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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.

  • Reduction in liabilities under income tax law

    Reduction in liabilities under income tax law

    Part III, Second Schedule of the Income Tax Ordinance, 2001 has explained the reduction in tax liabilities under Income Tax Ordinance, 2001.

    The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2021. The Ordinance incorporated amendments brought through Finance Act, 2021.

    Following is the text of Part III, Second Schedule of the Income Tax Ordinance, 2001:

    Income, or classes of income, or person or classes of person, enumerated below, shall be allowed reduction in tax liability to the extent and subject to such conditions as are specified hereunder:-

    (1) (1) Any amount received as-

    (a) flying allowance by flight engineers, navigators of Pakistan Armed Forces, Pakistani Airlines or Civil Aviation Authority, Junior Commissioned Officers or other ranks of Pakistan Armed Forces; and

    (b) submarine allowance by the officers of the Pakistan Navy,

    shall be taxed @ 2.5% as a separate block of income:

    Provided that the reduction under this clause shall be available to so much of the flying allowance or the submarine allowance as does not exceed an amount equal to the basic salary.

    (1AA) Total allowances received by pilots of any Pakistani airlines shall be taxed at a rate of 7.5%, provided that the reduction under this clause shall be available to so much of the allowances as exceeds an amount equal to the basic pay.

    (2) The tax payable by a full time teacher or a researcher, employed in a non profit education or research institution duly recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission, including government research institution, shall be reduced by an amount equal to 25% of tax payable on his income from salary:

    Provided that this clause shall not apply to teacher of medical profession who derive income from private medical practice or who receive share of consideration received from patients.

    (4) In respect of old and used automotive vehicles, tax under section 148 shall not exceed the amount specified in Notification No. S.R.O. 577(I)/2005, dated the 6th June, 2005.

    (6) The tax payable under clause (c) of sub-section (1) of section 39, in respect of any amount paid as yield or profit on investment in Bahbood Savings Certificate or Pensioners Benefit Account and Shuhada Family Welfare Account shall not exceed 10% of such profit.

    (9) The tax payable on profits and gains derived by a person from low cost housing projects shall be reduced by fifty percent. The reduction in tax liability under this clause shall apply to such project which is—

    (a) owned and managed by a company formed for operating the said project and registered under the Companies Act, 2017 (XIX of 2017) and having its registered office in Pakistan; and

    (b) not formed by the splitting up, or the reconstruction or reconstitution, of a business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business; and

    (c) a low cost housing project under which the maximum sale price of a single housing unit is two and a half million rupees:

    Provided that exemption under this clause shall continue to remain available to such projects which commence on or before the 30th day of June, 2024.

    (9A) The amount of tax payable on income chargeable under the head, “Capital Gains” on disposal of immovable property shall be reduced by fifty percent on the first sale of immovable property acquired or allotted to ex-servicemen and serving acquired or allotted to ex-servicemen and serving personal of Armed Forces or ex-employees or serving personnel of Federal and Provincial Governments, being original allottees of the immovable property, duly certified by the allotment authority:

    Provided that for capital gains arising after completion of three years from the date of acquisition of immovable property the amount of tax payable shall be reduced by seventy-five percent

    (9B) The tax payable on the income, profits and gains of projects of ‘low cost housing’ developed or approved by Naya Pakistan Housing and Development Authority (NAPHDA) or under the Ehsaas Programme shall be reduced by 90%:

    Provided that exemption under this clause shall continue to remain available to such projects which commence on or before the 30th day of June, 2024.

    (17) The tax payable by cotton ginners on their income and profits shall not be more than sum of 1% of their turnover from cotton lint, cotton seed, cotton seed oil and cotton seed cake:

    Provided that the tax so payable shall be final tax in respect of their cotton ginning and oil milling activities only.

    (18) The rate of withholding tax on value of offshore supply contract of an Independent Power Producer located wholly or partly in territories of AJ&K shall be 1% provided:

    (i) PPIB has issued Letter of Support for the project;

    (ii) its EPC Contract has been executed and submitted to NEPRA for EPC stage tariff determination prior to the enactment of Finance Act, 2018;

    (iii) offshore supply contract arrangement of offshore supply contractor having permanent establishment in Pakistan falls under the purview of cohesive business operation as contemplated under Income Tax Ordinance, 2001; and

    (iv) such 1% tax shall be full and final liability of the offshore contractor.

    (19) The tax payable by woman enterprises on profit and gains derived from business chargeable to tax under the head “Income from Business” shall be reduced by 25%.

    Explanation.—For the purpose of this clause a woman enterprise means a startup established on or after first day of July 2021 as sole proprietorship concern owned by a woman or an AOP all of whose members are women or a company whose 100% shareholding is held or owned by women:

    Provided that benefit of this clause shall not be available to a business that is formed by the transfer or reconstitution or reconstruction or splitting up of an existing business.

