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Tag: budget proposals

  • Revival of sales tax zero rating suggested to ease liquidity problem

    Revival of sales tax zero rating suggested to ease liquidity problem

    KARACHI: Business community has recommended revival of zero rated sales tax for the export sector in the wake of difficulties faced following COVID-19.

    Pakistan Business Council (PBC) has suggested sales tax proposals for budget 2020/2021 to ease the pressure on the industry.

    It said that the proposal for bringing the five export sectors under the ambit of normal sales tax regime has clearly not worked.

    Sales tax refund claims continue to accumulate with the FBR while export industries have faced massive liquidity in the past nine months on account of this move.

    Exporters liquidity as well as net operating results / losses have taken a strong negative hit from the two-edged sword; once after withdrawal of zero rating regime resulting in piling of sales tax refunds and thereafter, due to cancellation of existing orders post the COVID-19 pandemic.

    Restoration of Zero rating will allow some relief on the liquidity front for the major export sectors

    It further said that at present, local sales to DTRE license holder has been provided the benefit of sales tax zero rating, however, local supplies to EOUs / manufacturing bond is chargeable to sales tax at 17 percent, which is an apparent anomaly between the DTRE, EOUs and Manufacturing bond rules.

    In order to remove anomaly and considering the fact that material / goods being purchased by DTRE / EOU / Manufacturing Bond are used for the purposes of exports and are subject to strict scrutiny, it is proposed to allow zero rating on local purchase of goods by EOUs / Manufacturing Bond in line with the benefit given to DTRE.

    Under the Sales Tax Act, Section 8 – B, a company is not allowed to adjust input tax in excess of 90 percent of the output tax for that period. Further, commercial importers paying 3 percent minimum Value Addition sales tax at import stage are totally exempt from the applicability of minimum tax under section 8B.

    All manufacturers be allowed 100 percent adjustment of input tax instead of the current restriction of 90 percent

  • Minimum tax collection should be suspended for two years

    Minimum tax collection should be suspended for two years

    KARACHI: Pakistan Business Council (PBC) has recommended suspending minimum tax under Section 113 of Income Tax Ordinance, 2001 considering the pandemic of COVID-19 and its impact on businesses.

    The PBC in its budget proposals 2020/2021, said that a turnover based minimum tax is fundamentally flawed in that it fails to take account of the industry specific margins and acts as a barrier to entry of new players.

    A minimum tax at 1.5 percent of sales for manufacturers (and higher rates for the services industry), under the present depressed business conditions will put an unbearable burden on businesses.

    “Pending a review of the continued justification of minimum tax, under the current business circumstances, we recommend that its collection be suspended for at least the next two financial years.”

    The PBC further said that as per Section 61 of the Income Tax Ordinance, 2001, persons falling under the Minimum Tax Regime / Alternative Corporate Tax are not able to claim any sort of tax credit on donations.

    Considering the situation of last quarter ending June 2020 due to COVID, many companies would fall under the minimum tax regime due to reduced product demand and margin issues.

    Section 61 of the Income Tax Ordinance, 2001 be amended to allow direct deduction of donations paid by any person to the Prime Minister’s COVID-19 Pandemic Relief Fund-2020 or any other Fund established by any Provincial Government or to any other approved Non-Profit Organization subject to the condition that the said donation should be made through crossed cheque.

    Moreover, in case of donation in kind, deduction against minimum turnover tax be allowed on the basis of valuation prescribed under Rule 228(4) of the Income Tax Rules, 2002.

    At present, rate of tax deduction on export proceeds is 1.0 percent.

    In order to promote sustainability of industries engaged in exports, rate of tax on export proceeds should be reduced to 0.5 percent from 1.0 percent for the next two financial years.

