KARACHI: Federal Board of Revenue (FBR) has been suggested to double threshold for collection of withholding tax on consumption of electricity by domestic users.
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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.
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Genuine NPOs unable to get benefit of 100% tax credit
KARACHI: Karachi Tax Bar Association (KTBA) has highlighted that genuine Non-Profit Organizations (NPOs) are unable to gent benefit of 100 per cent ax credit.
In its proposals for budget 2022/2023, the tax bar informed the Federal Board of Revenue (FBR) that through Finance Act 2017 an additional condition was inserted to avail the benefit of 100 per cent tax credit.
READ MORE: Changes sought in withholding on non-resident payment
Also, provision for taxation of surplus funds has also been introduced. The condition debarred the NPO could be from having admin and management expenses of more than 15 per cent of its total receipts.
The legitimately collected funds properly invested in specified securities are subjected to tax.
“These harsh provisions was introduced in the wake of the trust gap between the FBR and the NPO’s whereby certain cases found susceptible of the genuineness or negligent toward compliances,” the tax bar said, adding that the condition was imposed across the board on all NPOs regardless of the fact that nature of some of the NPOs activities is such that it is impossible for them to restrict these expenses under the threshold of 15 per cent.
READ MORE: FBR urged to allow all tax adjustment in salary income
This has resulted in many genuine NPOs being unable to claim the benefit of 100 per cent tax credit.
It is recommended that NPO’s should be categorized according to their nature objectives and purposes and not one single standardized rule should be made applicable. The said condition be deleted or a clarification should be issued whereby certain nature of NPO’s are excluded from this condition.
Alternatively, the provision for taxation of surplus funds should not be applicable in case those funds are invested in Federal Government securities.
This will ensure that genuine NPOs are not punished for the compliances under which they have no control.
READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023
The tax bar further informed the FBR that the Rule 214 of the Income Tax Rules, 2002 spells that approval of the Commissioner shall be valid for three years unless withdrawn.
Despite this position as per the Rules, the Commissioner in general issue certificates valid for only one year or even half year.
A clarification is proposed U/s. 2(36) of the Ordinance that approval of Commissioner shall be deemed in conformity with the Rule 214 of the Rules. To bring consistency between the law and the procedures in place.
Entitles not registered as Trust, Society or company. A condition has been imposed a requirement for NPOs to be formed and registered by or under any law as a non-profit organization.
READ MORE: CGT exemption on private company shares suggested
This has caused hardship to the entities that are not registered as Trust, Society or Section 42 company who yet completely fall within the four corners of Non- Profit
The law should be appropriately amended to exclude this requirement. Following amended words are suggested: “formed or registered by or under any law for the time being enforce”
It is a cardinal principal that income tax law is self-regulated law. Its applicability should not be linked with any other statutory status.
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Erstwhile FATA/PATA units to get exemption on quota
ISLAMABAD: The Federal Board of Revenue (FBR) has decided to allow tax exemption to industries located in erstwhile FATA/PATA on the basis quota determined against installed capacity.
An important meeting held in FBR Headquarter on April 01, 2022, (Friday). Chairman FBR Dr. Muhammad Ashfaq Ahmed reviewed progress regarding determination of quota for import of raw material on the basis of installed capacity for the industrial units located in erstwhile FATA/PATA.
READ MORE: March collection up over 20% amid political unrest: FBR
The participants of meeting were informed that out of total 140 units of steel , oil and ghee, plastics and textile etc. in erstwhile FATA/ PATA identified for joint survey for determination of manufacturing capacity, reports about 58 units have been sent to the FBR, while reports of 20 more units were in the pipeline.
The Director General IOCO stated that the survey and reports on the remaining units will be completed in couple of weeks. Chairman FBR directed that exercise/survey to determine the installed capacity needed to be completed by April 15, 2022 positively.
READ MORE: Pakistan needs to introduce laws to tax crypto income
It was also decided that exemptions under Sixth Schedule of Sales Tax Act, 1990 and Income Tax Ordinance, 2001 will not be available to industrial units beyond their quota determined on the basis of their installed capacity after April 15, 2022.
It was reported that some of industrial units were delaying the exercise on frivolous grounds. However, such units will not be allotted any quota to import raw materials after completion of the exercise.
