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 advised to amend withholding tax on prize winnings

KARACHI: Federal Board of Revenue (FBR) has been advised to amend the income tax law related to withholding tax deduction on prize winnings.

Pakistan Business Council (PBC) in its budget proposals for 2020/2021 submitted to the FBR said that under Section 156 of the Income Tax Ordinance, 2001 requires a company to deduct 20 percent tax on “prize offered by companies for promotion of sale”.

The PBC suggested amended in the Section 156 that every person paying prize of prize bonds, or winning from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sale to end consumers, or cross-word puzzle shall deduct tax.

The PBC said that the clear intention of this section is to capture tax through withholding at source from persons who are recipients of these prizes or winnings; the intention is not to tax any person who belongs to the supply chain of the companies who offer prize for promotion of sales.

The income of the supply chain i.e. dealers, distributors is subjected to withholding tax in the shape of withholding taxes imposed under separate withholding regimes.

It is therefore suggested that to clear any ambiguity in law regarding application of this section, it may be amended to add the term “end consumers” to oust any person in the supply chain from the ambit of this section.

May 17, 2020
Tax authorities consider reducing minimum tax rate: Zeeshan Merchant

KARACHI: Tax authorities have agreed to consider reducing minimum tax rate for corporate sector and individuals in the upcoming budget, especially in the wake of financial losses due to coronavirus pandemic, a senior tax consultant said.

“In different meetings with Dr. Abdul Hafeez Shaikh, Finance Advisor to Prime Minister, Razak Dawood, Commerce Advisor to PM and senior officers of Federal Board of Revenue (FBR) have agreed to reduce minimum tax rate for providing relief to mitigate adverse impact of coronavirus,” Zeeshan Merchant, former vice president of Karachi Tax Bar Association (KTBA) said this while talking to PkRevenue.com.

Merchant, who is also honorary consultant to Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said that the actual proposal for the budget 2020/2021 is to reduce minimum tax rate for corporate sector to 0.5 percent and abolish this tax for two years in case of individuals and Association of Persons (AOPs).

He said that in meetings Dr. Abdul Hafeez Shaikh and Abdul Razak Dawood appreciated the proposals and promised to consider in the budget for providing maximum relief to businesses.

Merchant further said that the FBR chairperson also pledged to move this proposals after consideration for incorporation in the Finance Bill 2020.

He said that due to coronavirus and subsequent lockdown many corporate entities would not able to post significant profits or declare substantial losses for the year.

Merchant further said that the minimum tax applied on turnover when a taxpayer declare lower profit or declare gross losses to the year.

The FPCCI in its proposals for fiscal year 2020/2021 said that the existing rate of 1.5 percent minimum tax is very high and results in financial hardships to the taxpayers.

Due to the current economic conditions and its negative impact on productivity, the businesses are not operating at optimum level.

According to changes vide Finance Act, 2016 threshold of turnover for individual and AOP for turnover tax at the rate of 1.25 percent decreased from Rs50 million to Rs10 million. This had adversely affected the true declaration of turnover and has created hardship for the taxpayers.

After changes made in Section 113(1) of Income Tax Ordinance, 2001, now companies have to pay turnover tax even in case of gross loss before charging of depreciation. This has adversely affected the industry.

Under section 113(2) (C) where Minimum Tax paid under sub section (1) exceeds the actual tax payable under Part I, Clause (1) of Division I, or Division II of the first Schedule, the excess amount is carried forward for adjustment against tax liability of the subsequent tax year(s).

The FPCCI also proposed to reduce the minimum tax rate and enhance the limit of turnover to Rs50 million.

May 16, 2020
FBR advised to make annexure-J mandatory to prevent under reporting

KARACHI: Federal Board of Revenue (FBR) has been advised to make it mandatory the filing annexure-J along with monthly sales tax returns in order to remove disparity between formal and informal sectors.

Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, said that currently only certain persons as defined under Rule 14 to Sales Tax Rules, 2002 are required to file annexure J.

Annexure J requires taxpayers to file details of stock in hand in terms of value as well as quantity.

Other taxpayers are encouraged to file the same but there is no mandatory requirement as per applicable laws to file the same.

“It is feared that registered taxpayers are under reporting or suppressing their actual sales to escape the sales tax charge as currently there is no mechanism to report the details of stock (Raw material, WIP, and Finished Goods).

