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  • FPCCI invites FBR chairman for budget proposals discussions

    FPCCI invites FBR chairman for budget proposals discussions

    KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has invited Shabbar Zaidi, Chairman of Federal Board of Revenue (FBR) to discuss budget proposals.

    A statement issued on Tuesday said that the President FPCCI Engr. Daroo Khan Achakzai alongwith Abdul Waheed Sheikh, Ijaz Khan Abbasi, Qurban Ali and Shireen Arshad Khan, Vice Presidents of FPCCI visited the office of Shabbar Zaidi congratulating him on assuming the charge of Chairman FBR.

    During the meeting the President FPCCI discussed various measures and proposals particularly for enhancement in number of tax payers and to increase their confidence level to achieve the set targets of revenues.

    Engr. Daroo Khan Achakzai further said that misuse of powers by the tax authorities is creating trust deficit and lack of confidence.

    The FPCCI Chief hailed the prompt decisions taken by the FBR’s Chairman in facilitating and providing relief to the taxpayers such as “Suspension of raid on any premises of any existing taxpayer without prior approval of Member IR – Operation and Chairman FBR”.

    Moreover, the FPCCI President also appreciated the Chairman FBR for not suspending any Active Taxpayer from Active Taxpayer List unless there is personal interaction with the assessee 24 hours before suspension and monitoring himself the list of all cases of suspension. The President of FPCCI also lauded Shabbar Zaidi, Chairman, FBR for not freezing bank account without prior intimation and notice to the bank account holder. The FBR Chief further said that the real estate is fast growing sector of the economy and FBR will devise various reforms. The tax amnesty scheme is also under process and will be announced soon, he stated.

    The President FPCCI Engr. Daroo Khan Achakzai invited the Chairman FBR to visit FPCCI Headquarter at Karachi and its Capital Office Islamabad to discuss FPCCI’s budget proposals and to share vision to revamp the tax system and machinery which is now the need of hour to be shifted in effective automated system to facilitate the taxpayers.

    The Chairman FBR agreed to visit the FPCCI soon to get feedback and first-hand information from FPCCI members and apprised them of FBR’s stance / point of view.

  • FBR advised making declaration of fund source mandatory for foreign remittances

    FBR advised making declaration of fund source mandatory for foreign remittances

    KARACHI: Federal Board of Revenue (FBR) has been advised to make it mandatory the declaration of source of funds for foreign remittances.

    Association of Chartered Certified Accountants (ACCA) in its tax proposals for budget 2019/2020 recommended changes to Section 111(4) of Income Tax Ordinance, 2001 regarding foreign exchange remitted from outside Pakistan.

    The association recommended amendment:

    “to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect … and a declaration along-with evidence of the source of funds.”

    It said that this will continue to promote the inflow of foreign exchange remittances towards the country while stopping the misuse of the provision to whiten/launder black monies and de-incentivizing genuine tax paying businesses.

    “This way, the ‘non enquiry’ clause which has been extensively abused, will be abolished sans the current monetary limit while still retaining the tax relief for foreign exchange remittance.

    The ACCA further said that the minimum tax on turnover is charged irrespective of the net profit or loss.

    This often gives rise to a situation where businesses end up paying double taxes on their revenues and profits as well as loss making businesses facing additional cash-flow pressures by paying this tax.

    The current rate of 1.25 percent applicable generally except for a few sectors, should be brought down to 0.4 percent.

    The now deleted exception in case of a gross loss needs to be reinstated in line with the principles of natural justice and equity.

    This will facilitate the business eco-system contributing to a growth in GPD which can lead to increased revenue collections for the treasury.

    The association further highlighted Section 138 and 140 of the Ordinance regarding recovery of tax through attachment of bank accounts and/or property or arrest.

    It said that currently, the allowance for the commissioner to attach the property of the taxpayer before expiry of notice period on “satisfaction” of the commissioner regarding possible removal, cancellation or disposal of attachable property is misused in many cases to harass the businesses.

    This change can bring an end to this, increase taxpayers’ trust in the tax apparatus and improve the ease of doing business in the country.

