Tag: budget proposals

Higher duty rates proposed for car, luxury items import

KARACHI: The Federal Board of Revenue (FBR) has been suggested to impose higher rates of duties on import of non-essential and luxury items in order to reduce current account deficit.

Association of Chartered Certified Accountants (ACCA) in its tax proposals for budget 2019/2020 said that tangible measures should be taken to reduce the import burden.

“Heavy duties should be levied on all non-essential imports like expensive electronics, cars & luxury items.”

In addition incentives should be announced for local industry to encourage domestic products, it suggested.

In other key reforms, the ACCA said that agricultural sector needs to be re-evaluated.

Being an agricultural country its GDP share must be according to its volume. Currently its share in GDP is 24 percent while it has the potential to reach up to 55 percent.

Large landowners should be taxed at minimal rates i.e. 7 percent with that revenue used to subsidize seeds, fertilizers, water, electricity, fuel, etc. for the small farmers.

Cheap and low quality smuggling and imports from India should be controlled.

The ACCA said that for Pakistan, a country of 220 million people, human capital is a huge resource in new era, but unfortunately due to incompetent and poor policies we are unable to convert this power in to workable force, un-employment has increased to almost 6 percent and over 4 million people are unemployed.

Keeping in view the above indicators the government needs to encourage services sectors, new industries and agriculture.

Banking sector should be used to incentivize and promote a culture of entrepreneurship.

Incentives must be announced for Services sectors particularly Telecom, home based industries, young entrepreneurship programs with special focus on women.

May 18, 2019
PTBA suggests 5-year policy for gradually reducing sales tax rate

KARACHI: Pakistan Tax Bar Association (PTBA) has suggested gradually reduction of sales tax rate under five-year policy and for first year the sales tax rate should be brought down to 15 percent from next fiscal year.

In its budget proposals for 2019/2020, the PTBA said that present rate of Sales Tax at 17 percent with 3 percent value addition tax on commercial importers is too high.

It said that there is a narrow tax base due to the high rate which induces tax evasion, under invoicing, corruption and smuggling.

The PTBA proposed that this year as a first step Sales Tax Rate may be brought down to 15 percent and five year policy may be announced for reduction of rate of tax by 1 percent every year.

Moreover, same rate of value addition tax (i.e., 3 percent) may be levied on luxury goods which are expected to be sold at a higher value addition in the local market as compared to other goods.

“Higher value addition tax should be levied on import of luxurious items such as cosmetics, shampoos, cars, etc.”

It said that the proposed amendments would assist in the expansion of tax base, reduction in smuggling and corruption, rise in government revenues and increased competitive edge and promotion of documentation of economy.

Furthermore, the reduced tax rate will encourage the unregistered persons to get themselves registered, resulting in broadening of tax base.

Higher value addition tax on luxury goods will not only generate additional revenue but will discourage import and also support the local industry.

May 18, 2019
Exemption on import of telecom equipment demanded to encourage investment

KARACHI: Foreign and multinational companies have demanded the Federal Board of Revenue (FBR) to exempt sales tax and customs duty on import of telecom equipment in order to encourage investment in this sector.

The Overseas Chamber of Commerce and Industry (OICCI) in its proposals for budget 2019/2020 said that telecom was very investment intensive sector and it should be given concessions in terms of reduced rates of customs duties and exemption of sales tax against import of telecom equipment.

The exemption and concessions are important to promote the teledensity throughout the country especially in far flung areas so that the benefits of next generation mobile services can be reached to the masses living in backward areas, said the OICCI – the representative body of foreign investors and multinational companies in Pakistan.

Previously, telecom sector was importing telecom equipment at 5 percent customs duty and zero percent sales tax under SRO 575, however, through Finance Act, 2015, this SRO was rescinded and consequently, the customs duties on network equipment have been increased from 5 percent to 20 percent and sales tax exemption has been removed.

