Tag: FBR

FBR, Pakistan’s national tax collecting agency, plays a crucial role in the country’s economy. Pakistan Revenue is committed to providing readers with the latest updates and developments regarding FBR activities.

FBR urged to align corporate tax rate for banks

KARACHI: Federal Board of Revenue (FBR) has been urged to bring corporate tax rate for banking companies at par with the other sectors.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 pointed out towards higher effective tax of banking sector.

It recommended that corporate tax rates for the banking sector should be aligned with other sectors. Super Tax relief, as granted to other industries, should be given to banking sector as well.

The OICCI also pointed out enhanced rate of tax on income from investment in Federal Government Securities (Rule 6C of Seventh Schedule). It recommended that the banking sector is already burden with higher tax rates as compared to other service sectors. Incremental tax applied under Rule 6C (6A) of seventh schedule of Income Tax Ordinance, 2001 should be deleted, whereby enhanced rate is applied on banks total income ratio (ADR).

Alternatively, enhanced tax shall be reverted to the previous condition, i.e. incremental tax shall be applicable on Additional income from additional investment in government securities rather than total income.

The overseas chamber further recommended the original provisions of the Seventh Schedule should be restored where provision for bad debts as per the Prudential Regulations of SBP and supported by an Auditors certificate was allowable as a tax deduction to the banks.

Alternatively, threshold for allowing provision for bad debts should be increased to 2 per cent of gross advances to corporate customers without the categorization of loss, doubtful or substandard and delete the Explanation inserted through Finance Act, 2019 along with the Clauses 1(d), (e) and (f).

Overriding Provision in Seventh Schedule to Income Tax Ordinance, 2001. The rule 9 of the Seventh Schedule of ITO 2001 should be deleted as it is being misused and leading to unnecessary litigation.

Regarding Islamic banks, the OICCI said Rule 3 (1) & (2) of Seventh Schedule of Income Tax Ordinance, 2001 should be replaced with the following text under Rule 3(1):

“The audited financial statements of Islamic Banks and Disclosure related to Islamic window operations of the conventional banks as contained in the audited financial statements submitted to the State Bank of Pakistan shall form the basis for the calculation of income tax liability as provided in this Schedule.”

The OICCI pointed out withholding tax on all modes of Islamic financing and recommended that tTo provide tax neutrality for assets financed by Islamic banks and Islamic windows of conventional vis- a vis conventional banks. Following clarification be inserted after clause 153(7)(iii):

“For the removal of doubt, it is clarified that any goods delivered under an Islamic modes of financing by a bank or financial institution approved by the State Bank of Pakistan or the Securities Exchange Commission of Pakistan, shall not be considered as sale of goods for the purpose of this section.”

April 18, 2022
OICCI suggests duty cut on locally manufactured cars

KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended reduction in federal excise duty (FED) on locally manufactured cars.

The OICCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), recommended that levy of FED on locally manufactured vehicles should be reduced by amending Serial No. 55B and 55D of Table I of First Schedule of the Federal Excise Act, 2005, to restore sales revenue of vehicles of auto sector while also increasing government revenue.

READ MORE: Return filing be made mandatory for account holders

The reduced FED rates proposed are as follows:

Vehicle Category FED
0 to 1000cc 0%
1001cc to 1350cc 2.5%
1351cc to 2000cc 5%
2001cc and above 7.5%
Double cabin 4X4 pickup 7.5%

It further recommended reduction in minimum tax under section 113 of Income Tax Ordinance, 2001 for authorized dealers of vehicle manufacturers and exemption of withholding tax under section 231B of the Ordinance on sale to dealers.

READ MORE: Unjustified audit notices annoy taxpayers

The rationale is to promote wholesale-retail mechanism, as applicable internationally, which will improve volumes on account of stock availability and healthy competition. Further, contribution to the Government will also increase with increased volume. “Income of dealers will be subject to normal taxation and will promote documentation, thereby increasing tax base.”

The OICCI recommended to reduce minimum tax u/s 113 of the Income Tax Ordinance, 2001, from 1.25 per cent to 0.25 per cent on turnover of authorized dealers of vehicle manufacturers, as being allowed to motorcycle dealers, distributors of FMCG, Pharmaceutical, Fertilizers, etc.;

READ MORE: Foreign investors demand inter-adjustment of tax refunds

Further, withholding income tax u/s 231B should be exempted on sale of vehicles by manufacturers to their authorized dealers to effectively implement wholesale-retail mechanism.

The overseas chamber also highlighted rate of withholding income tax under section 231B of Income Tax Ordinance, 2001.