    “Any such attachment of any movable/immovable property before expiry of the notice period may only be authorized by the Commissioner in the presence of objective evidence, which should be shared with the taxpayer.”

  • KTBA suggests full fledged VAT, reduction in sales tax rate to 10pc

    KTBA suggests full fledged VAT, reduction in sales tax rate to 10pc

    KARACHI: Karachi Tax Bar Association (KTBA) has suggested the tax authorities for introduction of full fledged value-added tax (VAT) and reduction of sale tax rate up to 10 percent in order to discourage under invoicing, corruption and smuggling.

    The KTBA recently organized pre-budget seminar to formulate tax proposals for budget 2019/2020. Saud-ul-Hassan, Director Tax at EY Ford Rhodes presented issues pertaining to sales tax.

    He said that the VAT system was adopted for documentation of economy. However, presently the Sales Tax Act, 1990 is a blend of numerous, included:

    — exemption; zero-rating, subsidized/reduced rates;

    — fixed tax regimes, extra tax, further tax, value addition tax;

    — withholding tax provisions;

    — various restrictions on claiming input tax; and

    — various special regimes.

    He recommended that all the distortions in VAT system should be removed and full fledged uniformed VAT system should be adopted.

    “This will provide a level playing field for all registered persons and restore their confidence,” he said and added that it would ensure proper documentation of economy and a genuine increase in the tax to GDP ratio.

    Highlighting the higher sales tax rate at 17 percent, he said that it was coupled with various increasing conditions such as further tax, extra tax, minimum VAT etc.

    Further restrictions on claim of input tax, the sales tax cost (effective rate) is further enhanced. “Such outlook on a tax compliant person promotes tax evasion in the masses,” he added.

    It is suggested that the tax rate may be brought down to 15 percent and gradually up to 10 percent. “The reduced rate will encourage the unregistered persons to get themselves registered.”

    “It will also result in broadening of tax base and documentation of economy and discourage under invoicing, corruption and smuggling,” he added.

    Pointing out the issue of extra tax levied on certain goods, which disallowed input tax, he said recommended that in order to reduce the cost of doing business the extra tax should not be levied on goods sold to manufacturers for their own use.

    He said that through the Sales Tax General Order 27 of 2014, the FBR had exempted the supply of parts and accessories to the automobile manufacturers from the levy of extra tax, however, other manufacturers have not been granted similar exemption.

  • FBR suggested to abolish FTR for commercial importers

    FBR suggested to abolish FTR for commercial importers

    KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish Final Tax Regime (FTR) for commercial importers and other segment of the economy in order to make the taxation system equitable.

    FBR sources said that suggestions had been received from business community and large business houses to eliminate the FTR and presumptive tax regime.

    The sources said that large private sector entities and chartered accountants urged the newly appointed chairman Shabbar Zaidi, who is also a chartered accountant and had represented Institute of Chartered Accountants of Pakistan (ICAP), to status of normal tax regime for commercial importers should be restored.

    The ICAP in its tax proposal for tax year 2019/2020 said that certain sectors/goods are being taxed under the presumptive/value added/ fixed/ final tax regimes.

    Pakistan Business Council (PBC) also said that the presumptive/value added/fixed/final tax regimes are taxing turnover as opposed to income. In addition, entities availing this regime are not required to file tax returns.

    “Under garb of the FTR, massive evasion of customs duties and sales tax are taking place putting the formal sector under undue pressure.”

    The informal economy has outgrown the formal economy and the major driver of this has been the FTR.

    The FBR said that the chartered accountants were strongly supporting elimination of FTR for commercial importers and recommended: “commercial importers status under Normal Tax Regime as introduced through the Finance Act, 2018 should be restored.”

    They said that the presumptive/ value added/ fixed / final tax regime should be replaced with a normal tax regime.

    Income has to be the only basis for taxation and option to exit the tax chain should not be available for whatever reason.

  • FBR recommended imposing environmental tax on industries producing polluting materials

    FBR recommended imposing environmental tax on industries producing polluting materials

    KARACHI: Federal Board of Revenue (FBR) has been suggested to impose environmental tax on industries producing non-renewable and polluting materials.

    Pakistan has a wide range of industries, which are involved in usage and production of nonrenewable, polluting materials that are extremely harmful for our environment.

    “There are many entities, AOPs and sole proprietors who are not taxed because they either do not have taxable income or, they do not intend to disclose it properly while conducting their businesses that are damaging country’s environment,” said Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020..

    The institute recommended that higher tax should be levied at non-renewable, polluting inputs and outputs, such as coal, automobiles, chlorine, phosphate detergents, chemical pesticides, chemical fertilizers, lead acid batteries and plastic etc.

    “As an incentive, the organizations taking measures to preserve the environment may be made eligible for a tax credit,” it further suggested.

    Pakistan is already lacking behind other developed and developing countries who are taking measures to safeguard their ecosystem.

    “Introduction of this tax and tax credit would not only increase tax revenue and encourage multiple entities to file their return of income in order to avail the tax credit, but Pakistan will also be recognized as a country, which is taking an initiative to safeguard the environment,” ICAP suggested.

  • ACCA opposes tax amnesty, recommends enforcement on available information

    ACCA opposes tax amnesty, recommends enforcement on available information

    KARACHI: Association of Chartered Certified Accountants (ACCA) Pakistan has opposed tax amnesties and suggested the tax machinery to use available information with proper enforcement.

    “Tax Amnesties without proper penal clauses had been a failure. With the strengthening of OECD, they should be done away with and focus should instead be shifted on using the organization’s platform to retrieve necessary information and ensure proper enforcement of applicable laws and regulations,” the association recommended this in its tax proposals for budget 2019/2020.

    ACCA has presented detailed recommendations for bringing structural reforms in the taxation system while opposing any amnesty scheme in the presence of plethora of information maintained by the Federal Board of Revenue.

    For the structural reforms following measures have been suggested by the ACCA:

    • A single tax return for all taxation affairs of a taxpayer which all authorities can utilize to obtain the relevant data.

    • Harmonization of taxation laws in the country.

    • Resolving issues within IRIS to make it more user friendly

    • Integration of Federal and Provincial Revenue Authorities’ systems and databases

    Structural Reforms

    • Reducing the discretionary powers vested in FBR officials and shifting towards an objective criteria based approach

    • Developing the existing policy of differential tax treatments and incentives for filers while penalizing non-filers

    • Introducing impact on economic sectors (GDP development) and numbers of decisions upheld at the appellate forums along with collections target as a performance evaluation criteria for FBR functionaries

    • Ensuring time limits adherence as specified in the laws and rules particularly pertaining to refund matters

    • Facilitating the tax payers

    • Introducing confidence by establishing a swift response complaint resolution cell to deal with corruption and harassment of tax payers

    • Change in discretionary powers of FBR for moveable and/or immovable property including bank accounts attachment to improve ease of doing business and trust of taxpayers in the tax apparatus. Limit the attachment powers to only cases involving concrete information re asset disposal.

    • Ensuring no post remains vacant for more than two weeks to avoid delays in resolving tax-payers issues arising out of transfers, postings and additional charges, etc.

    • Limiting charge on a single post in FBR to a maximum of two (2) years to discourage the corrupt practices and collaborations.

    • Effective enforcement should be ensured by working on maximum automation of the taxation system.

    • Effective enforcement should be ensured by working on maximum automation of the taxation system.

    • Hiring and training of adequately qualified staff with ongoing capacity building should be focused on to ensure efficient and productive results from the tax apparatus.

    • Appointing independent officials as Commissioner Appeals ideally from the judicial service and qualified accountants practicing taxation from various bodies including ACCA.

    • ACCA is the largest Global accountancy body, which is now the largest in Pakistan too. Including ACCA members practicing taxation within the definition of accountant members for the Appellate Tribunal Inland Revenue will further strengthen the competition and meritocracy.

    • Hiring and training of adequately qualified staff with ongoing capacity building should be focused on to ensure efficient and productive results from the tax apparatus.

    • Limiting charge on a single post in FBR to a maximum of two (2) years to discourage the corrupt practices and collaborations.

