KARACHI: Business community has advised Federal Board of Revenue (FBR) to shun conducting multiple audits of a taxpayer in a year in order to ensure ease of doing business.
In its proposals for budget 2020/2021 submitted to the FBR, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that registered Tax payers receive notices of multiple audits in a year such as Income Tax audit under Section 177 of the Income Tax Ordinance 2001, Withholding Tax audit under Section 161 of the Income Tax Ordinance 2001; Sales Tax audit under Section 25 of the Sales Tax Act 1990.
Moreover, the taxpayers also receive multiple notices of amendments in assessments under Section 122 of the Income Tax Ordinance 2001 and under Section 111 of the Income Tax Ordinance 2001 to explain sources.
The multiplicity of audit of a single taxpayer in a single year is against the concept of ease of doing business and creating unnecessary problems for tax payers.
The FPCCI recommended that multiplicity of audits in a single year be done away with and replaced with the concept of composite audit of registered taxpayers.
Further, it is suggested that new audit parameters should be enforced after consultation with all stakeholders.
KARACHI: Federal Board of Revenue (FBR) has been urged to reduce customs duty on import of smartphones for the growth of economy.
In its proposals for budget 2020/2021 submitted to FBR, the Overseas Investors Chamber of Commerce and Industry (OICCI) said that after the implementation of DIRBS and accompanying tax increase, the smartphone penetration in the country has dropped by 6 percent in the current fiscal year.
“This is primarily due to the reason that for smartphone, we primarily rely on imports,” the OICCI said.
Smartphones are not only used for communications but are predominantly used as an enabling tool for internet in almost all segments of the economy including finance, education, health, agriculture, social development etc.
In the digital ecosystem, availability and affordability of these phones plays a major role in the growth of economy.
All imported mobile phones including smartphones are now heavily taxed, rendering them unaffordable for vast segment of the population.
This lack of affordability has become major impediment in proliferation of broadband in the country.
The OICCI recommended:
i. Retaining the current tax structure on low-end 2G handsets/feature phones (i.e. Rs. 500 as tax per device)
ii. Reducing taxes on 3G/4G handsets (smartphones) below Rs. 10,000 and cap it to a max of Rs. 1,000/- per device
iii. Reducing taxes on smartphones in the higher price brackets and cap it to a max of Rs. 5,000/- per device.
KARACHI: Federal Board of Revenue (FBR) has been recommended to abolish withholding tax on telecom services considering the rate is too high and a large segment of people living below poverty line.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that currently, telecommunication services in Pakistan are subject to withholding tax at 12.5 percent, which is much higher as compared to other sectors.
Since approximately 30 percent of the population lives below the poverty line and the percentage of return filers is also nominal, imposition of withholding tax on the entire subscriber base is neither fair nor based on sound principle of proportionate taxation.
The OICCI recommended the FBR to abolish withholding tax to promote the accessibility of internet/data services to the low-income groups.
The OICCI also highlighted the issue of sales tax on services applicable in provinces.
In Punjab, KPK, Baluchistan and Sindh, GST on telecom sector is charged from all consumers at 19.5 percent. In the federal capital, this rate is 17 percent.
It is pertinent to mention that the provinces are levying a much lower rate of GST on other services – i.e. 13 percent – 16 percent.).
The OICCI recommended:
i. Reduce and harmonize GST across the country – i.e. a single rate for all services across all jurisdictions.
ii. Since GST is a consumption tax on usage, the decrease in GST/FED rate will result in increase in usage of telecom services and consequently drive tax collection upwards.
iii. A recent GSMA study1 concluded that harmonization of GST on mobile services to 17 percent would yield have an estimated PKR 62 billion positive impact on the GDP and exchequer. Additionally, we can expect 4.5 million more subscribers primarily on mobile broadband, which will be further stimulate GDP growth.
KARACHI: Federal Board of Revenue (FBR) has been recommended to reduce the income tax rate for exploration and production (E&P) companies especially in wake of massive reduction in international oil prices.