“The increase in custom duty and levy of sales tax has badly affected the pace of growth and digital inclusion as the cost of doing business has been significantly increased which is an additional barrier to network coverage in Pakistan,” the OICCI said.

The roll out of 3G/4G network is still very much at the early stages and reduction in customs duties and restoration of sales tax exemption will help the operators to sustain the necessary investments.

Therefore, the OICCI recommended to reinstate the concessionary custom duties/ exemption of sales tax (refer SRO 575) to encourage investments in IT/ telecom infrastructure.

May 18, 2019
Elimination of regulatory duty, additional customs duty on essential raw materials recommended

KARACHI: Federal Board of Revenue (FBR) has been suggested to eliminate additional customs duty and regulatory duty on essential raw materials.

The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals recommended tariff rationalization in the forthcoming for budget 2019/2020.

It recommended elimination of additional custom duty and regulatory duty on essential raw materials, which are either not locally available or in limited supply, used for local manufacturing.

The OICCI – the representative body of foreign investors – also suggested bringing illicit trade into tax ambit.

It said that on the basis of survey conducted by OICCI amongst its members, losses to the government exchequer due to Illicit trade (business in products which are either smuggled, counterfeit, under-invoiced imports, sold by unregistered manufacturer/seller, etc.) is estimated at Rs200 billion (tobacco alone estimated at Rs63 billion only).

In order to control the Afghan Transit Trade, it recommended:

Harmonize duty and tax rates to remove the incentive for evasion.

Fix quantitative limits for imports based on genuine Afghan needs and size of population.

Establish a basis of collecting duty/taxes at the point of entry into Pakistan for the account of the Afghanistan Government

Fix import value in consultation with the brand owner in Pakistan.

Customs procedures and Cross-border rules should be published for transparency.

Containers coming back from Afghanistan should be checked by customs.

There should be a negative list of items which are not utilized in Afghanistan; yet are imported and make their way into Pakistan.

Streamlining of border crossing procedures on financial guarantee by banks and anti‐corruption measures.

Export to Afghanistan be facilitated with simplified procedure by FBR and border control authorities.

For stringent controls illicit trade, it recommended:

Introduce tighter penalties for illicit trade across categories, including criminal liability across the value chain, including retailers, distributors and manufacturers

Introduce a special division/ task force to raid retailers and manufacturers to confiscate and destroy illicit stocks

Launch a media campaign to increase awareness in consumers of the harms of illicit products and discourage them from purchasing such products

The OICCI suggested structural reforms in the customs:

Do a thorough review of the custom regime, in consultation with brand owners, to address issues of counterfeiting, smuggling, and rationalization of duty structure and fixing of import Tariff prices.

Custom valuation should be done on modern lines through online search and matching international and regional pricing and taking local legal importers of items on board.

IPR (Intellectual Property Rights) laws implementation in Pakistan need to be strengthened. Special IPR tribunals may be formed for speedy trials leading towards IPR compliance at par with international standards of IPR enforceability.

Unauthorized imports of counterfeit products should be effectively checked through registration of brands with the custom authorities in coordination with the original brand owner/ registered in Pakistan.

Valuation ruling should be issued in consultation with the owner of the brand or its authorized representative.

The data of import should be public (restrictively) to ensure transparency and this will also help in taking over of goods under section 25A of the Custom Act, 1969.

Related Stories

FBR notifies elimination, reduction of regulatory duties on several raw materials; issues SRO

May 18, 2019
FBR advised reducing income tax to half for exporters other than five zero-rated sectors

KARACHI: Federal Board of Revenue (FBR) has been suggested to reduce the income tax rate to half for exporters not falling under five zero-rating scheme in order to promote and diversification of exports.

Pakistan Business Council (PBC) in its tax proposals for forthcoming budget 2019/2020 said that at present the rate of tax deduction on export proceeds under Section 154 of Income Tax Ordinance, 2001 is one percent, which is same as for five export oriented sector as well as for other than five sectors.