    In order to get exemption certificate against tax deduction under sections 153 [supply of goods] and 148 [import on goods], taxpayers are required to pay advance tax

    Taxpayers should be allowed unconditional exemption from tax deduction on import and supply stage without heavy upfront payment of advance tax liability. In order to ensure regular inflows to the Government, taxpayers be made liable to discharge at least 70 percent [as against present 90 percent condition] of total estimated annual tax liability in 4 quarterly instalments.

  • Introduction of registered savings, investment accounts proposed

    Introduction of registered savings, investment accounts proposed

    KARACHI: Pakistan Stock Exchange (PSX) has proposed introduction of registered savings and investment accounts (RSIAs) in the upcoming budget 2020/2021.

    In its budget proposals for the fiscal year 2020/2021, the PSX said that saving and investment are crucial for playing an important role in the process of socio-economic development through capital accumulations.

    Pakistan, besides facing problems such as unemployment, rapid growth of population, slow economic growth in the country, has a saving rate that is meager and undesirable for sustainable national economic development. Low level of saving rates in any economy have been cited as one of the most serious constraints to sustainable economic growth.

    Higher savings and the related increase in capital formation can be result in a permanent increase in economic growth rates.

    Registered savings and investments accounts (RSIAs) are personal accounts that allow investors to accumulate savings (e.g., Individual Retirement Accounts and Roth IRAs in the US, Registered Retirement Savings Plans and Tax Free Savings Accounts in Canada).

    Other variations on the theme promote saving toward other goals like children’s education (Registered Retirement Saving Plans in Canada) or funding future needs of a disable individual (Registered Disability Savings Plan in Canada).

    Although their design varies according to the schemes objective, they all have 2 features in common:

    — Capital accumulates free of tax (on interest, dividend or capital gains) as long as it stays in the account;

    — Eligible investments in the account are listed stocks and ETFs, tradable bonds and mutual funds

    In the United States, Roth Individual Retirement Arrangement (Roth IRA) is similar to TFSA. The Roth IRA was established by the Taxpayer Relief Act of 1997.

    The total contribution allowed per year to all IRAs is the lesser of one’s taxable compensation. The Packwood-Roth plan would have allowed individuals to invest up to $2,000 in an account with no immediate tax deductions, but the earnings could later be withdrawn tax-free at retirement.

    Therefore, it is proposed that the Government of Pakistan introduce a mechanism and regulatory structure for the launch of registered savings and investment accounts (RSIAs) to help channel savings towards productive investments.

    RSIAs will help bring capital from the large undocumented sector into the formal economy. Further, it is also crucial that firm guarantees be offered that contributions be subject to full amnesty-aside from AML and Terrorist Financing issues due diligence.

    Where they have been introduced, registered savings and investment account (RSIAs) have been very successful in channeling savings to productive investments through capital markets and often constitute the main source of income in retirement. In Pakistan, they will bring the added benefit of driving the government’s goal to document the informal sector.

    RSIAs could become one of the driving forces in the transformation of Pakistan’s economy. By some estimates, 40 million middle-class Pakistanis have an average accumulated wealth of over USD 10,000, for a total of over Rs. 50 trillion. Much of that wealth is currently invested in real estate, gold and other asset classes in Pakistan offshore. If RSIAs can capture 10% o that wealth, It would be equivalent to more than half the current market capitalization of PSX listed companies or more than the outstanding amount of PIBs and Sukuks.

    Appropriate amendment to be made in the Income Tax Ordinance, 2001.

  • PSX proposes abolishing capital gains tax for two years

    PSX proposes abolishing capital gains tax for two years

    KARACHI: Pakistan Stock Exchange (PSX) has demanded eliminating Capital Gains Tax (CGT) for up to next two years in order to attract more foreign investment.

    The PSX in its tax proposals for budget 2020/2021 suggested the Federal Board of Revenue (FBR) to eliminate / reduce CGT for next 24 months or at a minimum align rates of capital gains tax on disposal of securities with other regional exchanges and OECD countries of the world.