READ MORE: OICCI presents recommendations to eliminate illicit trade

Amendment shall be made in the categories of vehicles mentioned in Division VII of Part IV of First Schedule as follows:

Engine Capacity (Existing) Engine Capacity (Proposed) Tax
1001cc to 1300cc 1001cc to 1350cc 25,000
1301 cc to 1600cc 1351 cc to 1600cc 50,000

On passenger car with capacity of 1300cc category, different tax rates are applicable based on slight increase in engine capacity (e.g Toyota Corolla (1299cc) was replaced with Toyota Yaris (1329cc). While both vehicles are categorized under broad 1300 cc by market, Rs. 25,000 was collected on Toyota Corolla 1299cc, while Rs. 50,000 is collected on Toyota Yaris 1329cc. Slight increase in cc category is resulting in twice income tax being collected from customer and increasing the cost for customer.

April 17, 2022
FBR allocates quota for industries in erstwhile FATA/PATA

ISLAMABAD: The Federal Board of Revenue (FBR) on Saturday allocated quota of raw material import on free of duty and taxes for industries located in erstwhile FATA/PATA.

The FBR issued Sales Tax General Order (STGO) No. 14 dated April 16, 2022 regarding quota for import of raw materials for industries located in erstwhile FATA/PATA.

The FBR said that import of plant and machinery and inputs by industrial undertakings located in erstwhile FATA/ PATA are exempt under S. No. 151 of Table-1 of the Sixth Schedule to the Sales Tax Act, 1990 till 30th day of June, 2023.

READ MORE: Erstwhile FATA/PATA units to get exemption on quota

To prevent misuse of said exemption, a number of significant amendments have been introduced in the Sales Tax Act, 1990 including section 40D and S. No. 74 of Table-1 of the Eighth Schedule to the Sales Tax Act, 1990.

Different administrative measures are also being taken by FBR including escort of containers from Azakhail Dry Port to the location of the concerned unit.

READ MORE: FBR explains taxation of erstwhile FATA/PATA industries

In order to ensure further transparency and prevent leakage of revenue, the FBR has decided that industrial units located in erstwhile FATA/PATA shall be allocated import quota of raw materials as determined by Directorate General IOCO-Inland Revenue in consultation with the Regional Tax Office (RTO), Peshawar on the basis of installed capacity of these units.

The annual import quota as per the attached Annex-A shall be apportioned equally in 12 equal parts on monthly basis and that shall be duly entered in the WeBOC against each manufacturer/ industrial unit.

After each updation, the balance available quota for the remaining year shall also be clearly mentioned.

The FBR said that the STGO shall come into effect immediately until further order.

READ MORE: FBR issues procedure for availing exemption certificate by erstwhile FATA/PATA residents

April 17, 2022
Return filing be made mandatory for account holders

KARACHI: The Federal Board of Revenue (FBR) has been urged to made mandatory the filing of income tax return for account holders having turnover Rs2 million or above during a year.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its recommendations for budget 2022/2023, advised that FBR and State Bank of Pakistan (SBP) should devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of Rs2 million or more during the year, have filed a tax return and wealth statement.

READ MORE: Unjustified audit notices annoy taxpayers

“This could be done by the financial institutions simply notifying names/CNIC numbers of such customers to FBR without giving access to bank accounts,” it added.

The OICCI in its proposals for broadening the tax base, said the tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of NADRA database and other documented sources to ensure that all income earners are NTN holders and “filers”, with submission of annual income tax/wealth returns and wealth reconciliation statements.

READ MORE: Foreign investors demand inter-adjustment of tax refunds

Art exhibition halls, hospitals where doctors practice, hotels and other public places holding large receptions for fashion houses & designers, sale of branded/designer dresses, airlines, travel agencies, etc. should provide names and addresses of the respective persons involved in these business activities to the FBR on a quarterly basis.

Once the FBR receives the above information, it should be pro-active and pursue potential taxpayers by sending them income tax return forms requiring them to file tax returns – rather than waiting for the tax returns to be filed.

READ MORE: OICCI presents recommendations to eliminate illicit trade

The OICCI strongly recommended to eliminate culture of amnesty schemes as it discourages the honest taxpayers.

As Pakistan is a signatory to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which became operational from September 2018, regular coordination should be done with relevant authorities of countries, considered as tax heavens for stashing away illegal wealth, for information sharing, and cases of proven tax evasion publicly shared.

READ MORE: OICCI urges harmonize sales tax rates

Appropriate laws should be made to enable the government to seize local assets, in equivalent value, or levy appropriate taxes, if any person holds any kind of assets outside the country for which source of income could not be established.

