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KARACHI: Pakistan Stock Exchange (PSX) has urged the tax authorities to allow tax credit to Small and Medium Enterprises (SMEs) to encourage listed on the stock exchange.
The PSX in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), said SMEs contribute immensely to Pakistan’s employment, export and GDP growth, and provide 80 per cent of all employment in the country.
A well-functioning SME segment at the Stock Exchange offers a range of benefits including greater access to growth capital for innovative SMEs, documentation, good governance, new jobs through entrepreneurship, more investment opportunity for domestic investors and local venture capitalists.
PSX has launched an SME board to attract smaller companies to get listed on the exchange. The aim is to facilitate SMEs with an alternative to bank financing for their expansion growth and projects.
In order to encourage small and medium enterprises to get listed on the SME Board, it is proposed that the rate of tax for such listed SME companies be permanently lowered by giving tax credit of 50 per cent of tax payable for 3 to 4 years of listings and then onwards 20 per cent of the tax payable.
The PSX said that the share of the manufacturing sector in the job market is only 14 per cent. This is very low because 80 per cent of the manufacturing investments in large scale industries provide less than 20 per cent of the manufacturing jobs. Over 80 per cent jobs are provided by SMEs.
There are significant fiscal tax credit benefits in Spain, Kenya, Brazil, Argentina and other parts of the world for SMEs.
The PSX proposed: In clause (iii), Division II, Part I of the First Schedule to the Income Tax Ordinance, 2001 after a colon the following proviso shall be added, namely:
“Provided that where a tax payer is a small or medium sized company as defined under the Third Schedule of the Companies Act, 2017 and is also listed on the registered Stock Exchange in Pakistan, the tax credit @ 50% of the tax payable on the taxable income of such company, other than a banking company, shall be allowed for the tax year 2021 and onwards.”
KARACHI: The Federal Board of Revenue (FBR) has been urged to eliminate minimum tax regime for listed companies in order to encourage documentation of economy.
The PSX in its proposals for budget 2022/2023, submitted to the FBR stated that through the concept of minimum tax is prevalent in a few other countries, however, in other countries, as a principle, it is levied only in cases where high-income taxpayers don’t pay any tax due to different tax exemptions available to them.
It suggested that minimum tax regime should be eliminated from listed companies as such companies are strongly compliant towards specific documentation requirements of various statues.
The application of minimum tax on listed companies has resulted in discouraging documentation of the economy. Listed companies have significant documentation and regulatory requirements and need to engage external auditors to audit their business affairs.
The stringent regulations keep the listed companies strongly complaint towards filing of income tax / sales tax returns, paying quarterly advance taxes, adjustment of withholding taxes on sales and purchases and consequently filing withholding statements, statements on final taxation and fulfilling various other requirements which resultantly align their books of accounts with the statutory requirements and provide a comfort zone to the authorities and stakeholders over the reported numbers.
KARACHI: Pakistan Stock Exchange (PSX) has proposed rationalizing tax rates for listed companies through incentives and credits, in order to encourage documentation of economy.
The PSX in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) said that it is generally observed that when companies opt for a listing on a stock exchange, their profits grow substantially due to effective corporate governance, better disclosures, and ability to raise capital from the market. Increased number of listed companies and higher profitability leads to higher tax revenue for the government, including incremental revenues from CGT. Hence it is important to encourage companies to get listed on PSX.
However, tax credit on enlistment under section 65C has been omitted by the Finance Act, 2021. This tax incentive was a very small carrot with no significant revenue impact. Had this section not been omitted, only 8 listed companies would have availed this tax credit which we estimate, based on their latest audited financial statements, the tax revenue impact would have been Rs. 342 million per annum.
Further, the CGT collected on these 8 symbols for the 6 months period from July 2021 to December 2021 is Rs. 237 million, and, extrapolating based on this 6 months average collection of CGT, the tax collection for the 12 months period could be Rs. 474 million, compared to the total estimated tax credits of Rs. 342 million that would have been availed by these 8 companies.
The average rate of tax in the Asian region is 19.62%; whereas, currently in Pakistan the corporate tax rate is 29%. As such it is imperative that the corporate tax rate after the tax credit is brought down reasonably to compete with the other regional and global countries.
Therefore, in order to encourage documentation and create a long term positive impact on tax revenue, there should be reduced rates of tax for listed companies compared to unlisted companies.
To encourage documentation of the economy, the corporate tax rate should be permanently lowered for listed companies, by giving tax credit of 20% of tax payable for those companies that meet the prescribed requirements including a minimum free float of 25% throughout. This will be long term positive for tax revenue.
