The Federal Board of Revenue (FBR) has announced the appointment of Muhammad Asad Tahir, a seasoned BS-20 officer of the Inland Revenue Service (IRS), as the official spokesperson for the organization.
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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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Prosecution for failure to comply with tax obligations
Section 191 of Income Tax Ordinance, 2001 explains the prosecution for non-compliance with certain statutory obligations.
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Digital tax payment to be must from November 1
ISLAMABAD: Federal Board of Revenue (FBR) has said digital payment for corporate taxpayers shall be must from November 01, 2021.
In a statement, the FBR said it is considering allowing the corporate taxpayers a grace period of 40 days to switch over to the digital mode of payments w.e.f. November 1, 2021 under Tax Laws (3rd Amendment) Ordinance, 2021.
This has been stated in a press release issued by FBR to clarify the relevant clauses of Tax Laws (3rd Amendment) Ordinance.
The Federal Board of Revenue vide the Tax Laws (3rd Amendment) Ordinance, 2021, (the New Ordinance) has introduced significant changes to the Income Tax ordinance, 2001 with a view to the documentation of the economy, capture the supply chains, and broaden the tax base.
The New Ordinance has restricted the scope of payments via traditional banking channels on account of expenditures exceeding Rs.250, 000/- to taxpayers other than companies.
Consequently, clause (la) in section 21 has been inserted in the Ordinance whereby it is now mandatory for companies to make payments on expenditures exceeding Rs.250, 000/- through digital mode only.
However, expenditures on account of utility bills, freight charges, travel fair, and payment of taxes and fines would continue to be admissible either paid in cash or traditional banking instruments.
The purpose behind this legislative enactment is to encourage digital payments and discourage traditional mode of transactions by the corporate sector in the first phase.
It is pertinent to mention that currently grey transactions (hiding/suppressing sales invoices and un-reconciled payments through open/revolving cheque or cash) are highly prevalent in business value chains. Almost 99% of all business transactions are on cash/cheque.
Moreover, 3rd party payments are highly prevalent in the organized and informal sector whereby businesses do not use their own bank accounts when making payments for supplies and tell their own customers/transaction-based informal-investors to make direct payments to the principle supplier.
This is highly prevalent in supply chains and has become an accepted norm. Likewise, cross cheques create financial inefficiency due to clearing period of 1-3 days.
Similarly, cross cheques/open cheques do not carry the “purpose” of the payment or its relationship with the invoice. Despite many attempts to increase documentation of supply chains such as WHT and Further tax, the number of unregistered distributors and retailers remains high whereby sales are suppressed and due income tax is completely avoided.
However, owing to lack of digital readiness by some corporate taxpayers immediately, FBR is considering to allow the corporate taxpayers a grace period of 40 days to switch over to the digital mode of payments w.e.f. November 1, 2021. In the intervening period they may use the traditional banking transaction methods including cross cheques, cross bank drafts, cross pay orders, or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer in addition to digital mode of payment as long as those are compliant with the law.
In the meantime, FBR is also engaging the State Bank of Pakistan (SBP) to issue necessary instructions to operationalize this important provision of law as well as encourage the banking sector to facilitate the corporate businesses to accomplish digitization within the stipulated timeframe.
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Penalty up to Rs3 million for failure to integrate business
ISLAMABAD: The Federal Board of Revenue (FBR) may impose up to Rs3 million as a monetary penalty upon persons for failure to integrate their businesses with the online system under Sales Tax Act, 1990.
An important amendment has been made through Tax Laws (Third Amendment) Ordinance, 2021, which was promulgated on September 15, 2021 through a presidential order.
Serial No. 25A has been added to Section 33 of the Sales Tax Act, 1990 to prescribe penalty for non-integration of businesses under the sales tax regime.
Text of the newly added Serial No. 25A of the Section 33 is:
25A. A person required to integrate his business as stipulated under sub-section (9A) of section 3, who fails to get himself registered under the Sales Tax Act,1990 and if registered, fails to integrate in the manner as required under the law and rules made thereunder.
Such person shall be liable to pay
(i) penalty of five hundred thousand rupees for first default;
(ii) penalty of one million rupees for second default after fifteen days of order for first default;
(iii) penalty of two million rupees for third default after fifteen days of order for second default;
(iv) penalty of three million rupees for fourth default after fifteen days of order for third default:
Provided that if such person fails to integrate his business within fifteen days of imposition of penalty for fourth default, his business premises shall be sealed till such time he integrates his business in the manner as stipulated under sub-section (9A) of section 3:
Provided further that if the retailer integrates his business with the Board [FBR]’s computerized system before imposition of penalty for second default, penalty for first default shall be waived by the Commissioner.”
The condition of making mandatory the integration of businesses has been introduced through sub-section 9A of the Section 3 of Sales Tax Act, 1990.
Text of the sub-section 9A of Section 3 is:
“(9A) Notwithstanding anything contained in this Act, Tier-1 retailers shall pay sales tax at the rate as applicable to the goods sold under relevant provisions of this Act or a notification issued thereunder:
Provided further that from such date, and in such mode and manner, as prescribed by the Board, all Tier-1 retailers shall integrate their retail outlets with Board’s computerized system for real-time reporting of sales.”
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FBR to stop gas, electricity of unregistered persons
ISLAMABAD: Federal Board of Revenue (FBR) has been empowered to discontinue gas and electricity connections of any person who is making taxable supplies but not registered for sales tax.
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Operator of online market place to withhold sales tax
ISLAMABAD: The operator of the online market place has been made liable to withholding sales tax on sales of goods.