April 16, 2022
FBR announces prize winners of 4th POS invoice draw

ISLAMABAD: The Federal Board of Revenue (FBR) on Friday conducted fourth draw of invoices issued through Point of Sales (POS) and announced prize winners.

According to the computerized balloting, the bumper prize of Rs1,000,000 has been awarded to Muhammad Ali on the invoice issued by Carefour.

READ MORE: FBR announces winners of third POS invoice draw

The FBR announced winners of two second prizes of Rs500,000 each to Syed Tahir Ali Rizvi on the invoice issued by Shan Super Market and Hussain Raza Bhatti on the invoice issued by Jalal Sons.

Similarly, the four winners of third prize amounting Rs250,000 each are Abdul Waheed Shaikh, Mishal Zohaib, Sher Allam Khan and Mansoor Mehmood.

The FBR conduct computerized balloting of invoices issued by Tier-1 retailers on every 15th day of a month. This was fourth draw as it was started in January 15, 2022.

READ MORE: FBR announces prize winners in second POS invoice balloting

The FBR encouraged people to actively participate in the balloting to win prizes after buying from POS integrated retailers.

The FBR previously issued a procedure for participating in the prize scheme.

The revenue body said that the customers of the integrated tier-1 retailers, whose names and CNICs are notified through random computerized draw shall be entitled to prizes in respect of their purchases from the integrated tier-1 retailers.

READ MORE: FBR announces winners of first POS prize draw

The customers shall verify the electronically generated invoice of integrated retailers either through the “tax asaan” application or by sending SMS to number 9966.

The application shall notify the customer regarding the status of the invoice either as “verified” or “unverified”.

In case of a verified invoice, the customer shall furnish one time, the following detail to the online system, namely:- Name; CNIC; and Mobile number.

Names and CNICs of the customers shall be included in the random computerized draw upon fulfillment of the requirement.

READ MORE: Prize scheme on invoices issued by retailers

In case of an unverified invoice, the customer shall report the same through the system. The Board shall conduct inquiry and take appropriate action under the relevant provisions of law.

The computerized draw for the prizes shall be held in the first week of every month at the FBR Headquarters and the invoices of the immediately preceding month shall be entered in the draw.

Draw winners shall be required to perform biometric verification, at the nearest e-sahulat facility of NADRA and submit a scanned copy on the “tax assan” application. After successful biometric verification, winners shall be required to provide their IBAN through a “tax asaan” application.

The total prize money and the denomination of the prizes shall be decided on month to month basis by the Board.

April 15, 2022
Unjustified audit notices annoy taxpayers

KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has highlighted the issue of unjustified audit notices served to taxpayers and said as a result companies are incurring huge administrative costs.

The OICCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) pointed out that each year companies are served with notices without any proper justification, requiring them to produce large volume of data and reconciliation.

READ MORE: Foreign investors demand inter-adjustment of tax refunds

This is against the concept of Universal Self-Assessment Scheme whereby a tax return filed is generally considered to be correct in the eyes of FBR unless there is proper justification to prove otherwise.

“As a result, companies are incurring huge administrative costs for audit every year as well as litigation costs to pursue their matters before various appellate forums for an indefinite period of time,” the OICCI said.

READ MORE: OICCI presents recommendations to eliminate illicit trade

It recommended that the previous limitation of conducting tax audits once in every three years should be restored.

Rules to be implemented under Section 177(2) of Income Tax Ordinance, 2001 defining risk based, sample driven and cost-efficient audit criteria instead of calling 100 per cent information for voluminous transactional data resulting in tedious exercises, wastage of man hours and no additional benefits to national exchequer.

Timeline to conclude audit after submission of requisite information by the taxpayer should be specifically provided in section 177 of the Ordinance.

READ MORE: OICCI urges harmonize sales tax rates

FBR letter on withdrawal of earlier directives related to attachment of bank accounts dated October 11, 2021 should be withdrawn and it should be provided in the law that recovery proceedings shall not be initiated until tax assessments have passed at least one independent forum.

To reduce the litigation disposal time and avoid unnecessary litigations, it is recommended: “Proviso should be added to section 124 that in case Commissioner fails to issue appeal effect order within stipulated time period, taxpayers’ position should be deemed in effect.”

READ MORE: OICCI suggests simplify issuance of exemption certificate

April 14, 2022
Foreign investors demand inter-adjustment of tax refunds

The Overseas Investors Chamber of Commerce and Industry (OICCI), representing foreign investors in Pakistan, has put forth a series of demands to the Federal Board of Revenue (FBR), with a key focus on the inter-adjustment of income and sales tax refunds as part of the law.
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April 14, 2022
OICCI presents recommendations to eliminate illicit trade

KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has presented recommendations to eliminate illicit trade in Pakistan.