    (20) The tax payable by a person other than a banking or insurance company in respect of profit on debt from investment in Federal Government securities shall be fifteen percent of the gross amount of the profit on debt:

    Provided that tax so payable shall be final tax on the income representing profit on debt from investment in Federal Government securities.

    Note: Clauses not present in the text have been deleted through various amendments.

    (Disclaimer: The text of the 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.)

    Reduced rates of tax under Income Tax Ordinance, 2001
  • Refund of input under sales tax law

    Refund of input under sales tax law

    Section 10 of Sales Tax Act, 1990 has explained refund of input tax under sales tax law.

    The Federal Board of Revenue (FBR) issued the Sales Tax Act, 1990 updated up to June 30, 2021. The Act incorporated amendments brought through Finance Act, 2021.

    Following is the text of section 10 of Sales Tax Act, 1990:

    10. Refund of input tax.– (1) If the input tax paid by a registered person on taxable purchases made during a tax period exceeds the output tax on account of zero rated local supplies or export made during that tax period, the excess amount of input tax shall be refunded to the registered person not later than forty-five days of filing of refund claim in such manner and subject to such conditions as the Board may, by notification in the official Gazette specify:

    Provided that in case of excess input tax against supplies other than zero-rated or exports, such excess input tax may be carried forward to the next tax period, along with the input tax as is not adjustable in terms of sub-section (1) of section 8B, and shall be treated as input tax for that period and the Board may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, prescribe the procedure for refund of such excess input tax.

    Provided further that the Board may, from such date and subject to such conditions and restrictions as it may impose, by notification in the official Gazette, direct that refund of input tax against exports shall be paid at the fixed rates and in the manner as notified in the such notification.

    (2) If a registered person is liable to pay any tax, default surcharge or penalty payable under any law administered by the Board, the refund of input tax shall be made after adjustment of unpaid outstanding amount of tax or, as the case may, default surcharge and penalty.

    (3) Where there is reason to believe that a person has claimed input tax credit or refund which was not admissible to him, the proceedings against him shall be completed within sixty days. For the purposes of enquiry or audit or investigation regarding admissibility of the refund claim, the period of sixty days may be extended up to one hundred and twenty days by an officer not below the rank of an Additional Commissioner Inland Revenue and the Board may, for reasons to be recorded in writing, extend the aforesaid period which shall in no case exceed nine months.

    (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.)

    Issuance of debit, credit notes for tax adjustment
  • Reduced rates of tax under Income Tax Ordinance, 2001

    Reduced rates of tax under Income Tax Ordinance, 2001

    Part II, Second Schedule of the Income Tax Ordinance, 2001 has provided reduced rates of tax for incomes or classes of income, or persons or classes of persons.

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  • Issuance of debit, credit notes for tax adjustment

    Issuance of debit, credit notes for tax adjustment

    Section 9 of the Sales Tax Act, 1990 provides a framework for the issuance of debit and credit notes by registered persons.

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  • Provision for input tax adjustment

    Provision for input tax adjustment

    Section 8B of Sales Tax Act, 1990 has defined provision for input tax adjustment.

    The Federal Board of Revenue (FBR) issued the Sales Tax Act, 1990 updated up to June 30, 2021. The Act incorporated amendments brought through Finance Act, 2021.

    Following is the text of section 8B of Sales Tax Act, 1990:

    8B. Adjustable input tax.– (1) Notwithstanding anything contained in this Act, in relation to a tax period, a registered person other than public limited companies listed on Pakistan Stock Exchange shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period:

    Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply in case of fixed assets or Capital goods:

    Provided further that the Board may by notification in the official Gazette, exclude any person or class of persons from the purview of sub-section (1).

    (2) A registered person, subject to sub-section (1), may be allowed adjustment or refund] of input tax not allowed under sub-section (1) subject to the following conditions, namely:–

    (i) in the case of registered persons, whose accounts are subject to audit under the Companies Ordinance, 1984, upon furnishing a statement along with annual audited accounts, duly certified by the auditors, showing value additions less than the limit prescribed under sub-section (1) above; or

    (ii) in case of other registered persons, subject to the conditions and restrictions as may be specified by the Board by notification in the official Gazette.

    (3) The adjustment or refund of input tax mentioned in sub-sections (2), if any, shall be made on yearly basis in the second month following the end of the financial year of the registered person.

    (4) Notwithstanding anything contained in sub-sections (1) and (2), the Board may, by notification in the official Gazette, prescribe any other limit of input tax adjustment for any person or class of persons.