Chairman FBR reiterated that the business community should play its positive role to complete this survey so that misuse of exemption of taxes in these areas could be discouraged and thus a level playing field may be ensured to industries located in all parts of the country.
READ MORE: Tax slabs reduction may be considered: FBR chairman
It is pertinent to mention that at the time of merger of erstwhile Federally Administered Tribal Areas/Provincially Administered Tribal Areas in Khyber Pakhtunkhwa in 2018, tax exemptions had been granted to these areas for 5 years up to June 30, 2023.
Currently several industrial units located in these areas are manufacturing different goods including Iron & Steel, Plastic, Ghee, Textile, Plastic etc.
These units import raw material through sea port at Karachi without payment of Sales Tax and Income Tax. However, these units are required to sell the finished goods only in the newly merged Districts of erstwhile FATA/PATA and not in the tariff areas/other Districts of the Province or in other Provinces.
READ MORE: Withholding tax should be on income: FBR Chairman
To frustrate and prevent the misuse of facility of exemption of taxes on the import of raw materials by these units, different measures are being taken by FBR including escort of containers from Azakhail Dryport to the location of the concerned unit.
The meeting was attended by Member IR Operations, Member IR Policy, Member Customs Policy, Director General Input Output Coefficient Organization (IOCO), Chief Commissioner Peshawar, Chief Collector Khyber Pakhtunkhwa, concerned Collector Customs, Commissioner IR, Director IOCO and other senior officers of FBR.
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March collection up over 20% amid political unrest: FBR
ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday said that the revenue collection in March 2022 registered a growth of over 20 per cent despite political uncertainties and import compression.
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Changes sought in withholding on non-resident payment
KARACHI: Karachi Tax bar Association (KTBA) has sought amendment to withholding on payments to non-resident persons under Section 152(5A) of Income Tax Ordinance, 2001.
The tax bar in its proposals for budget 2022/2023 informed the Federal Board of Revenue (FBR) that in case of payment to non-resident where the payment is not likely to be chargeable to tax, the payer is required to file an intimation to the Commissioner and the Commissioner is required to make an order within 30 days.
READ MORE: FBR urged to allow all tax adjustment in salary income
The period of 30 is on higher side and in certain cases, the non-resident recipient cannot be kept to wait for this long and gets practically in possible. Further, there is no mention in the law that if a Commissioner does not pass an order within 30 days, what should be the outcome.
READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023
The KTBA suggested that the period of 30 days be curtailed to 15 days. Further, a proviso should be inserted that if the taxpayer is not served with an order within 15 days, the notice shall be taken as grant of exemption from withholding tax.
Furthermore, in case of multiple payments of the same nature a formal agreement / approval by the Commissioner for should be treated as enough for all other similar payments.
READ MORE: CGT exemption on private company shares suggested
The desired amendment will save the Commissionerate of the unnecessary administrative hassle, the tax bar added.
It further highlighted payment of Dividend to non-resident persons under Section 152 of the Income Tax Ordinance, 2001.
Section 152 broadly covers withholding tax incidences in the case of non-resident persons. The dividend is excluded from this purview. Bringing withholding tax regime at equity; and entitling non-residents to avail treaty benefits.
READ MORE: KTBA proposes up to 20% capital gain tax on real estate
The tax bar proposed that this section should include dividend paid to non-resident which are currently covered under section 150. Dividend to non-residents currently falls in section 150. Though the Board has clarified that DTT rates should apply however amendment in law is required. If fall U/s. 150, reduced treaty rates u/s 152(5) would be applicable for withholding agents for remitting dividend.
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FBR urged to allow all tax adjustment in salary income
KARACHI: The Federal Board of Revenue (FBR) has been urged to allow complete tax adjustment at the time of deduction by employee on the time paid as salary under Section 149 of the Income Tax Ordinance, 2001.
Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 informed the FBR as per section 149, every person paying salary to employee shall deduct tax from the amount paid at specified rate after making tax adjustment of tax credit U/s. 61, 62, 63 and 64 and other adjustments.
READ MORE: PYMA seeks duty, taxes cut on yarn in budget 2022/2023
Complete tax credits though legally available are not adjusted in payroll, the tax bar said.