The council said that in order to promote diversification of exports instead of relying on only five specified sectors, rate of tax on export proceeds should be reduced to 0.5 percent from one percent for sectors which are not covered under the five specified export oriented sectors.

Giving rationale for the change, it said that at present sales tax zero rating is available to five specified export oriented sectors on their input materials whereas such benefit is not available to other potential export sectors.

Moreover, gas supply is also available to five specified sectors at 600/MMBTU whereas rate of gas per MMBTU for non-conventional sectors is Rs780 in addition to GIDC, which makes potential export uncompetitive and consequently, Pakistan is unable to diversify export markets.

“In order to compensate such exporters and to promote export of other than five sectors, rate should be decreased to five percent for such sectors,” the PBC recommended.

The PBC further pointed out that manufacturing bond/DTRE rules are cumbersome and in certain cases lack clarity whereby many potential exporters cannot avail them. Consequently, it results in lost exports.

Therefore, it is recommended that manufacturing bond/DTRE rules should be modified to make it easily accessible and lend full clarity to allow exporters to fulfill potential export orders.

The proposed amendment would increase exports by facilitating existing and potential exporters.

May 17, 2019

PTBA recommends eliminating 12 provisions of withholding tax in next budget

KARACHI: Pakistan Tax Bar Association (PTBA) has recommended abolishing 12 different provisions of withholding income tax in order reduce the cost of business.

The apex tax bar of the country in its tax proposals for upcoming budget 2019/2020 recommended rationalization of withholding tax regime and in the first step it suggested eliminating 12 withholding tax rates.

The PTBA said that withholding tax regime significantly impacts the taxpayers and Inland Revenue Officers (IRO) alike.

On one hand, the regime increases the cost of doing business for a taxpayer and, on the other hand, it forces IROs to devote numerous resources in monitoring of withholding taxes.

The monitoring of taxes’ goal can be achieved by out sourcing the professional auditor firm and ability of the officer may be used for other work.

Even with the best efforts of the IROs, it is practically impossible to plug all the leakages of taxes withheld and deposit into the national exchequer.

“Globally the withholding tax regime is only applicable to persons whose income is difficult to determine, easier to evade or more likely to cross national boundaries. Currently, in Pakistan, withholding tax regime has been made applicable to almost all the categories of taxpayers and nature of payment under 49 provisions of law been weaved into the indirect taxes,” the PTBA said.

PTBA recommended revamping and rationalize of Withholding Tax Regime in order to reduce cost of doing business, complexity in the taxation laws and leakages in tax collection.

As a first step, it recommended following provisions of law may be withdrawn in which no substantial revenue is being collected in the last three years and eight months of current fiscal year:-

Sr. No.	Section	Description	2018-19 [Estimated on the basis of actual up to March, 2019]	2017-18	2016-17	2015-16
01	156B	Withdrawal of balance under Pension Fund.	100	136	86	76
02	235A	Domestic electricity consumption.	917	792	312	1,730
03	236B	Advance tax on purchase of air ticket.	559	484	303	495
04	236D	Advance tax on functions and gathering.	965	839	783	622
05	236F	Advance tax on cable operators and other electronic media.	49	24	19	21
06	236J	Advance tax on dealers, commission agents and arhatis etc.	136	123	123	109
07	236L	Advance tax on purchase of international air ticket.	1,131	1,257	1,331	999
08	236Q	Payment to resident for use of machinery and equipment.	644	619	328	174
09	236R	Collection of advance tax on education related expenses remitted abroad	543	397	339	367
10	236S	Dividend in specie.	3	20	452	623
11	236U	Advance tax on insurance premium.	424	485	397	–
12.	236V	Advance tax on extraction of minerals.	–	0.1	–	–
Total	–	–	–	–

May 17, 2019

Sales tax rate in Pakistan highest in region: ACCA

KARACHI: Association of Chartered Certified Accountants (ACCA) has said that the existing sales tax rate of 17 percent in Pakistan is the highest in the region.