    The PSX said that currently, carry forward of losses is only allowed up to a period of three years and that last year CGT collection was merely Rs1.3 billion. Moreover, with the falling market, tax collection will not be worthwhile at all.

    “Therefore, it is suggested that CGT should be eliminated for next 12-24 months.”

    This will be a big headline change, with no revenue impact, and will encourage new domestic and international investors to come into the market.

    The PSX made following proposals related to CGT:

    i. To eliminate CGT for next 12-24 months, if that is not possible then;

    ii. Since the current rate of 15 percent is very high and that too is without any benefit of holding period, therefore it is proposed to reduce this rate in line with other regional and OECD countries such as Bahrain, Hong Kong, India, Malaysia, Mauritius, Qatar, UAE, New Zealand, Hungary, Norway etc. where there is no or very low capital gain tax as compared to Pakistan.

    iii. when CGT was first introduced in the year 2011, to encourage and attract long term investment, the tax rate was:

    Less than six months: 10 percent

    More than six months but less than 12 months: 7.5 percent

    More than one year: zero percent.

    The PSX proposed rates at:

    Holding period up to twelve months: 10 percent

    Holding period more than twelve months: zero percent.

  • SECP highlights difficulties in present tax regime

    SECP highlights difficulties in present tax regime

    ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has highlighted difficulties faced by corporate sector due to prevailing tax regime.

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  • Tax relief package to mitigate COVID-19 shocks under consideration, FBR tells KCCI

    Tax relief package to mitigate COVID-19 shocks under consideration, FBR tells KCCI

    KARACHI: A top official of Federal Board of Revenue (FBR) has informed the office bearers of Karachi Chamber of Commerce and Industry (KCCI) that a tax relief package for business community was under consideration in order to dilute the adverse impact of coronavirus pandemic (COVID-19).

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  • Why non-filers happy in paying high withholding tax rates, FPCCI asks FBR

    Why non-filers happy in paying high withholding tax rates, FPCCI asks FBR

    KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has expressed concerns over lower number of return filers and asked Federal Board of Revenue (FBR) to identify reasons that why non-filers happy in paying higher rate of withholding tax.

    According to a statement on Thursday, the FPCCI has finalize proposals for upcoming budget 2020/2021.

    The proposals have been drafted keeping in view of the objectives of (i) Revamping Taxation System (ii) Documentation of Economy (iii) Employment generation through Industrialization (iv) Promoting a responsive and equitable Taxation System (v) Infrastructure Development (vi) Trickledown effect of the fiscal space to the grass root level etc., and would be submitted to the concerned quarters within fortnight”.

    This was stated by Mian Anjum Nisar, President, FPCCI and Zakaria Usman, Convener of the FPCCI Budget Advisory Council.

    Elaborating the methodology of the budget proposals exercise, they stated that the FPCCI with a consistent commitment to developing and promoting a modern, responsive and equitable taxation system, has formulated these proposals on the basis of impartial, unbiased and transparent manner after taking a painstaking lengthy process which involved incorporating feedback received on matters related to revenue and taxation throughout the year from our members located across the country and input obtained from our member trade bodies, stakeholders, tax practitioners, knowledgeable people etc., through invitation of proposals, organizing workshops and holding a series of Budget Advisory Council meetings wherein these proposals were discussed in detail and some contradictory proposals were re-examined and final proposals were redesigned in line with the best interest of the country.   

    They informed that the FPCCI Budgetary document consists of three Volumes – Vol-I discusses issues / solution of macroeconomic nature ; Vol-II contains policy issues relevant to Taxation (Sales Tax, FED, Income Tax and Customs) ; while Vol-III contains Industry Specific Proposals received from FPCCI members .

    Moreover, the FPCCI would also submit its proposals to meet the challenges being faced by the trade & industry due to outbreak of COVID-19 as its severe and adverse impacts on various aspects of Pakistan’s economy is quite discern which may lead to negative growth rate, deterioration in current and fiscal balance, disruption in supply chain, increased unemployment etc.