“This section should include all tax credit under Part X Chapter III as are admissible against salary income,” it suggested.
The current scheme has apparently missed tax credit U/s. 62A. The proposed amendment would cater all the current credits and those to be introduced from time to time.
READ MORE: CGT exemption on private company shares suggested
The tax bar also suggested amendment related to Employer contribution to Provident Fund under Section 12 of the Income Tax Ordinance, 2001.
Under Clause (3), Part I, Sixth Schedule, the employer’s contribution in the recognized provident fund in excess of Rs.150,000 (increased from Rs.100,000 by Finance Act, 2016) is deemed to be income of the employee.
This provision is invalid as the accumulated balance (it includes employer’s contribution) due and becoming payable to an employee participating in a recognized provident fund is totally exempt from tax under Clause (23), Part I, Second Schedule.
READ MORE: KTBA proposes up to 20% capital gain tax on real estate
Without prejudice to foregoing, since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution.
Clause (3) Part 1, Sixth Schedule be amended to exempt employer contribution to bring it at par with clause (23) Part 1, Second Schedule.
READ MORE: FBR urged to issue rules for WHT on digital transactions
Alternatively, the threshold be based as Rs 150,000 or 1/10th of the salary whichever is higher.
Since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution, the tax bar said.
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IR offices to work till midnight on March 31
ISLAMABAD: The offices of Inland Revenue (IR) will observe extended working hours on last two days of the current month and facilitate tax payment till midnight on March 31, 2022.
According to a notification issued by the Federal Board of Revenue (FBR) on Monday, the offices of Inland Revenue including Large Tax Offices (LTOs), Medium Tax Offices (MTOs), Corporate Tax Offices (CTOs) and Regional Tax Offices (RTOs) will remain open and observe extended working hours till 8:00 PM on Wednesday March 30, 2022 and till 12:00 midnight on Thursday March 31, 2022 to facilitate the taxpayers in payment of duty and taxes.
READ MORE: Banks to observe extended hours for tax collection
The FBR directed Chief Commissioners Inland Revenue to establish liaison with the State Bank of Pakistan (SBP) and authorized branches of National Bank of Pakistan (SBP) to ensure transfer of tax collection by these branches to the respective branches of SBP on the same date to account for the same towards the collection for the month of March 2022.
READ MORE: Tax collection from property purchase climbs up 24%
Earlier on March 24, 2022 the SBP issued instructions in this regard.
The SBP in a statement said that in order to facilitate the collection of government receipts/duties / taxes, it has been decided that the field offices of SBP Banking Services Corporation (SBP-BSC) and authorized branches of National Bank of Pakistan (NBP) will observe extended banking hours till 8:00 P.M. and 10:00 P.M. on 30th and 31 March, 2022, respectively.
READ MORE: FBR registration made mandatory for housing projects
Accordingly, NIFT has been advised to arrange a special clearing at 8:00 P.M. on 31st March, 2022 (Thursday) for same day clearing of payment instruments.
All banks are advised to keep their concerned branches open on 31″ March, 2022 (Thursday) till such time that is necessary to facilitate the special clearing for Government transactions by the NIFT.
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CGT exemption on private company shares suggested
KARACHI: The Federal Board of Revenue (FBR) has been urged to grant capital gain tax (CGT) exemption on disposal of shares of private companies after 10 years.
Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 suggested amendment in Section 37 of the Income Tax Ordinance, 2001 regarding gain on sale of shares of private companies.
READ MORE: KTBA proposes up to 20% capital gain tax on real estate
The tax bar said as per section 37 of the Ordinance, gain on sale of shares of private companies’ shares is taxed at corporate tax rate. This gain is reduced by 25 per cent in case the holding period is more than one year.
In case of gain on disposal of immovable property, the gain is exempt in case the holding period is more than 4 years. In case of capital gain on securities U/s. 37A, the gain is exempt on securities acquired before 1 July 2012.
READ MORE: FBR urged to issue rules for WHT on digital transactions
“Hence, investment in shares of Private companies stands at comparative disadvantage,” the KTBA said.
It is proposed that the gain on sale of private company shares should also be allowed exemption in case if the holding period is 10 years or more. In order to encourage and benefit corporatization of business.