KARACHI: The tax rate on rental income should be made uniform for individual, Association of Persons (AOPs) and company at 15 percent.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021, recommended to bring uniformity in taxing the rental income.
The FPCCI said that at present for every person except companies the income from property is chargeable to tax at the rate specified in Division (VIA) of Part I of the First Schedule to the Ordinance, which is considered to be their final tax liability and they are not allowed any expenditure against gross rent, except option provided under sub-section (7) of section 15A of the Ordinance, in case income exceeds Rs.4 Million. Whereas, the companies are required to pay normal tax (current at 29 percent) on such income after adjustment of admissible expenditure out of gross rent.
The tax rate on rental income has now been gradually increased from 20 percent to 35 percent for individuals and AOPs though the Finance Act, 2019.
Apart from that the lessor is also required to pay Sindh Sales Tax at the rate of 3 percent to Sindh Revenue Board (SRB), which makes the total tax impact very unfair and exorbitant and lead towards un-documented business.
The present scheme of taxation on rental income resulted the rents of warehouses had increased exorbitantly and the exporters who warehoused their exportable goods are financially hurt.
Moreover, it has also distorted the income of the senior citizens, retired persons, pensioners, widows etc., whose livelihood solely depends upon rent of their property, made from their income in good old days.
The FPCCI made following proposals:
i) The rental income from property, AOP or individual and company be taxed at a uniform rate of 15% of the Gross Rent as full and final discharge of tax liability.
ii) Rental income taxable under Normal Tax Regime should be allowed to be adjusted against business loss. The restriction imposed through Finance Act, 2013 needs to be reconsidered.
Giving the rationales to the proposals, the FPCCI said:
i) The impact of taxes (direct and indirect) on rental income will be rationalized.
ii) Investors will be encouraged to declare their genuine rental income.
ISLAMABAD: The Tariff Policy Board (TPB) on Monday discussed budget proposals submitted by various stakeholders.
Advisor to the Prime Minister on Commerce Abdul Razak Dawood chaired the meeting.
The advisor said that the budget proposals, forwarded by different stakeholders, would be given due consideration by the TPB so that economy of the country could be revitalized at this difficult juncture.
The meeting was attended by the Secretary Ministry of Commerce, Chairperson National Tariff Commission (NTC), Member Customs Federal Board of Revenue (FBR) and other senior officials of the ministries concerned.
During the meeting, Abdul Razak Dawood emphasized that the maximum benefits would be given to the industry and the lowest strata of society, as per instructions of the Prime Minister Imran Khan, so that maximum job opportunities could be generated in the shortest possible time.
In the meeting, the tariff related proposals pertaining to different sectors of the economy, for improving the competitiveness of Pakistan’s exports and giving new impetus to the process of industrialization, were discussed at length.
The recommendations of TPB on tariff structure would be incorporated in the fiscal budget for the year 2020-2021.
It was decided by the TPB that the meetings of the Sub-Committee of the board would be convened regularly and the recommendations of the Sub-Committee would be placed before the Tariff Policy Board for deliberations and taking informed decisions thereon.
The next meeting of the Tariff Policy Board will be held by the end of this week.
KARACHI: Pakistan Stock Exchange (PSX) has recommended to lower the rate of tax for listed companies in order to encourage listing in the equity market.
“The tax rate should be permanently lowered for listed companies, by giving tax credit of 20 percent of tax payable for those companies that meet the prescribed requirements including a minimum free float of 25 percent throughout,” the PSX suggested in its proposals for budget 2020/2021.
The stock exchange said that in order to encourage new listings, the Finance Act, 2011 introduced Section 65C of the Income Tax Ordinance, 2001; whereby tax credit equal to twenty percent (20 percent) for the tax year in which a company opts for enlistment on the Stock Exchange was allowed.
Currently, the tax credit is given for four years from the date of listing, subject to the condition that for the first two tax years.
