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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.

  • OICCI suggests simplify issuance of exemption certificate

    OICCI suggests simplify issuance of exemption certificate

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended the tax authorities to simplify issuance of exemption certificate in order to facilitate taxpayers.

    It its proposals for budget 2022/2023, the OICCI suggested the Federal Board of Revenue (FBR) to simplify the procedure of exemption certificate issuance.

    READ MORE: OICCI suggests revamping withholding tax regime

    It said delays in processing of exemptions certificates by department and un-necessary requirements to obtain exemption certificates under various sections of Ordinance results in hardship and refundable build ups due to tax deduction at source.

    The OICCI recommended that the requirement to obtain exemption certificates for Companies having exempt income shall be dispensed with. For example, retirement funds, companies in tax holidays etc.

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

    Companies that have discharged their full year tax liability in advance under section 148 / 153 of Income Tax Ordinance, 2001 shall also be issued exemption certificates under other provisions of Ordinance (for example Section 151, 233 etc.).

    Furthermore, in respect of filer and compliant taxpayers 15 days limit for auto-issuance of exemption certificate as presently in case of Section 153 of the Ordinance, should be extended to other sections.

    The OICCI also demanded restoration of exemption against withholding of income tax under section 148 of Income Tax Ordinance, 2001.

    READ MORE: Foreign investors seek reduction in corporate tax rate

    It recommended that exemption against withholding tax u/s 148 of the Ordinance be restored as previously available through clause 72B of the part I of the Second Schedule. Moreover, the criteria for obtaining 148 exemptions should be based on discharge of advance tax liability as per section 147 of the Income Tax Ordinance, 2001.

    Adjustability of advance Tax Under section 148(7) available to industrial undertaking shall also be extended to service sector. It is recommended to amend the section in following manner:

    READ MORE: Tax rates key element to attract foreign direct investment

    “The tax required to be collected under this section shall be minimum tax on the income of the importer arising from the imports subject to sub-section (1) and this sub-section shall not apply in the case of import of goods on which tax is required to be collected under this section for internal consumption in the business”.

    Section 48(1) of the Ordinance should allow automatic issuance of exemption certificate in line with Section 153.

  • OICCI suggests revamping withholding tax regime

    OICCI suggests revamping withholding tax regime

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested the authorities to revamp withholding tax regime in order to facilitate compliant taxpayers.

    The OICCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) recommended revamping of withholding tax regime, which is one of the key irritants for compliant taxpayers.

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

    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: Foreign investors seek reduction in corporate tax rate

    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: Tax rates key element to attract foreign direct investment

    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.

    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.

    READ MORE: KTBA recommends separate tax fraud proceedings

    Payments to non-residents cannot be processed without obtaining exemption certificate from Commissioner (within 30 days of request). To facilitate timely payments the period of 30 days under 152(5A) shall be curtailed to 15 days and in the absence of any confirmation within 15 days request shall be deemed to approved.

    The following clarification to be inserted after clause 153(7)(iii), to provide tax neutrality for assets financed by Islamic banking of conventional vis- a vis conventional banks.

    READ MORE: FBR urged to remove irritants in sales tax refund

    “For the removal of doubt, it is clarified that any goods delivered under an Islamic mode 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.”

  • FBR proposed to reduce minimum tax rate to 0.25%

    FBR proposed to reduce minimum tax rate to 0.25%

    KARACHI: Federal Board of Revenue (FBR) has been proposed to reduce the general rate of minimum tax to 0.25 per cent.

    The Overseas Investor Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 advised the FBR to review minimum tax regime (MTR) / abolish alternative corporate tax (ACT) under Section 113 and 113C of Income Tax Ordinance, 2001.

    READ MORE: Foreign investors seek reduction in corporate tax rate

    The OICCI recommended that the general rate of Minimum Tax under section 113 of ITO 2001 should be reduced to 0.25 per cent.

    For businesses dealing in sectors with high turnover and low margins, (eg. Oil Marketing/ Refineries/ LNG Terminal Operators, large chemical companies, authorized dealers of local vehicle manufacturers, distributors, and traders, including large trading houses), this rate should be applicable on gross profits instead of turnover.

    READ MORE: Tax rates key element to attract foreign direct investment

    All streams of income including income of commercial importers should be taxed under the normal tax regime. Special tax regimes should only be restricted to non-corporate or in-active taxpayers.

    Alternative Corporate Tax under section 113C should be abolished in presence of Minimum Tax under section 113.

    READ MORE: KTBA recommends separate tax fraud proceedings

    The OICCI earlier proposed that the FBR should continue the previously announced policy to annually reduce the tax rate from 29 per cent to eventually to rate of 25 per cent, including banking companies.