The PBC proposed to make it mandatory for all the taxpayers to file Annexure J along with their monthly sales tax return in order to ensure that sales are not suppressed or made without charging proper sales tax.

It said that the proposed mandatory requirement would help in removing disparity between formal and informal sectors.

May 16, 2020
FBR urged to clarify income tax relief to group companies

KARACHI: Federal Board of Revenue (FBR) has been urged to clarify group relief under income tax laws regarding a holding company can purchase losses of its subsidiary.

Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, stated that as per Section 59B of the Income Tax Ordinance, 2001, a holding company can purchase the loss of its subsidiary provided there is continued ownership of five years as mentioned in sub-section 2 of Section 59B.

The PBC said that this subsection 2 of Section 59B has already been misinterpreted by the tax department in various companies that purchase of loss by the holding company is allowed in the sixth year i.e. after the end of continued ownership of five years.

“Practically speaking, subsidiary companies mostly incur losses in the initial years of establishment due to huge amount of depreciation / initial allowance on new setup (plant & machinery, etc.) and mostly no losses incurred after a period of 5 years (i.e. in the sixth year).”

Taking the approach used by the tax authorities, practically speaking, none of the holding company would be able to claim losses of its subsidiary.

Therefore, the PBC suggested following amendment to Income Tax Ordinance:

At the end of sub-section 2 of Section 59B, an explanation be added as below:

“Explanation: For the removal of doubt, it is clarified that the holding company can adjust the losses of its subsidiary during the aforesaid period of 5 years.”

The PBC said that the propose amendment would promote consolidation of businesses.

May 16, 2020
FBR extends date for payment, return filing

ISLAMABAD: Federal Board of Revenue (FBR) has extended the last date for filing monthly sales tax return and payment for March 2020.

In a notification issued on Friday, the FBR extended the date for payment of sales tax and federal excise duty for the month of March 2020 which was due on April 15, 2020 and extended up to May 12, 2020, has been further extended up to May 27, 2020.

Similarly, the filing of sales tax return for the month of March 2020, which was due on April 18, 2020 and extended up to May 15, 2020, has been further extended up to May 30, 2020.

May 15, 2020
FBR allows filing annex-H for July-Dec up to June 30

ISLAMABAD: Federal Board of Revenue (FBR) on Friday announced extension in date for filing annexure-H (stock position) up to June 30, 2020 for the period July – December 2019.

Filing Annexure-H is mandatory for taxpayers to claim sales tax refunds.
In an official memorandum issued, the FBR extended the time limit for filing of Annexure – H for the tax period July – December 2019 up to June 30, 2020.

Annexure-H is a statement for providing stock position by taxpayers along with monthly sales tax return.

The FBR from July 01, 2019 introduced expeditious payment of sales tax refunds within 72 hours subject to the true filing of Annexure – H.

As per the Rules, refund will be treated as having been filed only after filing of Annexure H of the Sales Tax return, for which deadline of 120 days has been prescribed in the Rules and the same can be extended for a period of 60 days on the basis of approval from the Commissioner.

May 15, 2020
FBR should shun multiple tax audits

KARACHI: Business community has advised Federal Board of Revenue (FBR) to shun conducting multiple audits of a taxpayer in a year in order to ensure ease of doing business.

In its proposals for budget 2020/2021 submitted to the FBR, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that registered Tax payers receive notices of multiple audits in a year such as Income Tax audit under Section 177 of the Income Tax Ordinance 2001, Withholding Tax audit under Section 161 of the Income Tax Ordinance 2001; Sales Tax audit under Section 25 of the Sales Tax Act 1990.

Moreover, the taxpayers also receive multiple notices of amendments in assessments under Section 122 of the Income Tax Ordinance 2001 and under Section 111 of the Income Tax Ordinance 2001 to explain sources.

The multiplicity of audit of a single taxpayer in a single year is against the concept of ease of doing business and creating unnecessary problems for tax payers.

The FPCCI recommended that multiplicity of audits in a single year be done away with and replaced with the concept of composite audit of registered taxpayers.

Further, it is suggested that new audit parameters should be enforced after consultation with all stakeholders.