The tax bar also recommended amended to Section 2(19)(d) of the Income Tax Ordinance, 2001 regarding buy back of shares.
READ MORE: New import income tax regime should be abolished
As per definition of dividend the distribution made by a company to its shareholders on reduction of capital shall be deemed dividend. This situation is generally referred to as Buy-back of shares.
On the other hand, under Rule 13P of the Income Tax Rules, 2002, the shares buy-back transaction is treated as Capital Gains. Thus, there exists a contradiction among the provisions of Ordinance and Rules.
Contradictory provisions in law that needs to be corrected, the tax bar said, adding that in principal, buy back of shares cannot be equated as alienation of shares and should not be covered U/s. 37A of the Ordinance.
READ MORE: Adjustable advance tax proposed for corporate services
Necessary clarification should be issued and Rule 13P be amended to align within the law in order to align the various provisions of law.
The tax also proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.
The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.
READ MORE: FBR proposed to restore group taxation in original form
The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”
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KTBA proposes up to 20% capital gain tax on real estate
KARACHI: Karachi Tax Bar Association (KTBA) has proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.
The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.
READ MORE: FBR urged to issue rules for WHT on digital transactions
The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”
READ MORE: New import income tax regime should be abolished
It proposed that a new head of income in Section 11 of Income Tax Ordinance 2001 should be added as income from disposal and trading of real estate containing progressive taxation, without allowing any exemption as to holding period and quantum of gain:
Where holding period is two years the rate of tax on gain should be 20 per cent
Where holding period is five years the rate of tax on gain should be 17.50 per cent
READ MORE: Adjustable advance tax proposed for corporate services
Where holding period is ten years the rate of tax on gain should be 15 per cent
Where holding period is more than ten years the tax on gain should be 10 per cent
The tax bar further proposed a separate definition of income from disposal and trading of real estate.
READ MORE: FBR proposed to restore group taxation in original form
Other regulatory amendments recommended by the tax bar are included: Restriction of individual holding of real estate properties [save Single member company]- Transfer of Properties Act 1882 to be amended; A separate ‘Real Estate Regulatory Authority’ is suggested; Aside Director General Commissioner be empowered to seek report from valuer on any transaction of Real Estate Trading
Giving rationale to the proposal, the KTBA said this will strengthen the taxation system and will able to collect tax from elite class.
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FBR urged to issue rules for WHT on digital transactions
KARACHI: The Federal Board of Revenue (FBR) has been urged to notify procedures and rules in the forthcoming budget 2022/2023 for deducting withholding tax (WHT) on digital transactions.
Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 proposed the FBR to make rules regarding digitalization of economy.
READ MORE: New import income tax regime should be abolished
The tax bar said that on the eve of digitalization of economy, novel transaction/ settlement forums are emerging. These include, online marketplace, digital payment etc.
Due to lack of specific guidelines and procedures, the taxpayers are facing difficulty in applying withholding tax provisions while making payments for buying goods where the transaction involve, seller, online portal, banker etc. simultaneously.
READ MORE: Adjustable advance tax proposed for corporate services
“The FBR should issue special procedures and rules to prescribe mode and manner of withholding of tax in case of purchase of goods or services by prescribed persons,” the tax bar recommended. Giving rationale, it said the amendment would provide clarity in law would preclude unnecessary tax disputes.
Earlier, the tax bar recommended that twelfth schedule should be abolished, and all imports should be categorized as industrial undertakings or in other respective categories as it stood prior to amendment vide Finance Act 2020.
READ MORE: FBR proposed to restore group taxation in original form
It is further recommended that exemption procedure under clause 72B Part IV 2nd Schedule that was revoked should be restored. Rate of tax should be reduced from 5.5 per cent to 1 per cent for all Industrial Undertakings to be adjustable tax.
Separate scheme should be introduced for service sector allowing collection of tax at import stage to be adjustable tax i.e. enabling exemption from this collection of tax.
Addressing the unnecessary hassle particularly for industrial undertaking.
Reinstatement of exemption to curtail staggering refund and bring recipe for taxpayers. To address the issue faced by the service sector.
READ MORE: Taxpayers should not be penalized for dealers’ fault