    The corporate tax rate in Pakistan, at 29 per cent is higher than most of the regional countries, as can be noted from the table here.

    Companies are required to pay various taxes in addition of income tax i.e., WWF (2 per cent), WPPF (5 per cent), Stamp Duty, Infra structure Cess (1.2 per cent) etc. which ultimately result in effective tax rate of around 35 per cent to 45 per cent which is far greater than effective tax rates of other countries in the region.

    READ MORE: FBR urged to remove irritants in sales tax refund

  • Foreign investors seek reduction in corporate tax rate

    Foreign investors seek reduction in corporate tax rate

    KARACHI: The Federal Board of Revenue (FBR) has been suggested to gradually reduce the corporate tax rate from existing 29 per cent to 25 per cent.

    Overseas Investors Chamber of Commerce and Industry (OICCI), a representative body of foreign investors operating in Pakistan, in its proposals for budget 2022/2023 proposed that the FBR should continue the previously announced policy to annually reduce the tax rate from 29 per cent to eventually to rate of 25 per cent, including banking companies.

    READ MORE: Tax rates key element to attract foreign direct investment

    The corporate tax rate in Pakistan, at 29 per cent is higher than most of the regional countries, as can be noted from the table here.

    global corporate tax rates

    Companies are required to pay various taxes in addition of income tax i.e., WWF (2 per cent), WPPF (5 per cent), Stamp Duty, Infra structure Cess (1.2 per cent) etc. which ultimately result in effective tax rate of around 35 per cent to 45 per cent which is far greater than effective tax rates of other countries in the region.

    READ MORE: KTBA recommends separate tax fraud proceedings

    Earlier, the OICCI informed the FBR that the tax rates are key element for any prospective investors, including foreign investors and key influencers in attracting foreign direct investment (FDI).

    It said that the tax environment and tax rates are key consideration for any prospective investors, including foreign investors and amongst the key influencers in attracting FDI into a country.

    The OICCI, the representative body of the foreign investors operating in Pakistan, submitted the following proposals for budget 2022/2023:

    Simplify the complex system of determining the corporate tax liability by:

    a. Abolishing ACT (Alternative Corporate Tax);

    READ MORE: FBR urged to remove irritants in sales tax refund

    b. Revamping the MTR (Minimum Tax Regime)

    c. Doing away with undue recurring audit/ examinations/ reviews and recovery proceedings.

    d. A number of Ease of Doing Business (EODB) and simplification of tax paying process issues can be addressed by the introduction of:

    i. Simplifying the procedures and forms for filing the sales tax and income tax return.

    READ MORE: Unified sales tax law for all tax authorities sought

    ii. One form for reporting all the tax liability in the country, including for FBR, and provincial revenue authorities, with efficient inter-revenue authorities’ coordination. Single Sales Tax return has not been fully implemented.

  • Tax rates key element to attract foreign direct investment

    Tax rates key element to attract foreign direct investment

    KARACHI: Tax rates are key element for any prospective investors, including foreign investors and key influencers in attracting foreign direct investment (FDI).

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 sent to Federal Board of Revenue (FBR) said that the tax environment and tax rates are key consideration for any prospective investors, including foreign investors and amongst the key influencers in attracting FDI into a country.

    READ MORE: KTBA recommends separate tax fraud proceedings

    The OICCI, the representative body of the foreign investors operating in Pakistan, submitted the following proposals for budget 2022/2023:

    Simplify the complex system of determining the corporate tax liability by:

    a. Abolishing ACT (Alternative Corporate Tax);

    b. Revamping the MTR (Minimum Tax Regime)

    c. Doing away with undue recurring audit/ examinations/ reviews and recovery proceedings.

    d. A number of Ease of Doing Business (EODB) and simplification of tax paying process issues can be addressed by the introduction of:

    READ MORE: FBR urged to remove irritants in sales tax refund

    i. Simplifying the procedures and forms for filing the sales tax and income tax return.

    ii. One form for reporting all the tax liability in the country, including for FBR, and provincial revenue authorities, with efficient inter-revenue authorities’ coordination. Single Sales Tax return has not been fully implemented.

    Tax policies should be predictable, transparent, and consistent. The policies should be implemented for long term to facilitate and protect longer term investment plans of local and foreign investors. No new taxes levied during the year except removing harsh anomalies – no supplementary budgetary measures.

    The withholding tax regime continues to be a key irritant for most taxpayers, especially the manufacturing and services sector, and negatively impacts EODB.