    Related Stories

    ACCA suggests making FBR immovable property values in line with fair market value to stop asset undervaluation

  • Restriction on gold purchase by non-filers proposed

    Restriction on gold purchase by non-filers proposed

    KARACHI: Federal Board of Revenue (FBR) has been suggested to restrict non-filers of income tax returns from purchasing gold bars, jewelry and other luxury goods in order to broaden tax net.

    “In addition to the restriction on purchase of immovable property and motor vehicles by non-filers, the punishment should be made even severe by foisting a restriction or imposing an additional charge of tax, on non-filers upon purchase of other luxury goods, including gold bars and jewelry, paintings, antiques, electronics etc.”

    The suggestions were made by Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020 in order to broaden the tax base and documentation of economy.

    The institute said that the proposed restriction would eradicate the indifference between a filer and non-filer, and giving a sense of benefit to the filers, while non- filers should be penalized heavily.

    Giving recommendations and rationales in this regard it said:

    — Increase withholding income tax and sales tax for non-filers/unregistered persons by 50 percent higher rates; ‘further tax’ on sale to unregistered person should be increased to 5 percent.

    — Extra tax on commercial and industrial utilities connection should be increased to 15 percent for unregistered person.

    — Separate teams should be made and assigned responsibilities to visit the local shops, retail outlets and services providers to verify that proper sales tax invoices are generated and persons are registered with revenue authorities, if not they should be heavily penalized and compulsorily registered.

    — All utility connections amounting to Rs2.4 million or more of non-filers should be forced to get registered by issuance of Show-Cause Notices.

    In case of noncompliance, their utility connections should be disconnected.

    — An additional charge of tax should be foisted on non-filers upon purchase of luxury goods, such as gold bars and jewelry, paintings, antiques, electronics etc.

  • Omitting condition on input sales tax claim proposed where tax unpaid by supplier

    Omitting condition on input sales tax claim proposed where tax unpaid by supplier

    KARACHI: Pakistan Business Council (PBC) has suggested to omitting the condition of disallowing input tax adjustment where tax unpaid by supplier.

    In its tax proposals for budget 2019/2020, the PBC said that according to Section 8(1)(ca) of Sales Tax Act, 1990, input sales tax is not allowed where tax unpaid by supplier.

    “A taxpayer is not entitled to claim input tax paid on the goods (or services) in respect of which sales tax has not been deposited in the government treasury by the respective suppliers.

    The PBC said that this provision needs to be omitted especially after the implantation of the STRIVe system.

    Giving rationale to the proposal, it said that the matter was challenged in the Lahore High Court (LHC), in a petition W.P.No.3515/2012 filed by D.G Khan Cement Company Limited.

    LHC permitted relief and declared the provision as unconstitutional.

    “With the implementation of the STRIVe system this is redundant,” the PBC said.

    The PBC further said that based on the Doctrine of Revenue Neutrality and plethora of judgments of superior courts, it is now a settled principal of law that if any liability for short paid tax is subsequently discharged, then the same cannot be recovered from the taxpayer again.

    However, unfortunately, such provision is not part of the Sales Tax Act, 1990.

    It proposed that Sub-Section 4B should be inserted in Section 11 of the Sales Tax Act with the purpose of introducing “doctrine of revenue neutrality”.

    It is a settled principal of law that if any liability for short paid tax is subsequently discharged, then the same cannot be recovered from the taxpayer again.

    Proposed insertion in Section 11 of the Sales Tax Act 1990:

    “(4B) Where at the time of recovery of sales tax under sub-section (1), (2), (3), or (4) and (4A), it is established that the sales tax that was required to be paid has been meanwhile been paid by that person or recovered from the supply chain, no recovery shall be made from the person who had failed pay the sales tax or had paid short-amount of sales tax.”

  • Imposition of digital tax at 30 percent proposed

    Imposition of digital tax at 30 percent proposed

    KARACHI: Federal Board of Revenue (FBR) has been proposed for imposing digital tax at 30 percent in the budget 2019/2020.

    Chartered Accountants have suggested the imposition of digital tax from next tax year as OECD had started thinking of appropriately taxing the digitalized economy.

    Institute of Chartered Accountants of Pakistan (ICAP) in its budget proposals recommended the FBR that till the time proper mechanism was devised, a digital tax can be initially introduced at the rate of 30 percent (on non-resident companies having no establishment in Pakistan) only on their income from advertisements from Pakistan.

