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Tag: Federal Board of Revenue

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.

  • Revised taxation for banks applicable January 01, 2021

    Revised taxation for banks applicable January 01, 2021

    ISLAMABAD: The Federal Board of Revenue (FBR) has revised taxation for banks from tax year 2022 (starting from January 01, 2021, to December 31, 2021) onwards.

    An important amendment has been introduced through Tax Laws (Third Amendment) Ordinance, 2021, which was promulgated through a presidential ordinance.

    Through Finance Act, 2021, a sub-rule (6A) in rule 6C of Income Tax Ordinance, 2001 was introduced, which was applicable for banks from the tax year 2022 (January 01, 2021 to December 31, 2021).

    The text of sub-rule 6A was:

    (6A) For tax year 2022 onwards, the taxable income attributable to investment in the Federal Government securities shall be taxed at the rate of—

    (i) 40 per cent instead of rate provided in Division II of Part I of the First schedule if the assets to deposit ratio as on last day of the tax year is upto 40 per cent;

    (ii) 37.5 per cent instead of rate provided in Division II of Part I of the First schedule if the assets to deposit ratio as on last day of the tax year exceeds 40 per cent but does not exceed 50 per cent; and

    (iii) at the rates provided in Division II of Part I of the First schedule if assets to deposit ratio as on last day of the tax year exceeds 50 per cent.

    However, through Tax Laws (Third Amendment) Ordinance, 2021 this was amended and for the words ‘assets’, wherever occurring, the words ‘gross advances’ shall be substituted.

    Tax experts believe that the amendment would have a negative impact on banks with ADR of less than 50 per cent as they have to pay additional tax on their entire income arising from investment in government securities rather than additional income as was the case previously.

    They said that the banks with low ADR took the impact of the same in June 2021 financial results and as a result effective tax rate of banking sector increased from 38 per cent in 2Q2020 to 40 per cent in 2Q2021. This is likely to have an earnings impact of around 5-10 per cent for the sector.

    The idea of this increased taxation was to encourage banks to increase their lending activity but this remains a big question mark of how effective this policy measure will be.

    The latest banking sector data (week ending September 3, 2021) show that ADR of the sector is at 47 per cent, below the threshold of 50 per cent for additional taxation. This compares to ADR of 48 per cent in Sep-2020 and 45 per cent in Jun-2021.   

    Measures against non-, under-filers in ordinance: Tarin
  • Three-year jail for false statement under income tax law

    Three-year jail for false statement under income tax law

    Section 192 of the Income Tax Ordinance, 2001, as updated up to June 30, 2021, through the Finance Act, 2021, recommends a three-year jail term for individuals found guilty of making false statements before the Commissioner Inland Revenue (IR).

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  • Asad Tahir appointed as official FBR spokesperson

    Asad Tahir appointed as official FBR spokesperson

    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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  • Prosecution for failure to comply with tax obligations

    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

    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.

    Penalty up to Rs3 million for failure to integrate business
  • Penalty up to Rs3 million for failure to integrate business

    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.”

    FBR to stop gas, electricity of unregistered persons
  • FBR to stop gas, electricity of unregistered persons

    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

    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.”

    Provisional valuation disallowed on existing VR
  • Exemption from penalty and default surcharge

    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

    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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