The existing rate of Sales Tax at 17 percent is one of the highest in the region with an average of around 12 percent in Asia (15 percent in India and Bangladesh, 10 percent in Indonesia and just 6 percent in Malaysia), ACCA said in its tax proposals for budget 2019/2020.

Sales Tax should be used to broaden the tax base and not as a replacement of direct taxation.

In order to avoid the net negative costs for the economy, the rate should be brought down to single digit in a phased manner with a proposed reduction to 14 percent.

The association also recommended harmonization of inter-provincial and federal-provincial taxation for avoiding double taxation.

It said that the conflicts between various provincial revenue authorities and the federation are resulting in double taxation of services owing to the classification and jurisdiction disputes.

Also, standardizing the applicable rates while also reducing them could facilitate the businesses while also increasing the tax revenues simultaneously.

Similarly, the lack of inter-provincial harmonization also results in double taxation of services owing to the classification and jurisdiction disputes.

These issues should be resolved to create a business-friendly environment and facilitate the tax-payers.

Point of origination or deliverance of services can be agreed upon by all revenue authorities as the basis of classification and the resulting jurisdiction to resolve the major inconvenience to the taxpayers.

The ACCA highlighted the issue of adjustable input tax and said with the introduction of the STRIVE system resulting online matching of invoices, the chances of sales tax fraud and/or error have been minimized.

Therefore the current restriction of limiting the input tax adjustment to 90 percent (ninety percent) of the output tax is outdated and needs to be abolished.

This will be in line with the principles of fairness, equity and justice for all and help restore the confidence of businesses.

The association also pointed out revision of sales tax return and said this should be made easy and automated as with the STRIVE system in place, chance of tax fraud are minimized to the maximum possible extent as claimed by FBR.

It further pointed out that in line with the principles of fairness, equity and justice for all, the appeals should be heard by a person not under the administrative jurisdiction/influence of FBR.

May 17, 2019
FBR recommended to exempt income tax on mortgage loans to facilitate salaried persons

KARACHI: Federal Board of Revenue (FBR) has been recommended to exempt income tax on mortgage loans in order to facilitate salaried persons.

Currently the loans obtained from the employer below Benchmark interest rate is subject to tax, said Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020.

It recommended that the taxation of marginal income on loans obtained from the employer below benchmark rate should be exempted by deleting sub-section (7) of Section 13 of Income Tax Ordinance, 2001.

Alternatively, the minimum threshold of the loan amount on which the provisions of Section 13(7) would not be attracted, should be raised to at least Rs2,500,000 from the existing limit of Rs1,000,000.

Moreover, current benchmark rate of 10 percent of much higher than the prevailing KIBOR rates, therefore, benchmark rate should be reduced suitably to somewhere near KIBOR rate.

“Alternatively, at least the mortgage loans should be exempted from the operation of Section 13(7) of the Income Tax Ordinance, 2001.”

The institute said that this is not a significant source of revenue for the Government on the one hand and very rigid piece of legislation on the salaried taxpayer on the other hand who are hard hit by the present economic situation.

The taxation of this notional income is highly unjust since it taxes the notional income of the salaried person, which is against the basic principle of taxation since this notional income will never ever be received by the taxpayer.

Similar notional income in the hands of employees of educational institutions, restaurants, hospitals, clinics etc. is already exempt under clause (53A) of Part I of Second Schedule.

The rationale underlying this proposal is that:

a) It will boost the housing industry since in today’s economic situation and the presence of speculators in the property market it is next to impossible for a salaried employee to own a house on commercial mark-up rates. Once this industry takes off there will be provision of cheap houses and there will be increase in tax revenue from housing and allied sector;

b) It will contribute in enhancing the national economic activity by extending affordable loans and advances to middle class income group of society;

c) It will remove detrimental financial ramifications due to incremental rate of interest on notional income for all other salaried persons, who are already facing a tough challenge to survive within their paltry resources- all legally declared and tax paid; and

d) The FBR is also cognizant of this fact by stating in Clause (53A) that “any other perquisite or benefit for which the employer does not have to bear any marginal cost; and the Circular Letter 4(8)IT-J/91 dated June 30, 1991 issued by then CBR opines that “…it is not desirable to tax such notional income…”. The same principle should be applied in this situation.