    It further added that policies should be developed in line with best practices from other countries, which should later be implemented with special consideration for companies setting up businesses in Pakistan.

    International social networking and retail websites, such as Alphabet, Facebook and Apple, are earning massive revenues from corporates and consumers in Pakistan by way of:

    — Advertisement on their websites,

    — Sharing consumer profiles / data with the corporates in Pakistan and to corporates and governments outside Pakistan, etc.

    “Despite all the revenues collected from consumers in Pakistan, these companies are not adequately taxed as they are not established within the country,” the ICAP said.

    These companies are also denting Pakistan’s local tech industry by eating up majority of the local advertisements, whereas their interests are not to set up business in Pakistan.

    Despite there are companies, like Ali Pay, who are now investing in Pakistan and have put their money in tech companies, like ‘Daraz’ and ‘Telenor Bank’.

    These businesses should be rather incentivized by charging high tax on non-resident companies not having their stakes in Pakistan despite earing significantly.

    “This will also encourage local software service providers to get registered and earn from local advertisements.”

    The ICAP further suggested identifying tax leakage areas / sectors prone to easy-escape tax net

    An efficient and effective collection platform is required to replace cash economy through digitization e.g. Jazz Cash or Easy Paisa or replacing this with a State Platform.

    The chartered accountants recommended that banks, insurance companies and branchless banking networks should be the ones recovering the taxes.

    The FBR together with firms / institutions must organize tax education campaigns (in digital, print and social media) in both Urban and Rural Areas.

  • PBC presents tax proposals for reducing cost of doing business

    PBC presents tax proposals for reducing cost of doing business

    KARACHI: Pakistan Business Council (PBC) has suggested measures for reducing cost of doing business and promoting manufacturing and industrialization.

    In its tax proposals for budget 20119/2020, the PBC suggested following measures for reducing cost of doing business:

    Exemption from collection of Withholding tax under section 148 at import stage & exemption for manufacturing concerns under Section 153

    Procedures and rules for obtaining exemption certificates for import of plant & machinery and Raw material by tax payers have serious restrictions which causes hardship.

    Proposed Change

    Corporate manufacturing sector should be excluded from the purview of income tax withholding at import stage under section 148 as well as from tax deduction on local supply under section 153. Similar exemption is already given to the greenfield industries through the Finance Supplementary Second Amendment Act 2019 announced in March 2019. The same exemption, however, is not available, for the brownfield expansion.

    Moreover, all the companies engaged in manufacturing should be exempt from withholding of tax under section 153. Similar exemption is available for Sales Tax in the Sales Tax Special Procedure (Withholding) Rules, 2007 via SRO 586 dated July 1, 2017.

    Alternatively, issuance of exemption certificate from withholding under section 148 and 153 should automatically trigger on the FBR portal based on payment of quarterly advance tax under section 147 to avoid harassment of genuine taxpayers. This will enable taxpayers to avoid creating huge tax refunds and focus on more expansion.

    Rationale for Change

    This would increase the investments for brownfield capacity expansion as well and would provide a meaningful relief (similar to greenfield expansion) with regard to BMR and extension/ expansion. Further, it will also attract foreign direct investment in the form of new expansion ventures as well as partnerships and hence will also result in export growth.

    Estimate and Payment of Advance Tax Section 147

    The time for making the estimate of income has been changed by the Finance Act, 2015 from ‘before the last installment is due’. 50 percent of the difference is required to be paid along with the 2nd installment and 50 percent of the difference with 3rd and 4th installments in two equal installments.

    Furthermore; Finance Act, 2018 has required the taxpayer to submit the actual turnover of completed quarters of the tax year with estimate (submitted earlier) and reasons for variations thereto along with documentary evidences. The Commissioner is now also empowered to reject the estimate, if he is not satisfied by the reasons and evidence of such variation.

    Proposal

    We recommend that this sub-section be restored to its original position (before finance bill 2018-19) whereby the taxpayers can file its best judged estimate without any questioning by the tax department. Moreover; section 205 (1B) relating to default surcharge becomes redundant if inquiry is made at the end of every quarter.