An important amendment has been made through Tax Laws (Third Amendment) Ordinance, 2001, which was promulgated on September 15, 2021 through a presidential order.
A new proviso has been inserted to Section 3 of the Sales Tax Act, 1990 to make an operator of market place to withhold sales tax.
The text of the new proviso is:
“Provided that in case of the online market place facilitating the sale of third party goods, the liability to withhold tax on taxable supplies of such party at the rates specified in column (4) against S. No. 8 of the Eleventh Schedule to this Act, shall be on the operator of such market place.”
According to the Eleventh Schedule of the Sales Tax Act, 1990, the online market place shall collect from persons other than active taxpayers the withholding sales tax at the rate of 2 per cent of gross value of supplies:
Provided that the provisions of this entry shall be effective from the date as notified by the Board [Federal Board of Revenue].
A new clause 18A was inserted to Section 2 of the Sales Tax Act, 1990 through Finance Act, 2021 to bring online market place under sales tax ambit.
The text of clause 18A is:
“(18A) online market place: includes an electronic interface such as a market place, e-commerce platform, portal or similar means which facilitate sale of goods, including third party sale, in any of the following manner, namely:–
(a) by controlling the terms and conditions of the sale;
(b) authorizing the charge to the customers in respect of the payment for the supply; or
(c) ordering or delivering the goods.”
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Exemption from penalty and default surcharge
In a move aimed at providing flexibility and mitigating financial burdens for taxpayers, Section 183 of the Income Tax Ordinance, 2001 grants the Federal Board of Revenue (FBR) and the Commissioner Inland Revenue (IR) the authority to exempt individuals or classes of persons from penalties and default surcharges.
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Returns filed after due date not to get ATL status
Section 182A of Income Tax Ordinance, 2001 describes that a person failed to file the income tax return by the due date will not get status of Active Taxpayers’ List (ATL) until the payment default surcharge.
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Sales tax on high speed diesel reduced by 31.5%
ISLAMABAD: The federal government has announced a reduction of sales tax rate by 31.5 per cent on supply of High Speed Diesel (HSD). The rate sales tax on HSD has been reduced in order to lower the impact of higher prices pass on to the consumer.
The Federal Board of Revenue (FBR) issued SRO 1225(I)/2021 dated September 18, 2021 to notify the reduction in sales tax on HSD.
According to the SRO the sales tax rate on HSD has been reduced to 11.64 per cent from previous level of 17.00 per cent.
Previously, the FBR issued SRO 1072(I)/2021 dated August 26, 2021 to revise the sales tax on petroleum products.
In the latest SRO only sales tax rate on HSD has been reduced. The sales tax rates on other petroleum products have been kept unchanged. The sales tax rates on petroleum products are: Petrol 10.54 per cent; HSD 11.64 per cent; Kerosene oil 6.70 per cent; Light Diesel Oil 0.20 per cent.
It is worth mentioning that the federal government on September 15, 2021 announced an increase in the prices of petroleum products.
With the announcement the petrol prices have gone up to the all-time high level. However, it is even more important that the sales tax rates are on the lowest side when compared with the rates applicable during year 2015.
The government has increased latest prices owing to fluctuations in petroleum prices in the international market and exchange rate variation.
Following are the rates of petroleum products, which will take effect from September 16, 2021:
The rate of petrol has been increased by Rs5 to Rs123.30 per liter from Rs118.30.
The rate of high-speed diesel has been increased by Rs5.01 to Rs120.04 per liter from Rs115.03.
The rate of kerosene oil has been increased by Rs5.46 to Rs92.26 per liter from Rs86.80.
The rate of light diesel oil has been increased by Rs5.92 to Rs90.69 from Rs84.77.
In the latest SRO 1225(I)/2021 dated September 18, 2021, the sales tax rates on petroleum products are: Petrol 10.54 per cent; HSD 11.64 per cent; Kerosene oil 6.70 per cent; Light Diesel Oil 0.20 per cent.
The present sales tax rates on petroleum products are much lower when compared with sales tax rates prevailed about six years ago. The FBR issued SRO 963(I)/2015 dated September 30, 2015. The sales tax rates under this SRO are: Petrol 26 per cent; Kerosene 30 per cent; High Speed Diesel 50 per cent; Light Diesel Oil 29.50 per cent.
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Penalty amount doubles for non-filer salaried persons
ISLAMABAD: The Federal Board of Revenue (FBR) will recover a minimum amount of Rs10,000 as a penalty from salaried persons, who failed to file an income tax return during a tax year.
The minimum penalty has been increased from Rs5,000 to Rs10,000.
The changes have been brought through Tax Laws (Third Amendment) Ordinance, 2021, which was promulgated through Presidential order on September 15, 2021. The amendment has been introduced to Section 182(1) of the Income Tax Ordinance, 2001.
According to the amendment, where any person fails to furnish a return of income as required under Section 114 within the due date:
“Such person shall pay a penalty equal to higher of –
(a) 0.1 per cent of the tax payable in respect of that tax year for each day of default; or
(b) rupees one thousand for each day of default:
Provided that minimum penalty shall be —
(a) rupees ten thousand in case of individual having seventy-five percent or more income from salary; or
(b) rupees fifty thousand in all other cases:
Provided further that maximum penalty shall not exceed two hundred percent of tax payable by the person in a tax year:
Provided also that the amount of penalty shall be reduced by 75 per cent, 50 per cent and 25 per cent if the return is filed within one, two and three months respectively after the due date or extended due date of filing of return as prescribed under the law;
Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122 or 122D.
The following link provides previous penalty amount for not furnishing returns: