tax administration should be introduced, and reasonable independence and empowerment given to various operational positions.
The external audit of FBR should be done annually, by an independent international audit firm whose report should be presented and fully discussed in the Tax Policy Board meeting.
There should also an Internal Audit function within the FBR for an effective ongoing internal audit reporting directly to the independent members of the Board nominated by the Trade bodies.
Apart from revenue collection a key function of the FBR should be to address coordination issues between federal and provincial revenue authorities, with monthly meetings to ensure ease of doing business for taxpayers.
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FBR suggested reducing income tax rate for banks
KARACHI: Federal Board of Revenue (FBR) has been advised to reduce income tax rates for banking companies in line with general corporate tax rates.
The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020, said that the banking sector tax rates have not been reduced in line with the general corporate tax rates.
Furthermore, Finance Supplementary (Second Amendment) Bill 2019, proposed to again amend the First Schedule to the Income Tax Ordinance 2001, whereby, Super Tax of 4 percent is applicable on banks from tax year 2018 to tax year 2021.
The banks, in compliance with the prevailing taxation regime have already closed the tax year 2018 (accounting year 2017) and income tax returns have already been duly filed/assessed.
As a result of the proposed abovementioned retrospective application from tax year 2018 (accounting year 2017), banks would now have to effectively pay super tax for two years or 8 percent instead of 4 percent in tax year 2019 i.e. 4 percent already paid in advance for tax year 2019 along with retrospective charge of 4 percent now being proposed for tax year 2018.
The OICCI suggested that the tax rates of the banking sector should be aligned with other sectors.
It is recommended, application of super tax on tax year 2018 should be removed to avoid the double charge of super tax in tax year 2019.
Furthermore, it is requested that the same overall relief on super tax, granted to other industries, is also provided to the banking sector as well.
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PTBA urges benefits for taxpayers opting out of PTR
KARACHI: Pakistan Tax Bar Association (PTBA) has urged the tax authorities to give benefits to persons opting out of presumptive tax regime (PTR).
In its proposals for budget 2019/2020, the apex tax bar said that through Finance Act, 2012 positive steps were taken for opting out of presumptive tax regime in respect of sale of goods, import and export of goods, subject to certain conditions, which were highly appreciated.
The Finance Act, 2014, however reversed the amendments and in place thereof inserted new clauses (56B), (56C), (56D), (56E), (56F) and (56G); whereby certain persons may opt out of the final tax regime by filing the return of income along with accounts and documents as may be prescribed subject to the condition that their minimum tax liability under normal tax regime shall not be less than the tax already collected/deducted at the applicable rates of the respective Sections.
The Finance Act, 2014 also inserted certain new clauses on similar lines. Under these clauses, the option to opt out of the final tax regime was provided to a person who provides services of stitching, dying, printing, embroidery, washing, sizing and weaving to exporters or an export house.
Furthermore, petrol pump operators and persons earning commission or brokerage are also provided with such an option.
Under the new clauses introduced by the Finance Act, 2014, the tax liability of persons is higher than the tax liability they were required to pay under the initiative introduced vide the Finance Act, 2012.
“Furthermore, it should be noted that as per the current position of the law, the taxpayers would, in practice, not obtain any financial benefit by opting out of the presumptive regime and would instead be required to face the additional burdens and risks of tax audits,” the tax bar said.
The PTBA said that the options introduced by the Finance Act, 2012 should be reintroduced or alternatively, as a first step the corporate sector is given option to opt out from presumptive taxation.
The proposed modification may help starting the journey to tax real income instead of taxation under the PTR reduces the additional burdens imposed on the corporate sector.
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ICAP suggests reviewing extra tax on electricity, gas consumption by industrial, commercial consumers
KARACHI: Institute of Chartered Accountants of Pakistan (ICAP) has suggested the tax authorities to review imposition of extra sales tax on electricity and gas as this levy is passed unnecessarily to consumers by utility companies.
The ICAP in its tax proposals for budget 2019/2020 submitted to Federal Board of Revenue (FBR) said that in terms of SRO 509(I)/2013 read with Special Procedures thereof, every electric power and gas distribution company / organization supplying electricity or gas to commercial and industrial consumers is required to charge and collect extra tax at 5 percent having monthly bill exceeding Rs15,000/- and which have either not provided their sales tax registration number or not appearing in the Active Taxpayers’ List.
The ICAP said that to make reasonable amendments in SRO 509(I)/2013 considering the practical issues being faced by taxpayers as given below in “rational for change.”
This SRO has posed following questions, as a result of which extra tax is unnecessarily being passed on by utility companies to its consumers:
a) Majority of electricity connections / accounts are maintained in the name of person who possesses the ownership of commercial / industrial property.
