Islamabad: The Federal Board of Revenue (FBR) has embarked on the task of gathering information regarding the dual nationality status of customs officials in various grades from BS-1 to BS-21.
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The Federal Board of Revenue is Pakistan’s apex tax agency, overseeing tax collection and policies. Pakistan Revenue is committed to providing timely updates on the Federal Board of Revenue to its readers.
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Sales tax return lacuna traps taxpayers: FBR offices issue show cause notices
KARACHI: Taxpayers have not been provided to declare exempt purchases in sales tax return form at IRIS, which resulted in issuance of huge number of show cause notices regarding apportionment of input tax in relation to taxable and exempt sales in the return.
Karachi Tax Bar Association (KTBA) on Thursday highlighted this important issue by sending a letter to the chairman of Federal Board of Revenue (FBR).
READ MORE: Baggage rules amended for lowering cash limit for outbound passengers
KTBA President Syed Rehan Hasan Jafri through this communication apprised the FBR chairman that a large number of show cause notices had been issued by field offices in Karachi in respect with apportionment of input tax in relation to taxable and exempt sales in the return.
Bar members have complained that the notices were issued without any application of mind or any desk audit of the cases.
Jafri said that as per Sales Tax Rules, 2006 only common input tax is required to be apportioned between taxable and exempt sales. Therefore, before issuance of a show-cause notice it is mandatory to have a basic understanding of the business about its taxability or exemption of the goods being supplied by taxpayer. “The current notices are directly being confronted to the taxpayers through a show-cause notice that they have not apportioned their input tax.”
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These show-cause notices contain a table wherein, on the basis ratio of exempt sales to total amount of sales, an amount of disallowance of input is computed.
This entire action is being done without appreciating the law that as per Rule 25(1) input tax directly attributable to taxable sales is completely allowable and only common input tax is required to be apportioned.
Even otherwise, the application of apportionment has to be within strict parameters defined under Rule 25(3) of the ST Rules, which allows apportionment of residual input tax only.
The definition of ‘residual input tax’ envisages the concept of apportionment of input tax suffered on ‘raw material, ‘component’ and ‘capital goods’.
The FBR chairman has been urged to directed field offices to ascertain the nature of business of the taxpayers first and then conduct desk audit and only thereafter, if there remains a need for it, before issuance of a show-cause notice, the information may be requested from the concerned taxpayers. “A show cause should be issued only once after any discrepancy is identified,” according to the letter.
READ MORE: Tax on persons receiving dividends in Pakistan
Since the field officers have already issued the notices and asking for apportioning the input tax on exempt sales vis-à-vis total value of sales, but they are not inclined to accept that exempt sales are made from exempt purchases from the unregistered persons, even in the presence of substantiating evidence.
It may be assumed that the officers had taken the position because such purchases are not reported in the sales tax returns while on the contrary the sales tax returns on IRIS do not any have option to report exempt purchases made from unregistered persons. “Therefore, it is practically not possible for a taxpayer to report exempt purchases from the unregistered persons.”
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The KTBA requested the FBR chairman to direct the field offices to: consider exempt purchases made by taxpayers from unregistered persons and not to apportion input tax in respect of such exempt sales; and sales tax return may be updated to provide for reporting of exempt purchases from unregistered persons.
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Baggage rules amended for lowering cash limit for outbound passengers
KARACHI: Federal Board of Revenue (FBR) on Wednesday notified draft rules to amend Baggage Rules for lowering cash limit for outbound passengers.
The FBR issued SRO 2043(I)/2022 to make amendments in the Baggage Rules, 2006. The cash limit has been lowered to $5,000 per person per visit from $10,000.
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According to the proposed rules, any persons travelling abroad (except to Afghanistan) is allowed to take out of Pakistan US Dollar or equivalent thereof in other foreign currencies as per the limits given below:
The cash limit per visit per person shall be $5,000 for a person 18 years and above (adults). The annual limit per person shall be $30,000.
The cash limit per visit per person shall be $2,500 for a person below 18 years (minors). The annual limit per person shall be $15,000.
READ MORE: FBR halts POS prize scheme
The FBR further said that foreign currency cash limit for passengers travelling to Afghanistan will be: maximum limit per person per visit shall be $1,000. The annual limit per person shall be $6,000.