May 15, 2020
FBR officials fail to submit asset declarations; names made public
ISLAMABAD: Federal Board of Revenue (FBR) on Wednesday released the names of officers in Inland Revenue Service (IRS) and Pakistan Customs Service (PCS) who failed to submit their declarations of assets.

The FBR issued the names BS-18 officers of Inland Revenue Service (IRS) and Pakistan Customs Service (PCS) who are in promotion zone.

BS-18 officers of Inland Revenue Service (IRS)
1. Muhammad Tahir Khan, Additional Commissioner IR, RTO, Sialkot (OPS)
2. Muhammad Asfandyar Janjua, Additional Commissioner IR, RTO-II, Karachi.
3. Ms. Sadia Ali Akram, Additional Commissioner IR, CRTO, Karachi.
4. Muhammad Ali Khan, Secretary, FBR.
5. Ms. Amara Sarwar, Additional Commissioner IR, CRTO, Lahore.
6. Ms. Neelam Ifzal, on deputation to PRA, Lahore.
7. Inayat Malik, Additional Commissioner IR, LTU, Islamabad
8. Laiq Zaman, Additional Commissioner IR, LTU-II, Karachi
9. Naseebullah, on deputation to BRA, Quetta
10. Naseer Ahmad, Additional Commissioner IR, CRTO, Karachi
11. Muhamamd Masood Ahmad Gorsi, Additional Commissioner IR, CRTO, Karachi
12. Ms. Sadia Iftekhar, Secretary, FBR, Islamabad
13. Tarique Aziz, Deputy Commissioner IR, CRTO, Karachi.
14. Nasir Khan, Deputy Commissioner IR, RTO-II, Karachi.
BS-18 officers of Pakistan Customs Service (PCS)
1. Jamshed Ali Talpur, Secretary, FBR
2. Dr. Imran Rasool Khan, Deputy Collector, MCC Hyderabad
3. Rana Irfan Shaukat, Deputy Director, Directorate of Intelligence and Investigation- FBR, Multan
4. Saad Ata Rabbani, Deputy Director, Directorate of Intelligence and Investigation, FBR, Karachi.
5. Wajid Zaman, Deputy Director, Directorate General of Intelligence and Investigation, FBR, Isalmabad.
6. Ihsanullah Shah, Deputy Collector, MCC Gwadar
7. Ms. Ammara Durrani, Deputy Collector, MCC (JIAP), Karachi.
May 13, 2020

FBR proposed to eliminate distortion in withholding tax on dividends from equity investments

KARACHI: Federal Board of Revenue (FBR) has been proposed to rationalize of withholding tax on dividends as higher rate from equity investments discourage investment in the capital market.

Pakistan Stock Exchange (PSX) in its proposals for budget 2020/2021 submitted to Federal Board of Revenue (FBR) said that withholding tax on profit from debt instruments is currently charged a lower rate compared to the withholding tax charged on dividend from equity investments.

The difference ranges between 2.5 percent – 5 percent. This reduces the incentive to invest in the equity market.

Tax treatment on various asset classes should not be the primary driver of investment decisions, the PSX said, adding that the profit on debt and dividends should receive the same tax treatment.

At present, it is observed that corporate profits are first taxed at company level, and subsequently, the resulting profits which are distributed as dividends are taxed at the individual level.

This is essentially a form of double taxation, and result in the misallocation of capital in an economy by giving an upper hand to fixed income investments.

To remove this discrepancy, the government should introduce a mechanism to eliminate the distortion on the tax charged on dividends, and make the effective tax rate equal to that on debt.

Tax rate on investments	Profit paid is more than rupees five hundred thousand	Profit paid is rupees five hundred thousand or less
Profit on Debt u/s 151	15 percent	10 percent
Sukuk-holder (individual or an association of person), if the return on investment is more than one million U/S 150A	12.5 percent
Sukuk-holder (individual and an association of person), if the return on investment is less than one million U/S 150A	10 percent
Dividend U/S 150 & 236S	15 percent

The PSX submitted following proposals:

i. Government should introduce a mechanism to remove the double taxation of company’s profits – once in the hands of the company, and once in the hands of shareholders as dividends – such that the effective tax rate on dividends is on par with profit on debt.

ii. Rationalize the current tax rate on dividends to make it equal to the tax rate on profit from debt.

Provided that there should be no withholding tax on dividend up to Rs100,000 per annum.