In its proposals for budget 2022/2023 presented to the Federal Board of Revenue (FBR), the OICCI stressed the need of structural reforms in Pakistan customs to bring Illicit Trade into tax ambit.

READ MORE: OICCI urges harmonize sales tax rates

It said custom valuation should be done by using latest method of valuation including, online search and matching international and regional pricing and taking local legal brand owners on board.

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.

READ MORE: OICCI suggests simplify issuance of exemption certificate

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

Control the Afghan Transit Trade:

a) Revise the ATTA based on current reality, to protect the revenue base of Pakistan without hurting the real spirit of such agreements. Engage key stakeholders from OICCI and business community in Pakistan in such re-negotiation.

READ MORE: OICCI suggests revamping withholding tax regime

b) Pending above, harmonize duty and tax rates to remove the incentive for evasion.

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

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

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

READ MORE: FBR proposed to reduce minimum tax rate to 0.25%

Introduce stringent controls for illicit trade:

a) Introduce tighter penalties (e.g., criminal liability) for illicit trade across categories across the whole value chain – retailers, distributors, and manufacturers.

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

April 14, 2022
OICCI urges harmonize sales tax rates

KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has urged the tax authorities to harmonize sales tax rates.

The OICCI in its proposals for budget 2022/2022 submitted to the Federal Board of Revenue (FBR) demanded reduction in sales tax rates.

The sales tax rate in Pakistan, at 17 per cent, is the highest in Asia, as can be noted from the table here.

Source: OICCI

The analysis of the OICCI shows an average of less than 12 per cent in Asia, with a range of 6 per cent to 17 per cent.

READ MORE: OICCI suggests simplify issuance of exemption certificate

Moreover, different rates of sales tax on goods and services i.e. standard, reduced, specified etc. prevailing in the country lead to a number of issues for business organizations operating all over the country.

It is recommended that sales tax rates (federal and provincial), both on goods and services, should be harmonized throughout the country.

Earlier, the OICCI suggested the FBR to revamp withholding income tax regime in order to facilitate compliant taxpayers.

In line with the recommendations, the withholding tax regime has been subject to changes, the rationalization of withholding tax on imports and discriminating withholding tax on the basis of status of the payee is a good step towards rationalization of regime. However, there is still large room for improvement. The impact of the withholding tax regime on “Ease of Doing Business” for the large taxpayers is still very significant.

READ MORE: OICCI suggests revamping withholding tax regime

WHT regime should be revamped and reduced from existing over twenty-six to five rates only for filers.

Withholding tax should be applicable on inactive taxpayers only, or alternatively:

a) Withholding tax rates applicable on services is 8 per cent minimum tax regardless of the actual taxable income of the service provider. The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.

READ MORE: FBR proposed to reduce minimum tax rate to 0.25%

b) Withholding tax deduction under section 153 (1)(a) of Income Tax Ordinance, 2001 which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list.

READ MORE: Foreign investors seek reduction in corporate tax rate

Through Finance Act 2021 under section 165 of Income Tax Ordinance, 2001, requirement of filing reconciliation between annual withholding statement and audited accounts is introduced. It has resulted in additional compliance burden on active taxpayers and should be abolished.

Companies appearing in Active Taxpayers List (ATL) and obtained exemption certificate by discharge of full year tax liability in advance should be dispensed with requirements to obtain separate withholding tax exemption certificates under sections 151, 234, 235, 236, 236G and 236H.

April 14, 2022
FBR takes measures to facilitate taxpayers in 1HFY22

ISLAMABAD: The Federal Board of Revenue (FBR) has initiated a number of initiatives to facilitate taxpayers during first half of the current fiscal year 2021/2022 (1HFY22).

According to Mid-Year 2021/2022 progress report issued by the ministry of finance, the revenue agency had done its best to facilitate the taxpayers in order to create congenial environment and to fetch sufficient tax revenues.

The ministry highlighted the initiatives taken in the Inland Revenue such as:

READ MORE: Tax incentive granted for revival of sick industrial units

Track and Trace System:

Track and Trace Solution has been rolled out for tobacco and sugar sectors and its rolling out for cement, beverages and fertilizer sectors in progress. The system is aimed at enhancing tax revenue, reducing counterfeiting and preventing smuggling of illicit goods through implementation of a robust, nationwide, electronic monitoring system through the affixation of tax stamps on various products at the production stage. This enables FBR to trace the entire suppy chain of manufactured goods.