    READ MORE: Unified sales tax law for all tax authorities sought

    Tax compliant sector provides FBR with information of registered/unregistered businesses, which FBR should use as a tool for broadening tax net. However, FBR unfairly penalizes these commercial organization by disallowing their legitimate expenses and input Sales tax through measures like those covered u/s 21(q) of Income Tax Ordinance, 23(1) and 8(1)(h) & (J) of Sales Tax Act.

    Revenue Targets for field formations should be in line with the business growth trends. Unrealistic targets leads to harassment of compliant tax payers.

    READ MORE: Proposals for recovery of sales tax on bad debts

    To encourage investment in manufacturing facilities, incentives provided previously through various “tax credits” under section 65, should be restored.

    OICCI will continue to emphasize on value creation through transparent and strong enforcement measures designed to facilitate compliant taxpayers and punish tax evaders. Furthermore, the value addition of our members should not only be measured from tax collection basis but also on the basis of creating livelihoods, promoting sustainable business model and supporting a tax compliant echo system.

  • KTBA recommends separate tax fraud proceedings

    KTBA recommends separate tax fraud proceedings

    KARACHI: Karachi Tax Bar Association (KTBA) has recommended the tax authorities to separate tax fraud investigations from normal audit and assessment function.

    The KTBA in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), stated that tax assessment and tax frauds are two distinct things. But in Sales Tax law both powers are concurrently exercised by same authority.

    READ MORE: FBR urged to remove irritants in sales tax refund

    Segregation of two functions will result in efficient and focused assessment of tax by the tax officers resulting in increased revenue to the exchequer.

    Two distinct authorities shall be provided in law for the purpose of assessments in audits/enforcement (under Section 11 of Sales Tax Act, 1990) and proceedings of tax fraud under section 2(37) of the Act, which involves doing tax evasion knowingly, dishonestly or fraudulently.

    READ MORE: Unified sales tax law for all tax authorities sought

    Preferably a dedicated Directorate may be established to determine tax frauds. This will objectively provide a distinction between the law abiding taxpayers and those who are engaged in tax frauds, the tax bar said.

    The KTBA also recommended time limit to conclude audit proceedings.

    Presently no time limit has been prescribed under the law to conclude the audit proceedings initiated under section 25 of the Sales Tax Act 1990.

    However, apex court of the country has upheld that such audit is to be concluded within one financial year.

    READ MORE: Proposals for recovery of sales tax on bad debts

    Due to absence of any prescribed time limit, the audit proceedings are unnecessarily delayed for years and registered taxpayers are required to submit records multiple times.

    It is proposed that a new sub- section or proviso be inserted in the Section 25 prescribing a time limit of one year to conclude the audit proceeding.

    It will save time and cost of registered persons as well as tax officers.

    Earlier, the tax bar proposed to remove irritants in issuance of expeditious sales tax refunds.

    The tax bar said from July 1, 2019, FBR has implemented systems for expeditious processing of sales tax refunds, for which taxpayers are required to file Annexure H of the sales tax return. However, the registered persons have been facing challenges in filing of Annexure H.

    READ MORE: Proposal for withholding on purchases from unregistered

    Annexure H is required to be filed within 120 days from the date of filing of the sales tax return. This condition should be removed and registered persons be allowed to file Annexure H as and when considered feasible by him.

    At present, opening balance of input tax on raw material / other items is allowed to be entered in Annexure H for the tax period July 2019 only. If a taxpayer fails to file Annexure H for July 2019 within the due date or extended date, then he will never be able to file Annexure H for any of the subsequent tax periods. This is against the natural justice and fair play.

    Annexure H filed by the taxpayer is rejected by the system without highlighting any discrepancy or communicating the discrepancy to the taxpayer.

    In case any taxpayer does not want to carry out cumbersome exercise of filing Annexure H on a monthly basis, then such taxpayers should also be given an option to file Annexure H on an annual basis covering the data from July to June each year.

    READ MORE: Zero rate sales tax suggested for public welfare services

    Due to lack of clarity and clear cut guidelines from FBR, the taxpayers are matching Annexure-H with Annexure-F which appear inconsistent with the Scheme of Stock Statement and Stock Statement maintained as per accounting records, for the Purchases actually claimed in the Sales Tax return (i.e. Current year + prior month purchases) are being reported, instead of Purchases for the month only.

    Due to above, Stock Statement is not matched with taxpayer stock records / audited financial statements. Unless the shortcomings are addressed the objective of faster processing of sales tax refund cannot be achieved. “This would result in simplified process for the taxpayers,” the KTBA said.