    (4A) Notwithstanding anything contained in sub-sections (1), (2) and (3), input tax allowed in case of locally manufactured electric vehicles subject to reduced rate of tax under the Eighth Schedule shall be limited to the extent of amount of output tax and no refund or carry forward of excess input tax shall be allowed.

    (5) Any auditor found guilty of misconduct in furnishing the certificate mentioned in sub-section (2) shall be referred to the Council for disciplinary action under section 20D of Chartered Accountants, Ordinance, 1961 (X of 1961).

    (6) In case a Tier-1 retailer does not integrate his retail outlet in the manner as prescribed under sub-section (9A) of section 3, during a tax period or part thereof, the adjustable input tax for whole of that tax period shall be reduced by 60%.

    (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.)

    Joint, several liability in tax default
  • Joint, several liability in tax default

    Joint, several liability in tax default

    Section 8A of Sales Tax Act, 1990 has explained joint and several liability of registered persons in supply chain where tax unpaid.

    The Federal Board of Revenue (FBR) issued the Sales Tax Act, 1990 updated up to June 30, 2021. The Act incorporated amendments brought through Finance Act, 2021.

    Following is the text of section 8A of Sales Tax Act, 1990:

    8A. Joint and several liability of registered persons in supply chain where tax unpaid.– Where a registered person receiving a taxable supply from another registered person is in the knowledge or has reasonable grounds to suspect that some or all of the tax payable in respect of that supply or any previous or subsequent supply of the goods supplied would go unpaid, of which the burden to prove shall be on the department such person as well as the person making the taxable supply shall be jointly and severally liable for payment of such unpaid amount of tax:

    Provided that the Board may by notification in the official gazette, exempt any transaction or transactions from the provisions of this section.

    (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.)

    Tax credit on certain supplies not allowed
  • PM to launch single sales tax portal this month

    PM to launch single sales tax portal this month

    ISLAMABAD: Prime Minister Imran Khan is likely to launch the single sales tax portal this month, the Federal Board of Revenue (FBR) said on Thursday.

    “Building further on its vision to facilitate taxpayers through automation, digitization, and minimization of human interaction with taxpayers, the FBR is all set to launch Single Sales Tax Portal. Prime Minister is likely to unveil the mega national initiative, later this month,” it said.

    This landmark initiative has been made possible after thorough discussions with the provincial revenue authorities of Punjab, Sindh, KPK, Baluchistan, and AJK.

    This facility will enable taxpayers to file single monthly Sales Tax returns instead of multiple returns (6 in the past) on different portals; thereby, significantly reducing the time and cost of compliance, and thus achieving maximum efficiency.

    The system would be intelligent enough to sift and collect revenues from a single taxpayer and distribute the same among multiple revenue agencies.

    This unique project would also help in resolving the long outstanding issues of input tax adjustment among relevant stakeholders. With the proposed launch of Single Sales Tax Portal later this month, the existing cumbersome and tedious processes would be replaced with an efficient & automated system of tax adjustments, with minimum human involvement.

    The Portal would also be beneficial for tax collectors in having a 360-degrees view of taxpayers’ business activities across the country in order to maximize revenue potential and tax compliance.

    By all standards, this is a giant leap forward in taxpayers’ facilitation and at the same time, a significant step in harmonization of taxes between federal and provincial governments.

    MoU signed for single sales tax return
  • Tax credit on certain supplies not allowed

    Tax credit on certain supplies not allowed

    Section 8 of Sales Tax Act, 1990 has defined tax credit on certain supplies not allowed.

    The Federal Board of Revenue (FBR) issued the Sales Tax Act, 1990 updated up to June 30, 2021. The Act incorporated amendments brought through Finance Act, 2021.

    Following is the text of section 8  of Sales Tax Act, 1990:

    8. Tax credit not allowed. – (1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on –

    (a) the goods or services used or to be used for any purpose other for taxable supplies made or to be made by him;

    (b) any other goods or services which the Federal Government may, by a notification in the official Gazette, specify;

    (c) the goods under sub-section (5) of section 3:

    (ca) the goods or services in respect of which sales tax has not been deposited in the Government treasury by the respective supplier;

    (caa) purchases, in respect of which a discrepancy is indicated by CREST or input tax of which is not verifiable in the supply chain;

    (d) fake invoices;  

    (e) purchases made by such registered person, in case he fails to furnish the information required by the Board through a notification issued under sub-section (5) of section 26;

    (f) goods and services not related to the taxable supplies made by the registered person.