Point of Sales (POS):

Point of Sales (POS) Invoicing System is a pathway towards digitization. Responding to the growing needs of digitization of economic transactions in Pakistan, FBR has launched POS invoicing, which is computerized system for recording sales data, managing inventory and maintaining customer data. It is a real-time sales documentation system that links the electronic systems at the outlets of all Tier-1 retailers with the FBR via the internet. The system is aimed to ensure that all sales are reported in real-time to the FBR and are duly accounted for in monthly sales tax returns of such retailers.

READ MORE: FBR explains tax amnesty on equity investment

Automated Issuance of refunds:

To facilitate taxpayers, centralized automated refund system has been introduced with no requirement for manual application and verification. The system-based verification system issues refund directly into the bank accounts of taxpayers without any requirement with face-to-face interaction with tax authorities. Enabling legal framework has also been provided through insertion of relevant provisions in tax laws.

Single Sales Tax Portal/Return:

Building further on its vision to facilitate taxpayers and ensure ease of doing business through automation, digitization and minimization of human interaction with taxpayer, the FBR has launched Single Sales Tax Portal. Under this new portal the sales tax returns of December 2021 were filed in January 2022. This facility will enable taxpayers to file single monthly sales tax returns instead of multiple returns on different portals; thereby, significantly reducing the time and cost of compliance. The system will automatically apportion input tax adjustment as well as tax payments across the sales tax authorities, therefore, eliminating the needs for reconciliation and payment transfers.

READ MORE: Input tax adjustment restricted for oil, ghee, steel makers

E-hearing:

In order to provide faceless tax administration, reducing compliance cost and saving precious time of taxpayers, the mechanism of e-hearing has been devised. Enabling legal provisions for admissibility of evidence collected during e-hearing has been introduced through 227E of Income Tax Ordinance, 2001.

E-filing of appeal:

The mechanism of online filing of appeals has been made available to taxpayers. However, enabling legal provisions were lacking which have been introduced through Section 127 of the Income Tax Ordinance, 2001.

Tax Asaan:

A mobile application to facilitate taxpayers, available free of cost for Android as well as iOS based smart phones. It offers various facilities to the taxpayers including registration for income tax and sales tax, return filing for salaried individuals and POS invoice verification.

IREN and Joint Anti-Smuggling field intelligence exercise:

Establishment of Inland Revenue Enforcement Network (IRWN) to check smuggling and counterfeit products. Inland Revenue Service and Pakistan Customs Service have joined hands for anti-smuggling filed intelligence exercise.

READ MORE: FBR detects fraudulent declaration of goods in ST returns

Risk based Audit:

FBR has developed a centralized risk based audit management system (RAMS) for selection of audit cases centrally on the basis of pre-determined risk parameters. Selection of scientific matrix allowing allocation and distribution of weightage to different parameters in risk grid will segregate the potential and high-risk cases for audit through parametric computer balloting. Subsequently, in September 2020, through Audit Policy 2019, a total number of 12,533 cases were selected for audit for tax year 2018 through RAMS.

Measures taken in Customs to facilitate trade during Mid-year:

Pakistan Single Window (PSW):

The system of Pakistan Single Window (PSW) has been launched to achieve trade facilitation in an automated environment, reduce clearance times for legitimate trade, improved compliance through increased access to regulatory information and functions. It ensures greater collaboration and coordination between customs and other border regulatory agencies at the national and international level for coordinated border management and enhanced transparency in regulatory processes and decision-making.

Automated Process for Scanning of Cargo:

The Pakistan Customs Wing has introduced a new automated process for scanning of containerized import consignment of industrial raw materials for their speedy clearance at ports. WeBOC has led to significant reduction in processing time. The introduction of non-intrusive inspection system by customs was a long-awaited initiative aimed at replacing physical inspection of cargo and reducing the dwell time at ports by using the latest scanning technology in line with international best practices.

Virtual Assessment Module:

This is a system based automated assessment of goods declared (GD) on the basis of selectivity criteria. The module has been developed and deployed. It will significantly facilitate the assessment process of GD by reducing the clearance time.

Development of Authorized Economic Operator (AEO) Module:

The AEO Module has been developed and deployed. It will help in reducing in port dwell time and customs clearance.

Threshold for Electric/Digital Mode of Payment:

The Threshold for electric/digital mode of payment has been lowered from Rs500,000 to Rs200,000. The module has been developed and deployed. It will streamline the payment process and would reduce time.

Common Bonded Warehousing Module:

The module has been developed and deployed. It will help in streamlining the matters relating to common bonded warehouse.

April 13, 2022