The FBR introduced further amendments to the Baggage Rules, according to which the annual limits for outbound passengers for the respective countries will be as per Tables ‘A’ and ‘B’ for a calendar year starting from the year 2023.
However, for calendar year 2022, the existing annual limits in vogue before the issuance of this notification will continue to be effective till December 31, 2022.
READ MORE: Tax on persons receiving dividends in Pakistan
Any person taking foreign currency or any other prohibited or restricted item out of Pakistan shall file a declaration in the tbiin as set out in Appendix-C, before or at the time of departure, electronically in the WeBOC or pass track or manually at the airport.
The incoming passenger when in possession of foreign currency exceeding US $ 10,000 or equivalent, or any other prohibited or restricted item, shall also file a declaration in the Form as set out in Appendix-C.”; and (3) in Appendix “C”, for the DECLARATION, the following shall be substituted, namely:-
“DECLARATION
Are you carrying any of the following goods?
(a) Prohibited or restricted goods such as arms & ammunitions, narcotics, psychotropic substances or satellite phones etc.?
(b) Gold and precious metals, jewelry, precious or semi-precious stones.
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(c) Foreign currency in US $/ Bearer Negotiable Instrument or equivalent:
1. For outbound passengers to all countries taking out foreign currencies; and
2. Incoming passengers bringing into Pakistan amount exceeding US $ 10,000 or equivalent.
Any other items requiring declaration before Customs.
“I declare that t e information furnished by me is correct and in the event of its being incorrect, I hold myself liable for such action as deemed fit under the Foreign Exchange Regulation Act, 1947 and the Customs Act, 1969.” – Signature of the Passenger
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FBR halts POS prize scheme
ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday halted the issuance of prizes through computerized balloting of invoices issued by point of sale (POS) of Tier-1 retailers.
The FBR suspended the draw that was to be held on November 15, 2022. The prize scheme was continuously held since its first draw on January 15, 2022. The FBR conducted 10 draw on 15th of every month.
READ MORE: FBR announces prize winners of 10th POS balloting
The FBR issued SRO No. 2042(I)/2022 to suspend the SRO 1005 of 2021 regarding POS Prize Scheme.
The prize scheme has been suspended till January 31, 2023 to make it more inclusive and participatory for the public. All invoices verified during intervening period will be included in the next prize draw.
“The new scheme will be launched after discussions with Tier-1 retailers, card acquirers, issuers, and other stakeholders. A new scheme would be launched very soon,” the FBR added.
Under the suspended scheme, the FBR had encouraged people to actively participate in the balloting to win prizes after buying from POS integrated retailers.
READ MORE: FTO directs stop unlawful recovery from taxpayers’ bank accounts
The FBR previously issued a procedure for participating in the prize scheme.
The revenue body said that the customers of the integrated tier-1 retailers, whose names and CNICs are notified through random computerized draw shall be entitled to prizes in respect of their purchases from the integrated tier-1 retailers.
The customers shall verify the electronically generated invoice of integrated retailers either through the “tax asaan” application or by sending SMS to number 9966.
The application shall notify the customer regarding the status of the invoice either as “verified” or “unverified”.
In case of a verified invoice, the customer shall furnish one time, the following detail to the online system, namely:- Name; CNIC; and Mobile number.
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Names and CNICs of the customers shall be included in the random computerized draw upon fulfillment of the requirement.
In case of an unverified invoice, the customer shall report the same through the system. The Board shall conduct inquiry and take appropriate action under the relevant provisions of law.
The computerized draw for the prizes shall be held in the first week of every month at the FBR Headquarters and the invoices of the immediately preceding month shall be entered in the draw.
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Draw winners shall be required to perform biometric verification, at the nearest e-sahulat facility of NADRA and submit a scanned copy on the “tax assan” application. After successful biometric verification, winners shall be required to provide their IBAN through a “tax asaan” application.
The total prize money and the denomination of the prizes shall be decided on month to month basis by the Board.
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Tax on persons receiving dividends in Pakistan
A tax has been imposed on persons receiving dividends in Pakistan. The tax has been levied under Section 5 of the Income Tax Ordinance, 2001.
The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2022 after incorporating changes made through Finance Act, 2022.