    The FPCCI Chief Mian Anjum Nisar added, “The Macro Economic proposals contains long term action plan to boost exports ; promotion of Branding ; Enhancing SMEs sector ; Monetary Policy ; Creating Employment Opportunities through industrialization ; Taxpayers Bill of Rights ; Independent Tax Judicial System etc”.

    Zakaria Usman, Convener of the Budget Advisory Council disclosed, “In Direct Taxes, it has proposed to the Federal Board of Revenue (FBR) to reduce the tax rates to help increase competitive edge of indigenous products in both local and global markets; broadening of tax base; curtail parallel economy etc., as high tax rates provide incentives for tax evasion and corruption and results in high cost of doing business.

    At present the total numbers of NTN holders in Pakistan are over 4 million, however, the FBR has miserably failed to obtain return of income from such NTN holders and increase the number of active taxpayer during the last decade.

    They added that according to a study, 2.1 million Pakistanis (individuals) filed income tax returns in 2006-07 which shows that FBR during the last 14 years could not fetch much tax filers, despite prescribing higher withholding tax rates for non-filers”.

     “This underscores the need that FBR should conduct a study to find out what has gone wrong that even after penalizing the non-filers, they are happy to pay more by way of advance tax instead of filing returns”.

    He proposed that it is desirable that measures should be taken to facilitate to those, who are already existing taxpayers and contributing in the national tax pool in all manners, so that they become goodwill ambassador for FBR.

    “Resultantly, since many years, the registered taxpayers are less than 1 percent of the population of our country, which need to be enhanced”, he concluded.

  • FBR invites suggestions for phasing out tax exemption, concessions

    FBR invites suggestions for phasing out tax exemption, concessions

    ISLAMABAD: Federal Board of Revenue (FBR) has invited suggestions from business community and other stakeholders for elimination of tax exemption and concessions.

    The FBR on Thursday issued a notification for inviting income tax proposals for budget 2020/2021.

    The FBR invited proposals from the stakeholders for phasing out tax concessions and exemptions.

    It said that the FBR is currently engaged in the formulation of proposals for the Finance Bill 2020. In order to benefit from the collective wisdom of all the stakeholders for the improvement of tax policy, proposals have been invited for the upcoming budget 2020/2021.

    The FBR said that input/suggestions in the following areas shall be appreciated as a genuine contribution towards framing or a broad based and workable tax policy:

    i. Broadening of tax base for a wider participation in revenue generation efforts;

    ii. Taxation of real income on progressive basis;

    iii. Phasing out of tax concessions and exemptions;

    iv. Removal of tax distortions and anomalies;

    v. Facilitation of taxpayers and ease of doing business;

    vi. Promoting equity in taxation by introducing measures where incidence of tax is higher or affluent classes.

    The FBR asked all the stakeholders to send their proposals by February 07, 2020.

  • PTBA proposes withdrawal of restriction on input claim under Sindh sales tax

    PTBA proposes withdrawal of restriction on input claim under Sindh sales tax

    KARACHI: Pakistan Tax Bar Association (PTBA) has urged the Sindh government to withdraw the restriction on claiming input tax by services rendered by a taxpayer.

    The apex tax bar in its proposals for Sindh budget 2019/2020, said that no input tax is allowed to be claimed on goods or services acquired prior to six months preceding the date of commencement of the provision of taxable services by a taxpayer.

    It is recommended that such restriction should be eliminated.

    That any bar on admissibility of input tax borne by the taxpayer prior to six months preceding the commencement of provision of taxable services is against the basic principal of Value Added Tax (VAT). It is also not justifiable in case of a long term projects.

    Any assessment order can be amended by a tax officer on the basis of any subsequent information, etc. Such powers are arbitrary and unjust and may open the doors for harassment and corruption, the tax bar said.