The table below outlines the five-year summary of listings and de-listings on the Pakistan Stock Exchange:
Particulars
Number of Companies
Capital (Rs.)*
New Listings
24**
57,381 Million
De-listings
38
7, 241 Million
Delisted due to Merger
9
120, 525 Million
*As of December 31, 2021
**It includes listings of preference shares of already listed companies.
Rationale
i) It is generally observed that publically-listed companies are able to improve profitability due to effective corporate governance, better corporate disclosure and availability of additional funds.
ii) The incremental benefits arising from the preferential tax structure for listed companies will foster a business environment that encourages new listings on the stock exchange, resulting in higher trading volumes and lead to:
a) Higher tax revenue from listed companies’ income as a result of higher corporate profits.
b) Higher revenues from tax on brokers activity on new listings.
c) Higher revenue from Capital Gains Tax on disposal of newly listed securities
iii) Furthermore, with the government’s increased pace of privatization of its entities, the stock market will attract local and foreign investors and increase the market size. The average rate of tax in the Asian region is 19.62%; whereas, currently in Pakistan the corporate tax rate is 29%. As such it is imperative that the corporate tax rate after above tax credit is brought down reasonably to compete with the other regional and global countries. Following are the average worldwide corporate tax rates:
LOCATION
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Africa
29.0
28.3
27.9
27.9
27.5
28.73
28.81
28.45
28.50
27.97
Asia
22.9
22.1
21.9
22.6
21.9
20.05
20.65
21.32
20.06
19.62
Europe
20.4
20.6
19.7
20.1
20.5
18.35
18.38
20.27
19.99
19.84
Oceania
28.6
27.0
27.0
27.0
26.0
23.67
22.00
23.75
23.75
23.75
North America
33.0
33.0
33.3
33.3
33.3
23.08
23.01
25.85
26.06
26.37
OECD
25.2
25.3
24.1
24.9
24.8
24.18
23.93
23.59
23.51
23.04
Global
24.4
23.7
23.6
23.9
23.6
22.96
23.03
24.18
23.85
23.54
Proposed Amendment
Reinstate section 65C of Income Tax Ordinance, 2001 to be read as under:
“Where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan, a tax credit equal to twenty percent of the tax payable shall be allowed for the tax year in which the said company is enlisted and for the following years for those companies that meet the prescribed requirements including a minimum free float of 25% throughout and”.
Section 21 of Customs Act, 1969 has explained power to deliver certain goods without payment of duty and to repay duty on certain goods.
The Federal Board of Revenue (FBR) issued updated Customs Act, 1969 up to June 30, 2021. The act has been updated by making amendments brought through Finance Act, 2021.
Following is the text of section 21 of the Customs Act, 1969:
21. Power to deliver certain goods with-out payment of duty and to repay duty on certain goods.- Subject to such conditions, limitations or restrictions as it thinks fit to impose, the Board may, in such general cases as may be prescribed by rules or in particular cases by special order, authorize-
(a) the delivery without payment of the customs-duties chargeable thereon of goods which are imported only temporarily with a view to subsequent exportation;
(c) the repayment in whole or in part of the duties as levied under section 18 or 18A and paid on the importation of any goods which have been used in the production, manufacture, processing, repair or refitting in Pakistan of goods meant for exportation, or for supplies against international tenders, or for supply to industrial units, projects, institutions, agencies and organizations, entitled to import the same at concessionary rates:
Provided that no repayment may be granted in a case in which the amount involved is less than one hundred rupees ; and
(d) without prejudice to the provisions of clause (c), the Federal Government may, by notification in the Official Gazette, direct that drawback or repayment shall not be allowed in respect of any goods of specified description or may be allowed subject to such restrictions and conditions as may be specified in the notification.
(Disclaimer: The text of above section is only for information. Team PkRevenue.com makes all efforts to provide the correct version of the text. However, the team PkRevenue.com is not responsible for any error or omission.)
ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday notified transfers of two senior officers of Pakistan Customs Service (PCS) posted at Multan.
According to details, the FBR transferred two BS-20 officers of PCS from Directorate of Intelligence and Investigation, Multan and Collectorate of Customs Enforcement, Multan.
The FBR notified transfers and posting of following officers:
01. Asif Abbas (Pakistan Customs Service/BS-20) has been transferred and posted as Chief, Federal Board of Revenue (HQ), Islamabad from the post of Director, Directorate of Intelligence and Investigation, FBR, Multan.
02. Imran Ahmad Ch. (Pakistan Customs Service/BS-20) has been transferred and posted as Chief, Federal Board of Revenue (HQ), Islamabad from the post of Collector, Collectorate of Customs Enforcement, Multan.
03. Muhammad Tahir (Pakistan Customs Service/BS-20) has been transferred and posted as Collector, Collectorate of Customs Enforcement, Multan from the post of Director, Directorate General of Intelligence and Investigation, FBR, Islamabad.
04. Yasin Murtaza (Pakistan Customs Service/BS-19) has been transferred and posted as Additional Director, Directorate of Intelligence & Investigation, FBR, Multan from the post of Additional Collector, Collectorate of Customs Enforcement, Dera Ismail Khan.
The FBR said that the officers who are drawing performance allowance prior to issuance of this notification shall continue to draw this allowance on the new place of posting.
It is worth mentioning that the FBR has notified transfers and postings of senior customs officers ahead of federal budget announcement for the fiscal year 2022/2023 and a month to go to end the fiscal year 2021/2022.