  • FBR urged to remove irritants in sales tax refund

    FBR urged to remove irritants in sales tax refund

    KARACHI: The Federal Board of Revenue (FBR) has been urged to remove irritants in issuance of expeditious sales tax refunds.

    Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 urged the FBR should resolve the issues expeditiously.

    READ MORE: Unified sales tax law for all tax authorities sought

    The tax bar said from July 1, 2019, FBR has implemented systems for expeditious processing of sales tax refunds, for which taxpayers are required to file Annexure H of the sales tax return. However, the registered persons have been facing challenges in filing of Annexure H.

    Annexure H is required to be filed within 120 days from the date of filing of the sales tax return. This condition should be removed and registered persons be allowed to file Annexure H as and when considered feasible by him.

    READ MORE: Proposals for recovery of sales tax on bad debts

    At present, opening balance of input tax on raw material / other items is allowed to be entered in Annexure H for the tax period July 2019 only. If a taxpayer fails to file Annexure H for July 2019 within the due date or extended date, then he will never be able to file Annexure H for any of the subsequent tax periods. This is against the natural justice and fair play.

    Annexure H filed by the taxpayer is rejected by the system without highlighting any discrepancy or communicating the discrepancy to the taxpayer.

    READ MORE: Proposal for withholding on purchases from unregistered

    In case any taxpayer does not want to carry out cumbersome exercise of filing Annexure H on a monthly basis, then such taxpayers should also be given an option to file Annexure H on an annual basis covering the data from July to June each year.

    Due to lack of clarity and clear cut guidelines from FBR, the taxpayers are matching Annexure-H with Annexure-F which appear inconsistent with the Scheme of Stock Statement and Stock Statement maintained as per accounting records, for the Purchases actually claimed in the Sales Tax return (i.e. Current year + prior month purchases) are being reported, instead of Purchases for the month only.

    READ MORE: Zero rate sales tax suggested for public welfare services

    Due to above, Stock Statement is not matched with taxpayer stock records / audited financial statements.

    Unless the shortcomings are addressed the objective of faster processing of sales tax refund cannot be achieved.

    “This would result in simplified process for the taxpayers,” the KTBA said.

  • Unified sales tax law for all tax authorities sought

    Unified sales tax law for all tax authorities sought

    KARACHI: Karachi Tax Bar Association (KTBA) has sought unified law for federal and provincial tax authorities in order to remove friction in classification of goods and services.

    The KTBA in its proposals for budget 2022/2023 stated that friction between Federal Board of Revenue (FBR) and Provincial Revenue Boards / Authorities on classification of goods and services and Single Sales Tax Return.

    READ MORE: Proposals for recovery of sales tax on bad debts

    Even after ten years of devolution the Federal Board of Revenue and Provincial Revenue Boards/Authorities are at variance with respect to classification of services and goods

    This has created extreme unrest and constant problem amongst business community and causing lot of chaos, confusion, harassment and litigation.

    To resolve the variance on the subject it is better if a unified law is draft and adopted by all tax jurisdictions. Additionally it is proposed that issue of variance on goods and services may be settled by commonly adopting anyone of the following classifications: (a) First Schedule to Pakistan Customs Tariff / PCT code used for classify goods and services in custom duties; and (b) WIPO’s NICE Classification used to classify goods and services in trademark matters.

    READ MORE: Proposal for withholding on purchases from unregistered

    The harmonization will provide clarity and ensure better business environment to promote trust amongst and will avoid discord amongst Federation and Provinces

    Earlier, the KTBA submitted proposal for making changes regarding recovery of sales tax on bad debts.

    It said that the Section 7 of Sales Tax Act, 1990 lays a timeline of 180 days to claim input tax on purchases and there is no provision to allow supplier reversal if corresponding receivable are not recovered and is written off.

    READ MORE: Zero rate sales tax suggested for public welfare services

    Sales Tax is a consumption tax and it has to be neutral for the businesses. Therefore, as per best practices of VAT concept- based tax laws around the globe, supplier is allowed adjustment on account of irrecoverable sales tax in subsequent tax periods.

    It is proposed that section 7 be amended to include a provision for allowing adjustment of irrecoverable sales tax paid against a valid tax invoice subject to appropriate conditions. It is likely to reduce the cost of business for the registered taxpayers.

    READ MORE: Advance tax on individuals must be for Rs10mn turnover

  • Proposals for recovery of sales tax on bad debts

    Proposals for recovery of sales tax on bad debts

    KARACHI: Karachi Tax Bar Association (KTBA) has submitted proposal for making changes regarding recovery of sales tax on bad debts.