    Rationale

    This amendment / addition to the existing provisions of advance tax estimates may lead to unnecessary harassment of the advance income Tax payers, who are usually from the organized corporate sector for the simple fact that it is totally impracticable to provide detailed documentary evidences of the ‘estimated expenses or deductions’ which are to happen in the future and have to be worked out by the tax payer based on the business forecasts and projections.

    Section 147(6), as amended vide Finance Act, 2018, also empowers the Commissioner to consider rejection of the estimate, if the above information is not made available by the tax payer; which is a very harsh and authoritative provision, since the tax payer is always in the best position to make their own estimates since he /she knows their business.

    Alternate Corporate Tax

    Under Section 113, corporates are subject to one of three income tax regimes-Alternate Corporate Tax (ACT), Minimum Turnover Tax or Normal Tax Regime.

    Proposal

    ACT is a major hindrance towards capital investment as newly incorporated companies or those companies, which make huge capital investments for expansion, extension or BMR are not practically able to get the benefits of initial allowance owing to the fact that such allowance is available only against the taxable income whereas in case of huge capital investment resulting in higher initial allowance and consequently lower taxable income, tax payer usually falls under the ACT regime against which the benefit of adjustment of initial allowance is not available.

    Rationale

    It results in triple jeopardy (after NTR and Minimum Tax under section 113) and is most likely to be not accepted by Court as only one capacity tax is possible as per the constitution read with SCP order in case of Elahi Cotton.

    Moreover, real benefit of initial allowance/ first year allowance is not available owing to the applicability of ACT.

    SRO 250 dated February 26, 2019

    SRO has been introduced for the electronic monitoring and tracking of the goods mentioned therein i.e. goods of tobacco, beverages, sugar, fertilizer and cement industries. Fee for the operation of this SRO will be recovered by the licensee (private firms) from the companies in the above mentioned industries.

    Proposal

    This SRO should be amended suitably to ensure that the Administrative cost of operation /activities in this SRO should not be borne by the manufacturers of goods.

    Rationale

    It is mentioned in the SRO that the cost of activities in relation to this SRO will be borne by the manufacturers of goods. This is against the main objective of the current government to provide ease of doing business for the manufacturing industries since, as per this SRO, the teams operating this electronic monitoring equipment will sit at the manufacturing premises of the companies and the cost of the operating such equipment along with licensee marking fee will be recovered from the manufacturing companies.

    Rule 43, Income Tax Rule 2002

    Presently the taxpayer has to deposit the withholding tax deducted fortnightly, i.e. within seven days from the end of each week ending on every Sunday.

    In addition, certain WHT agents do not deposit on time and some agents do not deposit at all. This also includes agencies /govt. Organizations in respect of WHT, where CPR is not provided hence revenue leakages to government in the absence of WHT deposit.

    On the other hand, where WHT is deducted by agencies /govt. Organizations but do not provide system (IRIS) generated CPR as they do not enter in the system. Therefore assesse cannot get input benefit due to non-availability of CPR from IRIS system on account of WHT in spite.

    Proposal

    Timeline of 7 to 13 days be extended to one week after the month. IRIS system should be applicable for all withholding agent including agencies /government organizations and CPR in respect of WHT Facing authority be available from IRIS.

    Rationale

    Ease of doing business and facilitate withholding tax agents. Control Revenue leakage as well assesse can claim input tax properly thus neither it is loss to authority nor the assesse. In the absence of non-availiblity of CPR, this is an extra cost for doing business.

    Section 8(1)(j)

    introduced through Finance Act, 2015, where in a restriction has been imposed on claiming input on services which are not allowed in provincial sales tax on services Act(s).

    Proposal

    Section 8(1)(j)of the Sales Tax Act, 1990 should be deleted.

    Rationale

    Since input tax sales tax on reduced rate services is not available for adjustment, this increases the cost of doing business. Currently there are more than 25 services under respective provincial sales tax on services Act(s).

    PBC is pursuing this matter with the provincial authorities also.

    Section 156-Prizes and winnings:

    Section 156 of the ITO 2001 requires a Company to deduct 20 percent tax on “prize offered by companies for promotion of sale”

    Prize and winnings-(1) Every person paying of prize bonds, or winning from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sale to end consumers, or cross-word puzzle shall deduct tax…………..