    Therefore it is recommended that the taxpayer should first be confronted with a show-cause notice with substantial reasons and definite information/evidence(s) that warrant reopening or amending the assessment order.

    Further, the powers to amend any assessment order should only be vest with the Commissioner or Board only.

    This recommendation would introduce transparency in the tax system for revision of shut and close transactions and provide justice to the taxpayer.

    Highlighting another issue, the PTBA said that the taxpayer is required to retain records for a period of 10 years and show-cause notices may be issued within a period of 8 years from the date of relevant tax period.

    “This is in excess of the statute of limitation provided under the STA and ITO. It will not only put excess burden on the taxpayer, but also dis-incentivizes the tax authorities from taking timely action.”

    The time period for retention of records and assessment of tax should be reduced to 5 years.

    This would save taxpayers from practical difficulties and unnecessary burden while pushing the tax authorities to take more timely action.

    In another proposal, the PTBA said that the tax officer is empowered to ask for any information from a taxpayer without specifying the reason or nature of the case being investigated by him.

    Scope of Section 52(1) should be restricted to specific parties and transactions which are within the jurisdiction of Sindh and are specifically identified by the tax officer instead of fishing and roving enquiries.

    This promotes equity and natural justice and avoids harassment and unnecessary proceedings.

    At present the Sindh Revenue Board (SRB) may arbitrarily empower a Deputy Commissioner to exercise the powers of Commissioner (Appeals).

    This provision should be deleted. Such an amendment undermines the quasi-judicial function and weakens the judicial process by empowering a junior ranked officer to assume the powers of a quasi-judicial authority.

    At present recovery of demand can be initiated at any time after the assessment order is issued.

    Since an appeal may be filed within 30 days from the date of receipt of an assessment order, the recovery proceedings should not be initiated within such time.

    This recommendation would harmonize the Federal and Provincial tax laws.

    The PTBA said that a lot of services mentioned in the First Schedule are without H.S. Code/Tariff Headings which may create difficulties.

    It is suggested that all services should be marked with the respective Tariff Headings in order to avoid confusions on the part of assessing authorities as well as the registered persons.

    This recommendation would bring clarity, equity and harmony in the tax laws.

  • Proposals for budget 2019/2020 finalized; salary persons may get increase; rise in additional customs duty likely

    Proposals for budget 2019/2020 finalized; salary persons may get increase; rise in additional customs duty likely

    ISLAMABAD: The ministry of finance has finalized proposals for budget 2019/2020 and will get approval from the Cabinet before presenting in the Parliament on June 11, 2019.

    Prime Minister Imran Khan will chair the cabinet meeting on Monday in which the budget with record deficit will be approved.

    The sources said that the cabinet would approve budget with estimated Rs3,000 billion deficit.

    According to the proposals, the budget allocation for the defence would be around Rs1,250 billion, which will less than the allocation for the outgoing fiscal year.

    An amount of Rs2,500 billion has been proposed for the payment of interest on the loan, the sources said.

    The government may allocate Rs925 billion for the federal development expenditures.

    The Federal Board of Revenue (FBR) may be assigned Rs5,500 billion as tax target for the fiscal year 2019/2020. While, the estimated earning from non-tax revenue may be at Rs1,250 billion.

    The tax proposals would include:

    Sales tax on sugar would be increased from 17 percent from existing 8 percent.

    Income tax has been proposed on the earning of middle-man.

    Increase in duty and taxes has been proposed poultry, electron and several other items.

    Increase in additional customs duty is recommended from 2 percent to 3 percent.

    Abolishing zero rating for five export sectors is also part of proposals. It is worth mentioning that the prime minister has already announced to abolishing subsidy to zero-rated sector.

    The government likely introduce soft loan program for youth. An amount of Rs5 billion would be allocated for establishing agriculture institute.

    Decrease in fertilizers prices would be recommended.

    The government employees and pensioners may get increase of 10-15 percent. The proposal of increasing pay and pension would get approval at the cabinet meeting.