Giving rationale to the proposals, the PSX said that a similar tax treatment on dividend from equity investment and debt instrument will provide a level playing field to equities and attract higher inflows in the stock market. Further, it would lead to increase in numbers of UINs.

The PSX proposed following proviso should be inserted in section 150 and Section 236S to the Income Tax Ordinance, 2001:

“Provided that there should be no withholding of tax where amount does not exceed Rs100,000 per annum.”

Clause (b) Division-I, Part III, First Schedule to the Income Tax Ordinance, 2001, for the word ’15 percent’ shall be substituted by ’10 percent.’

May 11, 2020

FBR suggested to abolish tax refund culture

KARACHI: Federal Board of Revenue (FBR) has been suggested to abolish tax refund culture and bring down sales tax at five percent.

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021 suggested that the culture of refunds should be abolished and government should collect GST at the rate of 5 percent.

“It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities,” the FPCCI said.

The apex trade body said that the reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase.

It will transfer the benefits to the end consumers which lead the control over inflation and poverty and enhancement in economic activities.

The FPCCI highlighted the present structure of taxation policies in Pakistan.

Here, it is noteworthy that inducement of private investment particularly foreign direct investment is the only feasible option to develop the badly deteriorated infrastructure in Pakistan.

Greenfield investment and capitalization of the savings of expatriate Pakistanis are also included in this program.

FPCCI proposed fiscal policy, while revival strategy will be based on foreign investment. It is unfortunate that tax rates in Pakistan are considered as major hurdle in investment.

Tax and contribution as percentage of Gross profit is 33.9 percent in Pakistan, while it is 49.7 percent in India, 38.7 percent in Malaysia, 36.6 percent in USA, and 33.4 percent in Bangladesh.

The average tax rate on corporate sector in Pakistan is 29 percent; it is 25 percent in India, 24 percent in Malaysia, and 21 percent in USA.

It is important to note that tax system in Pakistan emphasizes on indirect taxes and surcharges. The share of direct taxes in government revenue is around 37 percent in Pakistan, 47 percent in India, 46 percent in Malaysia, 38 percent in UK and 50 percent only in USA.

The lower share of direct taxes is because of exemptions and less e orts for tax collections from agriculture, services, real estates and retail trading activities.

This situation leads to dependency on indirect taxes. The indirect taxes hampered the industry in many ways: they increase the cost of production and reduce the demand for manufacturing products, because of higher market prices of those products by inclusion of sales tax. By such a manner, they damage the industrial competitiveness and induce the inflation in economy.

The FPCCI has recommended the shifting of dependency from indirect to direct taxes. We strongly recommend the reduction rate of sales tax to provide relief to the general public.

This step will improve the buying power of general public and will help the industry in revival process and accelerate the investment in the country.

It is extremely important for the survival of Pakistan economy at this stage. The reduction in the rate of GST is proposed on the basis of expected enhancement in revenue because of enhanced economic activities.

To increase its revenue government should not depend on indirect taxation. This approach leads the poverty and inflation. We should encourage revenue enhancement through direct taxation on equity and egalitarian basis.

Tax should be paid according to the magnitude of earning regardless the source of earning.

To accelerate economic activities and improving efficiencies, the FPCCI suggests reduction in the rate of GST.

This is the pivotal point of our taxation policy. A solution of containing the ongoing unsettled business environment is imperative. The present ongoing conflicts and contradictions has reduced the sales and as well as have chocked the sales points and agents of sales. The re-initiation efforts of FPCCI towards saleable policy objective of fixed sales system may find a substitute of settlement of ongoing disputed business environment.

The reduction in the rate of sales tax will enlarge the size of consumer markets and government earnings will definitely increase. The sources of FBR have been indicating the effective tax rate of GST is less than 5 percent, which indicate that 71 percent of total collection of sales tax has to pay back in account of input adjustment and refund claims.

The FPCCI in 2014 took-up a subject of fixed sales tax regime, which attended the influence level and even the then Finance Minister conceded to consider the same during his tenor as the document, submitted by FPCCI, concluded towards the objective that the collection would increase and not decrease by promoting business conducting environment through fixed sales tax regime.

This will provide demand supported production environment for manufacturing. It will improve the collections and settle the disputed business environment.

May 10, 2020