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KARACHI: The Federal Board of Revenue (FBR) has been suggested to reduce income tax rates for private equity funds in the upcoming budget 2022/2023.
Pakistan Stock Exchange (PSX) in its proposals for budget 2022/2023, stated that Revamped regulations in 2015 introduced different types of Private Funds by replacing Private Equity and Venture Capital (PE&VC) Regulations.
Currently, pass-through status under the Income Tax Ordinance 2001 is available to only PE&VCs category. Moreover, current sunset clause up to June 2024 for PE&VC is detracting long-term investors from participating.
A private fund (alternate fund) investing in listed securities attract Capital Gain Tax (CGT) at the rates that applies to unlisted securities (redemption of units of alternate funds will attract treatment of unlisted security under CGT regime, which is significantly higher for corporate investors).
The PSX suggested to insert proper definition of Private Fund referring to 2015 regulations. It also suggested to reinstate exemption to PE&VC as provided under clause 101 of part I of Second Schedule; in addition to: inclusion of Private Fund; and no sun-set clause.
The PSX recommended that specific rate of 12.5 per cent CGT be provided in Division VII of 1st Schedule of the Income Tax Ordinance, 2001 as provided for mutual funds, CIS and REITs (if more than 70 per cent invested in listed equity securities and/or debt securities).
The stock exchange also sought exemption provided in sub-clause (xii) of clause 11A and clause 47B of Part IV of the second schedule to include Private Fund.
Giving rationale to the proposals, the PSX said that this sector can be developed with rational taxation. So far only 4 registered PE&VC funds will be unable to meet funding needs of SMEs/startups & to attract foreign investors. Revenue impact will be neutral to positive as only CIVs will be exempted but the investors will still be obliged to pay tax. The amendment will exempt private funds from applicability of withholding tax as it is a pass through entity.
KARACHI: Pakistan Stock Exchange (PSX) has proposed tax exemption on transactions of immovable properties to Real Estate Investment Trusts (REITs) in order to promote documentation.
The PSX in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), said REITS are an ideal instrument to document and help develop the real estate sector, a priority for the government.
They also allow smaller investors to gain exposure to the real estate sector, an important step to reduce wealth inequality in Pakistan.
The PSX proposed exemption from advance tax on property transfer to/from a REIT Scheme u/s 236C and 236K of Income Tax Ordinance, 2001. It also suggested to remove sunset clause i.e. June 2023 for all categories of REIT. Besides, it is also suggested to reduce minimum tax rate applicable to REIT Management Companies (RMCs) u/s 153 in line with Asset Management Companies i.e. 3 per cent.
The PSX said that it will promote documented real-estate will attract more investments particularly by companies with disclosure of actual prices and income. Revenue impact will be positive as it will generate indirect and additional revenues from allied businesses.
Appropriate amendment to be made in the Income Tax Ordinance, 2001.
For proposal relating to sun-set clause, remove “June 30, 2023” from clause 99A of Part I of Second Schedule of the Income Tax Ordinance, 2001.
For proposal relating to Minimum Tax on RMCs, Clause (2)(i) of Division III of Part III of First Schedule of the Income Tax Ordinance, 2001 shall include “service rendered by RMCs.”
KARACHI: Regional Tax Office (RTO) – II, Karachi on Saturday sealed a shop of electronics goods for failure to mandatory integrate with online system.
RTO – II, Karachi, an arm of the FBR, while continuing its crackdown against non-compliant Tier-1 retailers, sealed the business premises of M/s. Rafi Electronics located at Gulshan e Iqbal, Karachi.
The tax authorities also imposed an amount of Rs500,000 as penalty for non-compliance.
According to officials at Zone-III, RTO-II, Karachi said that the tax office had already passed an order on January 01, 2022 against the Tier-1 retailer for mandatory integration. Further, the penalty amount of Rs500,000 was also imposed for non-compliance.
“The retailer despite receiving the order has failed to install Point of Sale (POS) and integrate the unit till the sealing of the unit,” an official said.
All the Tier-1 retailers are required to integrate with the FBR under Section 33 of the Sales Tax Act, 1990. The RTO-II had warned the Tier-1 retailer that in case it failed to integrate in the manner as required under the Sales Tax Act, 1990 and the rules made thereunder, the business premises will be sealed.
Under the Sales tax Act. 1990: it is an offence: “A person required to integrate his business as integrated under sub-section (9A) of Section 3, who fails to get himself registered under the Act, and if integrated, fails to integrate in the manner as required under the law and rules made thereunder.”
The penalties for the offence are included as:
(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:
Notwithstanding above, the business premises of such person shall be liable to be sealed by an officer of Inland Revenue in the manner prescribed.
Provided that if the retailer integrates his business with the Board’s Computerized System before imposition of penalty for second default, penalty for first default shall be waived by the Commissioner.
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.”