This tax credit is very insignificant and not enough to attract new listings.
It is generally observed that when companies opt for a listing on a stock exchange, their profits enhance substantially due to effective corporate governance, better disclosures, and availability to additional funds from the market.
Increased profitability ultimately leads to higher tax revenue for the government as the number of listed companies on PSX grows. Higher listings, coupled with regulations to increase trading activity will result in higher liquidity, and also lead to incremental government revenues from capital gain tax.
The table below outlines the five-year summary of listing and de-listing on the PSX:
Particulars
Number of Companies
Capital (Rs.)*
New Listings
24
62,607 Million
De-Listings
42
12,971 Million
Delisted due to merger
9
140,535 Million
*As of December 31, 2019
Giving rationale to the proposals, the PSX said that It is generally observed that publically-listed companies are able to improve profitability due to effective corporate governance, better corporate disclosure and availability of additional funds.
The incremental benefits arising from the preferential tax structure for listed companies will foster a business environment that encourages new listings on the stock exchange, resulting in higher trading volumes and lead to:
a) Higher tax revenue from listed companies’ income as a result of higher corporate profits
b) Higher revenues from tax on brokers activity on new listings
c) Higher revenue from Capital Gains Tax on disposal of newly listed securities.
KARACHI: Federal Board of Revenue (FBR) has been proposed to rationalize of withholding tax on dividends as higher rate from equity investments discourage investment in the capital market.
Pakistan Stock Exchange (PSX) in its proposals for budget 2020/2021 submitted to Federal Board of Revenue (FBR) said that withholding tax on profit from debt instruments is currently charged a lower rate compared to the withholding tax charged on dividend from equity investments.
The difference ranges between 2.5 percent – 5 percent. This reduces the incentive to invest in the equity market.
Tax treatment on various asset classes should not be the primary driver of investment decisions, the PSX said, adding that the profit on debt and dividends should receive the same tax treatment.
At present, it is observed that corporate profits are first taxed at company level, and subsequently, the resulting profits which are distributed as dividends are taxed at the individual level.
This is essentially a form of double taxation, and result in the misallocation of capital in an economy by giving an upper hand to fixed income investments.
To remove this discrepancy, the government should introduce a mechanism to eliminate the distortion on the tax charged on dividends, and make the effective tax rate equal to that on debt.
Tax rate on investments
Profit paid is more than rupees five hundred thousand
Profit paid is rupees five hundred thousand or less
Profit on Debt u/s 151
15 percent
10 percent
Sukuk-holder (individual or an association of person), if the return on investment is more than one million U/S 150A
12.5 percent
Sukuk-holder (individual and an association of person), if the return on investment is less than one million U/S 150A
10 percent
Dividend U/S 150 & 236S
15 percent
The PSX submitted following proposals:
i. Government should introduce a mechanism to remove the double taxation of company’s profits – once in the hands of the company, and once in the hands of shareholders as dividends – such that the effective tax rate on dividends is on par with profit on debt.
ii. Rationalize the current tax rate on dividends to make it equal to the tax rate on profit from debt.
Provided that there should be no withholding tax on dividend up to Rs100,000 per annum.
Giving rationale to the proposals, the PSX said that a similar tax treatment on dividend from equity investment and debt instrument will provide a level playing field to equities and attract higher inflows in the stock market. Further, it would lead to increase in numbers of UINs.
The PSX proposed following proviso should be inserted in section 150 and Section 236S to the Income Tax Ordinance, 2001:
“Provided that there should be no withholding of tax where amount does not exceed Rs100,000 per annum.”
Clause (b) Division-I, Part III, First Schedule to the Income Tax Ordinance, 2001, for the word ’15 percent’ shall be substituted by ’10 percent.’
KARACHI: Pakistan Stock Exchange (PSX) has proposed to reduce the rate of withholding tax in the gross income earned on margin financing transactions to 2.5 percent from existing 10 percent.