May 16, 2019
FBR suggested abolishing withholding tax for corporate manufacturers

KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish withholding tax on import stage for corporate manufacturers in order to attract investment in the country.
(more…)

May 16, 2019
PTBA recommends outsourcing potential taxpayers profiling to data mining company

KARACHI: Pakistan Tax Bar Association (PTBA) has suggested the Federal Board of Revenue (FBR) to outsource the preparation of profiling potential taxpayers to a data mining company for broadening of tax base.

The PTBA in its tax proposals for budget 2019/2020 suggested the tax machinery that the assignment of preparation of profile of potential taxpayers/registered person be out sourced to a data mining company in line with the responsibility of collection of tax on capital gains given to the National Clearing Company of Pakistan.

“This company should only be allowed to collect the following information and present the potential taxpayer’s profile to the FBR’s BTB department to take appropriate action in accordance with law.”

The PTBA said that Pakistan was facing a challenge with regards to the widening of the current tax base to prevent tax-revenue erosion.

Although in the current year number of Active Taxpayer has improved; however since many years, Pakistan’s registered tax base has been more or less stable at less than 1 percent of the total population.

Over the last few years, the concept of filers and non-filers has been introduced in order to encourage increased filing of returns of income.

However, such amendments have not been able to increase the tax base by many folds as envisaged.

On the other hand has increased the burden of withholding agents by prescribing different withholding rates based on the Active Taxpayers List without achieving any significant progress inroads on the actual tax compliance rates.

In reality bulk of the increased cost due to higher tax rates for non-filer, has been passed on by the unregistered persons to the end consumer by enhancing cost of goods /services to gross up the impact of higher withholding.

The PTBA also proposed that a new team comprising of young IT expert, Accountants and Tax experts should be hired for BTB department.

A task force comprising of independent professionals and top officials be formed to monitor the work assigned to the data mining company and ensure that the BTB department operates efficiently and effectively to ensure the progress in broadening of tax base activity by FBR.

The effective enforcement should be made in accordance with Section 114 of the ITO. The government and FBR on its part should ensure that the relevant provisions of law are implemented in letter and spirit without any distinction on the basis of cast, creed, color and clout to achieve the goal of broadening the tax base.

A complete profile consisting of CNIC, Firm/Company registration-wise of the taxpayer may be prepared generated by maintaining a data base of all the:-

Owners and holders/allottee of the industrial, commercial, residential and agriculture properties;

Private motor vehicles;

Club membership;

International traveling;

Utilities;

credit cards;

investment in bank deposits;

Investment in national saving schemes;

investments in Capital Market; and

Major expenditure (i.e. Rs.300,000/- & above) incurred on account of hospitalization, parties at hotels and schooling of dependents.

Submission of quarterly statements by the Registrars & Housing Societies for registration/transfer of Immovable Property (Industrial Commercial, Residential & Agricultural), Motor Vehicle Registration Authorities, Clubs (Private & Public), Credit Card issuing authorities, Central Depository Company, National Clearing Company of Pakistan, large scale private hospitals, hotels & schools and Financial Institutions distributing profit more than statutory taxable limit or granted commercial loans, should be made mandatory.

Jurisdiction other than Company should, for some time, be reverted strictly to geographical basis to avoid duplication and slippages of potential tax filers.

Tax credit at the rate of 5% be restored and provided to those taxpayers whose 90% Sales and Purchase of Goods are from persons who are registered as Sales Tax and Income Tax taxpayers.

The PTBA said that the proposed amendments would result in increased visibility of potential taxpayers and incentivize registration with the tax authorities without increasing the burden on existing taxpayers.

May 15, 2019