The following is text of Section 5 of the Ordinance, 2001:
Section 5. Tax on dividends.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a company or treated as dividend under clause (19) of section 2.
(2) The tax imposed under sub-section (1) on a person who receives a dividend shall be computed by applying the relevant rate of tax to the gross amount of the dividend.
(3) This section shall not apply to a dividend that is exempt from tax under this Ordinance.
Rate of Dividend Tax
The rate of tax imposed under section 5 on dividend received from a company shall be-
(a) 7.5% in the case of dividends paid by Independent Power Producers where such dividend is a pass through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be reimbursed by Central Power Purchasing (CPPA-G) or its predecessor or successor entity.
(b) 15% in mutual funds, Real Estate Investment Trusts and cases other than those mentioned in clauses (a), (c) and (d).
(c) 0% in case of dividend received by a REIT scheme from Special Purpose Vehicle and 35% in case of dividend received by others from Special Purpose Vehicle as defined under the Real Estate Investment Trust Regulations, 2015.
(d) 25% in case of a person receiving dividend from a company where no tax payable by such company, due to exemption of income or carry forward of business losses under Part VIII of Chapter III or claim of tax credits under Part X of Chapter III.
Section 5A of the Ordinance, 2001 deals with taxation on undistributed profits. Following is the text of Section 5A:
Section 5A. Tax on undistributed profits.—(1) For tax years 2017 to 2019, a tax shall be imposed at the rate of five percent of its accounting profit before tax on every public company, other than a scheduled bank or a modaraba, that derives profit for a tax year but does not distribute at least twenty percent of its after tax profits within six months of the end of the tax year through cash:
Provided that for tax year 2017, bonus shares or cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of a return.
(2) The provisions of sub-section (1) shall not apply to—
(a) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and
(b) a company in which not less than fifty percent shares are held by the Government.
Likewise Section 5AA of the Income Tax Ordinance, 2001 deales with tax on return on investment in sukuk. Following is the text of Section 5AA:
Section 5AA. Tax on return on investments in sukuks.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIB of Part I of the First Schedule, on every person who receives a return on investment in sukuks from a special purpose vehicle, or a company.
(2) The tax imposed under sub-section (1) on a person who receives a return on investment in sukuks shall be computed by applying the relevant rate of tax to the gross amount of the return on investment in sukuks.
(3) This section shall not apply to a return on investment in sukuks that is exempt from tax under this Ordinance.”
Rate of Tax on Return on investment in sukuks received from a special purpose vehicle
The rate of tax imposed under section 5AA on return on investment in sukuks received from a special purpose vehicle shall be—
(a) 25% in the case the sukuk-holder is a company;
(b) 12.5% in case the sukuk-holder is an individual or an association of person, if the return on investment is more than one million; and
(c) 10% in case the sukuk-holder is an individual and an association of person, if the return on investment is less than one million.”
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What is super tax and who are required to pay?
Super tax is a special levy that is imposed on certain classes of taxpayers on their income in Pakistan. The collection of super tax has been made under Income Tax Ordinance, 2001.
Through Section 4B of the Income Tax Ordinance, 2001, super tax for rehabilitation of temporarily displaced persons was introduced through Finance Act, 2015. The tax was imposed till Tax Year 2022.
Another Section 4C of the Income Tax Ordinance, 2001, super tax on high earnings persons was introduced through Finance Act, 2022.
READ MORE: What income is taxable in Pakistan?
Following are the text of both the sections as per the Income Tax Ordinance, 2001 updated up to June 30, 2022, issued by the Federal Board of Revenue (FBR).
Section 4B. Super tax for rehabilitation of temporarily displaced persons.― (1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax years 2015 and onwards, at the rates specified in Division IIA of Part I of the First Schedule, on income of every person specified in the said Division.
(2) For the purposes of this section, “income” shall be the sum of the following:—
(i) profit on debt, dividend, capital gains, brokerage and commission;
(ii) taxable income(other than brought forward depreciation and brought forward business losses) under section (9) of this Ordinance, if not included in clause (i);
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(iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and
(iv) income computed, other than brought forward depreciation, brought forward amortization and brought forward business lossess under Fourth, Fifth, Seventh and Eighth Schedules.
(3) The super tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.
(4) Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance.