Therefore, particulars of the consumers available on sales tax registration certificate / upon FBR portal do not match with the name of the account holders.
b) Banks, Insurance companies, Telecommunication companies, Large Multinational and other similar organizations operate through numerous business locations, manufacturing premises, facilitation offices, distribution & warehouses which, in most cases, are not in the name of such organizations.
Further, sales tax registration particulars on FBR Portal do not reflect all such business places from which business operations are carried out.
If the procedures envisaged in SRO 509 are followed, extra tax would be charged and collected from registered persons in respect of all of their electric connections, which are not in the name of such registered persons.
Furthermore, updation of these particulars (e.g.business locations) on FBR database may take considerable time and Banks, Insurance companies, Telecommunication\ companies, Large Multinational which are already registered for sales tax, will have to bear extra tax of 5 percent on all such electric & gas connection just because they are not updated in their name over FBR Web Portal.
c) Institutions owned by Federal and Provincial governments, defense organization, social sector institution and various other service providers are either not required to obtain sales tax registration number or are registered under Provincial Law.
Hence, they neither possess any sales tax registration number nor are required to obtain any registration under the STA.
However, most of the aforesaid organizations or institutions are commercial consumers and by virtue of the SRO, they are unnecessarily suffering extra tax.
d) Cottage Industry, retailers, hospitals, various agencies, diplomatic missions, privileged persons and organizations have been specifically exempted under the Sixth Schedule to the STA and are not required to obtain registration.
However, most of the aforesaid organizations or institutions are commercial consumers and by virtue of SRO, they are unnecessarily suffering extra tax.
e) Payment of extra tax on accrual basis (bill basis) by utility companies in the backdrop of low recovery ratio / non-payment of electricity bill by government and private institutions poses a great liquidity threat to utility companies.
“Hence, it is recommended that extra tax should be recovered on receipt basis, as it was never a tool for revenue generation but a penal provision to induce registration drive.”
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Additional advance tax proposed on all type of motor vehicles to discourage premium
The Overseas Chamber of Commerce and Industry (OICCI), representing foreign investors and multinational companies in Pakistan, has proposed the imposition of an additional advance tax of Rs100,000 on all types of motor vehicles sold before registration.
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PTBA recommends retaining alternative corporate tax or minimum tax
KARACHI: Pakistan Tax Bar Association (PTBA) has recommended the tax authorities to retain either Alternative Corporate Tax (ACT) or minimum tax, as existence of both regimes is inappropriate.
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FBR advised to stop treating taxpayers unfairly
KARACHI: Federal Board of Revenue (FBR) has been urged to stop unfair treatment of compliant taxpayers. The taxpayers should be rewarded instead of harassing them for being compliant.
Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020, said that at present, existing tax payers are confronted with complex laws and unfair treatment by FBR’s personnel and are also threatened at times.
Taxpayers expect to obtain some form of benefit, e.g. health benefits, free education etc. while on the other hand, non-filers continue with their businesses facing no repercussions paying little or no amount of tax.
“This coupled with the harassment by tax system leads to existing tax payers feeling mistreated.”
The ICAP recommended:
As per section 182A, a person filing his/her return of income after the due date remains non-filer for the entire next year.
In order to encourage filing of returns, persons filing returns late should not be discouraged and should be brought in Active Taxpayers List (ATL).
Penalty provisions are already there to address delayed filings.
Active taxpayers list should be updated simultaneously with the filling of return of income.
Some mechanism should be developed to stop all types of unfair treatment with existing taxpayers be it attachment of bank accounts for substantially fictitious demands or asking for absurd details and reconciliations which are too voluminous and not possible to prepare within a reasonable timeframe e.g. explanation of each and every credit entry in the bank statements or reconciling sales and purchases as per sales tax and customs records with accounts.
A person, whose case is selected for audit under the provision of tax laws, should not be subject to monitoring of withholding taxes and other assessment proceedings as same information/details/explanations are asked again and again for different proceeding creating hassle for the filer/registered person.
Filers should be given priority treatment at various infrastructural facilities e.g., at NADRA, schools, excise and taxation when registering motor vehicles, courts of law, banks, hospitals, airports etc.
Top 50/100 tax payers are given blue passports till the time they remain in the list of top 50/100.
Incentives for compliant tax payers and professionals (Doctors, Engineers, Lawyers, Chartered Accountants, reduction in tax rates, tax education through media – pubic private partnership.
A tax filer with over 20 years of tax payment history should be treated with respect & certain tax rebates should be allowed to them including on utility bills.
Likewise a person who has been a genuine taxpayer for 20 years who is over 70 years should be exempted from tax deductions.
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