    The KTBA in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) said that the Section 7 of Sales Tax Act, 1990 lays a timeline of 180 days to claim input tax on purchases and there is no provision to allow supplier reversal if corresponding receivable are not recovered and is written off.

    READ MORE: Proposal for withholding on purchases from unregistered

    Sales Tax is a consumption tax and it has to be neutral for the businesses. Therefore, as per best practices of VAT concept- based tax laws around the globe, supplier is allowed adjustment on account of irrecoverable sales tax in subsequent tax periods.

    It is proposed that section 7 be amended to include a provision for allowing adjustment of irrecoverable sales tax paid against a valid tax invoice subject to appropriate conditions.

    READ MORE: Zero rate sales tax suggested for public welfare services

    It is likely to reduce the cost of business for the registered taxpayers.

    Earlier, KTBA recommended amendments in withholding sales tax regime on purchases from unregistered taxpayers.

    It said that the move was intended to increase the cost of doing business for unregistered taxpayers, which otherwise is counterproductive and has impacted the documented sector more adversely resulting in high cost of doing business for compliant taxpayers. On the other hand, no significant increase in registration has been witnessed as result of enhanced withholding rate.

    READ MORE: Advance tax on individuals must be for Rs10mn turnover

    It is proposed that either the withholding rate be reduced to 1% else tax withheld be allowed as admissible input tax to the registered taxpayers upon providing CNIC/ NTN of such unregistered suppliers so that FBR can trace those unregistered taxpayers and bring them into tax net.

    It is likely to reduce the cost of doing business for the compliant registered taxpayers who are compelled to purchase their raw materials from the unregistered taxpayers owing to market practices.

    READ MORE: Eliminating commissioner audit selection power sought

  • Proposal for withholding on purchases from unregistered

    Proposal for withholding on purchases from unregistered

    KARACHI: Karachi Tax Bar Association (KTBA) has recommended amendments in withholding sales tax regime on purchases from unregistered taxpayers.

    The KTBA in its proposals for budget 2022/2023, informed the Federal Board of Revenue (FBR) that the the move was intended to increase the cost of doing business for unregistered taxpayers, which otherwise is counterproductive and has impacted the documented sector more adversely resulting in high cost of doing business for compliant taxpayers. On the other hand, no significant increase in registration has been witnessed as result of enhanced withholding rate.

    READ MORE: Zero rate sales tax suggested for public welfare services

    It is proposed that either the withholding rate be reduced to 1% else tax withheld be allowed as admissible input tax to the registered taxpayers upon providing CNIC/ NTN of such unregistered suppliers so that FBR can trace those unregistered taxpayers and bring them into tax net.

    It is likely to reduce the cost of doing business for the compliant registered taxpayers who are compelled to purchase their raw materials from the unregistered taxpayers owing to market practices.

    READ MORE: Advance tax on individuals must be for Rs10mn turnover

    Another proposals, the tax bar said further tax at 3 per cent has been levied on taxable supplies made to a taxpayer who has not obtained sales tax registration number.

    The expressions “person who has not obtained registration number” is quite vague and inadvertently covers all taxpayers whether required to be registered or not. This creates undue tax burden on taxpayers like service providers who otherwise are not required to be registered under the Act.

    The expression “a person who has not obtained sales tax registration number,” as used in Section 3(1A) is required to be replaced with the following expression: “The person who are required to be registered but are not registered under the Act.” Alternatively a suitable explanation may also be inserted to amend SRO 648(I)/2013.

    READ MORE: Eliminating commissioner audit selection power sought

    Taxpayers not subject to tax under the Act dealing in non-taxable or exempt goods will be excluded from the purview of further tax and litigations pending before appellate forum will be settled.

    The tax bra further highlighted that the FBR on the strength of Notification No.SRO 1222(1)/2021 has levied extra tax on supplies of electric power and natural gas to taxpayers having industrial or commercial connections, who either have not obtained sales tax registration number or are not on the Active Taxpayers List maintained by the Federal Board of Revenue under sales tax regime.

    READ MORE: Threshold be doubled for domestic electric consumers

    The expression “persons having industrial or commercial connections, but have either not obtained sales tax registration number or are not on the Active Taxpayers List maintained by the Federal Board of Revenue” is quite vague and inadvertently burdened all taxpayers like service providers, suppliers of exempt goods with extra tax.

    It is proposed that expression “either in Income Tax or Sales Tax regime” be inserted in SRO 1222(1)/2021 after the words “Federal Board of Revenue”.

    The issue is contentious and proposal is likely to rest all controversies.