KARACHI: Pakistan Stock Exchange (PSX) has suggested the tax authorities to introduce grandfather provisions for tax treatment of listed companies.
In its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), the stock exchange recommended grandfather provision for tax treatment of companies, which list on the PSX.
The stock exchange said in view of strong structural reforms in the capital market, companies in Pakistan have immense potential to raise funds from the capital market. This will result in greater documentation of the economy and increased tax revenue. At the same time this will help to grow the capital markets, provide attractive investment opportunities and hence improve the savings and investment rates in Pakistan. Listed companies become part of the documented, regulated and formal corporate sector. Hence, PSX is continuously endeavoring to encourage listings.
It is proposed that in order to encourage companies to list, their tax status should be grandfathered at the time of listing application i.e. no new cases for past tax returns should be opened, except for such pending cases on which proceedings have already been initiated under the Ordinance, before the date of listing application, will continue as per the provisions of law.
It is well known that a large part of Pakistan’s economy is undocumented and a significant number of companies operate in the informal sector. This will encourage such companies, particularly SMEs, to become documented and start paying taxes, without the fear that past tax returns or lack of them will be questioned. Moving forward they will be documented and paying full tax. Hence, this will be a significant revenue positive measure.
“The provision of section 122, section 176 and section 177 shall not be applicable to those taxpayers being companies which opt for enlistment on the Main or GEM Board of Pakistan Stock Exchange, except such pending cases on which the proceedings have already been initiated under the Ordinance, before the date of listing application, will continue as per the provisions of law.”
ISLAMABAD: The Federal Board of Revenue (FBR) has extended the last date for filing statement of information of foreign entities and individuals operating in Pakistan.
The FBR on Wednesday issued a Circular No. 01 of 2021-22 – International Taxes dated May 31, 2022.
The FBR extended the deadline for filing of statement under Section 165B of the Income Tax Ordinance, 2001 read with Rule 78L Chapter XIIA of the Income Tax Rules, 2002 up to June 15, 2022.
Under Section 165B of the Ordinance, financial institutions, including banks are required to furnish information of non-residents.
“(1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act,1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of1947) and any regulations made under the State Bank of Pakistan Act,1956 (XXXIII of 1956) on the subject, every financial institution shall make arrangements to provide information regarding non-resident or any other reportable persons to the Board in the prescribed form and manner for the purpose of automatic exchange of information under bilateral agreement or multilateral convention.
(2) All information received under this section shall be used only for tax and related purposes and kept confidential.
(3) For the purpose of this section, the terms “reportable person” and “financial institution” shall have the meaning as provided in Chapter XIIA of the Income Tax Rules, 2002.”
The Rule 78L of the Income Tax Rules, 2002 explained the date for filing of common reporting standards reports.
The annual domestic reporting date for filing of common reporting standards reports by reporting financial institutions shall be 31st May of each year.
The common reporting standard reports shall be filed on the AEOI portal on FBR’s official website in CRS XML Schema prescribed by the Global Forum of Organization for Economic Cooperation and Development (OECD).
ISLAMABAD: The Federal Board of Revenue (FBR) has collected Rs5.35 trillion during first 11 months of the current fiscal year 2021/2022.
The latest collection is about 28.4 per cent higher over the collection of Rs4.16 trillion during the same period last fiscal year, the FBR said on Tuesday.
The net collection for the month of May, 2022 realized Rs 490 billion represents an increase of 26.8 per cent over Rs 387 billion collected in May, 2021.
On the other hand, the gross collection of the FBR increased to Rs5.64 trillion during first eleven months of the current fiscal year as compared with Rs4.39 trillion in the corresponding months of the last fiscal year.
The FBR released an amount of Rs30.4 billion as refunds in the month of May 2022 as compared with Rs21.1 billion refunds released in the same month of the last year, showing a growth of 44.3 per cent.
Similarly, refunds worth Rs 295.5 billion disbursed during first eleven months of the current fiscal year as compared with Rs224.2 billion in the same period of the last fiscal year, showing an increase of 32 per cent.
Needless to add that the ongoing unprecedented and constant growth trajectory in revenue collection has been achieved despite massive tax relief given by the government on various essential items to common man.
For the first time ever in the country’s history, Sales Tax on all POL products has been reduced to zero which cost FBR Rs. 45 billion in May, 2022. It is also worth sharing that FBR has introduced a number of innovative interventions both at policy and operational level with a view to maximize revenue potential through digitization, transparency, and taxpayers’ facilitation.
This has not only resulted in ensuring transparency, taxpayers’ facilitation, and the ease of doing business but also translated in a healthy and steady growth in revenue collection.
Likewise, the incumbent top leadership of FBR has launched a new culture of clean taxation with a clear focus on collecting only the fair tax and not holding up refunds which are due to be paid.
This has not only fast-tracked the process of bridging the trust-deficit between FBR and Taxpayers but also ensured the much-needed cash liquidity for business community. That’s precisely why FBR continues to surpass its assigned revenue targets despite challenges and price stabilization measures adopted by the government.