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(5) Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super tax payable under subsection (1) and the provisions of Part IV,X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of super tax as these apply to the collection of tax under the Ordinance.
(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.
4C. Super tax on high earning persons.― (1) A super tax shall be imposed for tax year 2022 and onwards at the rates specified in Division IIB of Part I of the First Schedule, on income of every person:
Provided that this section shall not apply to a banking company for tax year 2022.
(2) For the purposes of this section, “income” shall be the sum of the following:—
(i) profit on debt, dividend, capital gains, brokerage and commission;
(ii) taxable income (other than brought forward depreciation and brought forward business losses) under section 9 of the Ordinance, excluding amounts specified in clause (i);
(iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and
(iv) income computed, other than brought forward depreciation, brought forward amortization and brought forward business losses under Fourth, Fifth and Seventh Schedules.
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(3) The tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.
(4) Where the tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the tax payable, and shall serve upon the person, a notice of demand specifying the tax payable and within the time specified under section 137 of the Ordinance.
(5) Where the tax is not paid by a person liable to pay it, the Commissioner shall recover the tax payable under sub-section (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of tax as these apply to the collection of tax under the Ordinance.
(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.
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Direct tax collection up 41% in four months of current fiscal year: FBR
Direct tax collection registered an increase of 41 per cent during first four months (July – October) 2022-2023, Federal Board of Revenue (FBR) said on Saturday.
The FBR strongly rebutted the news report regarding income tax collection. It clarified that the present policy of FBR and the Federal government is also based on direct tax dominated system i.e. the principle of equity where tax contribution is proportional to “ability to pay”.
READ MORE: What income is taxable in Pakistan?
As a result, direct taxes collection continue to register steady growth and during the first four months of the current year direct taxes/income tax have risen to Rs886 billion which is 41 per cent higher than the direct tax inflows during the same period last year.
It is also mentioned that there is a shift in the tax mix and the ratio of direct tax to indirect tax is also increasing. Resultantly, during first four months of the current year, percentage contribution of direct taxes in overall revenue has increased to more than 41 per cent for the first time in a decade, as against 36-39 per cent in the past few years as has also been quoted by the authors.
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Although, FBR does not agree with the notion that withholding taxes are collected in indirect mode, FBR, during the last few years, has adopted the policy of reducing withholding tax provisions and introducing measures which directly target the rich.
Even, during the current year’s budget, maximum amendments were introduced regarding direct taxes. These amendments were aimed at taxing affluent and wealthy class by including provisions such as super tax, CVT on foreign assets, deemed rental income on the assets of the rich and higher rates for companies earning high profits such as banks.
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These provisions alone have a revenue impact of approximately Rs250 billion. At the same time certain withholding tax provisions were eliminated and consequently, the percentage contribution of withholding taxes in direct taxes has also been reduced to 65.8 per cent during first four months from 67.15 per cent during corresponding period of the previous year.
Authors have also pointed out towards declining tax-to-GDP ratio. Although, tax-to-GDP ratio is lower than what is desired, it is clarified that the current ratio is due to rebasing of GDP from 2005-06 figures to 2015-16 figures, thus adversely impacting it.
READ MORE: FBR Member PR holds meetings to create return filing awareness
With base year 2005-06, tax-to-GDP ratio would have been higher by at least 2 percentage points. To further improve the ratio, FBR is continuously striving to increase the tax base with the help of IT/automation and third party data.
In this regard Directorate General of Broadening of Tax Base was made functional during last month along with establishment of Directorate General of Digital Invoicing and Analysis.
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What income is taxable in Pakistan?
Federal Board of Revenue (FBR) has defined taxable income in Pakistan under Income Tax Ordinance, 2001 updated up to June 30, 2022, after incorporating changes made through Finance Act, 2022.
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FBR, SBP discuss stuck-up consignments, LC opening
Islamabad: In a collaborative effort to address challenges related to stuck-up consignments and the opening of Letters of Credit (LCs), the Federal Board of Revenue (FBR) and the State Bank of Pakistan (SBP) engaged in discussions on Friday.
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World Bank satisfied with progress of Pakistan Raises Revenue Program
The World Bank has commended the Federal Board of Revenue (FBR) for the successful implementation of the Pakistan Raises Revenue Program (PRRP), aimed at fostering sustainable growth in domestic revenue.
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