    The clear intention of this section is to capture tax through withholding at source from persons who are recipients of these prizes or winnings; the intention is not to tax any person who belongs to the supply chain of the companies who offer prize for promotion of sales. The income of the supply chain i.e. dealers, distributors is subjected to withholding tax in the shape of withholding taxes imposed under separate withholding regimes. It is therefore suggested that to clear any ambiguity in law regarding application of this section, it may be amended to add the term “end consumers” to oust any person in the supply chain from the ambit of this section.

    Section 153(1)(a)

    Section 153(1)(a) withholding income tax on supplies by distributors of FMCG products is two percent for companies and 2.5 percent for others. This rate is quite high for industries dealing in bulk commodities/large volume but low margin products.

    Proposal

    Rate for withholding tax on FMCG distributors should be aligned with section 113 of the Income Tax Ordinance, 2001 i.e. Minimum tax on FMCG distributor is 0.2 percent.

    Rationale

    Current situation is leading to build up huge refunds / blockage of funds for the distributors since minimum tax charging rate is 0.2 percent whereas withholding is up to 2.5 percent.

    Due to amendments in the definition of withholding agents the tax withheld on the receipts of the distributors has increased significantly.

    Section 8B

    (1)Not withstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety percent of the output tax for that period.

    Proposal

    (1) Not withstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety-five percent of the output tax for that period.

    Rationale

    Will allow better management of cash flows

    Clause 18B of Part ii of the Second Schedule-Tax credit for Shariah Complaint Companies.

    Income Tax Ordinance on the one hand requires the corporate sector to fulfill the prescribed Shariah compliance criteria approved by SECP (as per Clause 18B of Part ii of the second schedule to the Tax Ordinance) whereas, on the other hand, Income Tax Rules, as prescribed by FBR (via Rule 231H )still remain applicable and are in conflict with the SECP Regulations.

    Further, Clause 18B of Part ii of the Second Schedule is reproduced below:

    The rate of tax as specified in Division II of Part I of the First Schedule shall be reduced by 2 percent in case of a company whose shares are traded on Stock Exchange if :

    (a)it fulfils prescribed Shariah compliant criteria approved by State Bank of Pakistan, Securities and Exchange Commission of Pakistan and the Board;

    (b)derives income from manufacturing activities only.

    (c)has declared taxable income for the last three consecutive tax years.

    (d)has issued dividend for the last five consecutive tax years.

    Proposal

    Since the SECP has notified Regulations for Shariah Compliant Companies, Rule 231H should be deleted.

    Further, Clause 18B be amended as below :The rate of tax as specified in Division ii of Part I of the first Schedule shall be reduced by 2 percent in case of a company whose shares are traded on stock exchange if:

    (a) it fulfils prescribed Shariah compliant criteria approved by Securities and Exchange Commission of Pakistan.

    (b) derives majority or more than 50 percent income from manufacturing activities.

    Rationale

    SECP being the Regulatory Authority for legislation and promulgation of Companies governance laws in Pakistan, holds the right infrastructure including a Shariah Compliance Department and the expertise to determine and regulate compliance with Shariah governance regulations, 2018.

    Reduced Rate of WHT on Export Proceeds

    At present, rate of tax deduction on export proceeds under section 154 is 1 percent which is same as for five export oriented sectors as well as for other than five sectors.

    Proposal

    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 1 percent for sectors which are not covered under the five specified export oriented sectors.

    Rationale

    At present, sales tax 0 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 @ 600/MMBtu whereas rate of gas per MMBTU for non -conventional sector is Rs. 780 in addition to GIDC, which make 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 0.5 percent for such sectors.

    Manufacturing Bond /DTRE rules are cumbersome and in certain cases lack clarity whereby many potential exporters can not avail them. Consequently, it results in LOST EXPORTS.

    Proposal

    Manufacturing bond/ DTRE rules need to be modified to make it easily accessible and lend full clarity to allow exporters to fulfill potential export orders.

    Rationale

    To increase exports by facilitating existing and potential exporters.