    (g) goods and services acquired for personal or non-business consumption;

    (h) goods used in, or permanently attached to, immoveable property, such as building and construction materials, paints, electrical and sanitary fittings, pipes, wires and cables, but excluding pre-fabricated buildings and such goods

    acquired for sale or re-sale or for direct use in the production or manufacture of taxable goods;  

    (i) vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969), parts of such vehicles, electrical and gas appliances, furniture furnishings, office equipment (excluding electronic cash registers), but excluding such goods acquired for sale or re-sale;

    (j) services in respect of which input tax adjustment is barred under the respective provincial sales tax law;

    (k) import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7% under Eighth Schedule to this Act;

    (l) from the date to be notified by the Board, such goods and services which, at the time of filing of return by the buyer, have not been declared by the supplier in his return or he has not paid amount of tax due as indicated in his return; and

    (m) the input goods or services attributable to supplies made to un-registered person, on pro-rata basis, for which sale invoices do not bear the NIC number or NTN as the case may be, of the recipient as stipulated in section 23.

    (2) If a registered person deals in taxable and non-taxable supplies, he can reclaim only such proportion of the input tax as is attributable to taxable supplies in such manner as may be specified by the Board.

    (3) No person other than a registered person shall make any deduction or reclaim input tax in respect of taxable supplies made or to be made by him.

    (4)  Omitted

    (5) Notwithstanding anything contained in any other law for the time being in force or any decision of any Court, for the purposes of this section, no input tax credit shall be allowed to the persons who paid fixed tax under any provisions of this Act as it existed at any time prior to the first day of December, 1998.

    (6) Notwithstanding anything contained in any other law for the time being in force or any provision of this Act, Board, with the approval of the Federal Minister-in-charge, may, by notification in the official Gazette, specify any goods or class of goods which a registered person cannot supply to any person who is not registered under this Act.

    (7) Omitted

    (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.)

    Levy and collection of tax on goods
  • FBR defers digital payment provision for one month

    FBR defers digital payment provision for one month

    ISLAMABAD: The Federal Board of Revenue (FBR) has deferred the implementation of a digital mode of payment for one month.

    The digital mode of payment has been made mandatory for the corporate sector, which was to be implemented from November 01, 2021.

    The FBR issued Circular No. 09 of 2021-22 on Monday to allow an extension in the deadline for implementation of digital mode of payment up to November 30, 2021.

    The new provision was introduced through Tax Laws (Third Amendment) Ordinance, 2021.

    The FBR in its explanation through Circular No. 07 dated September 23, 2021 said: to improve documentation, a new clause (la) has been inserted in section 21 of the Ordinance.

    Previously payments under a single head account exceeding two hundred and fifty thousand rupees, made by any taxpayer were required to be made through crossed cheque or crossed baking instruments including digital payments.

    “Through this amendment, payments made by a company under a single head of account exceeding two hundred and fifty thousand rupees other than by digital means from business bank account of the taxpayer notified to the Commissioner under section 114A of the Ordinance shall not be admissible as deductions.”

    However, certain expenditures on account of utility bills, freight charges, travel fare, and payment of taxes and fines would continue to be admissible even though paid in cash or via 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.

    However, owing to lack of total digital readiness by some corporate taxpayers, the corporate taxpayers are allowed to switch to this mode w.e.f. 01.11.2021.

    In the intervening period they may use digital payments or continue with the existing procedure of making payments by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer.

    Furthermore, any salary paid or payable exceeding twenty five thousand rupees per month has to be made through cross cheque or direct transfer of funds to the employee’s bank account under clause (m) of section 21 of the Ordinance. In order to bring this provision in conformity with newly inserted clause (la) ibid, in case of payments against salary in excess of twenty five thousand rupees per month, the mode of digital payment has been added to the available modes referred to above.

    The Pakistan Tax Bar Association (PTBA) last week in a letter to the FBR chairman stated that the implementation of digital payment was not practical at the moment.

    The PTBA made the following submissions to substantiate its claim:

    (i) It is impossible to make payment to goods carriage/transport sector by the digital means, which will create complete unrest in the goods carriage and transport sector.

    (ii) Presently, port terminal charges, wharfage charges, charges for clearance of delivery orders are paid in advance through crossed cheques or payorders. It will not be out of place to mention here that the port terminal operators and shipping lines, are unaware and are not ready for implementation of the ‘digital mode of payment.’

    (iii) It is routine business practice that advance against delivery of goods, the buyer submits its payment by way of post-dated cheques, which normally accepted by the other party and inherently a secured way of making payment. We are afraid that this law of ‘digital mode of payment’ is surely going to hamper the business activities, as it does not cater the situation and solution of such transactions.

    (iv) The similar issues are likely to arise and are to be faced by the companies for making payments to the growers of various agricultural crops such as fruits, sugarcane, rice, cotton, wheat, etc.

    (v) The various banks have fixed their own limitation on the quantity of making digital / online payments in a day and have also fixed the threshold of the amount and they do not allow to exceed the threshold limit fixed by them. In our view, this also needs a proper campaign without which the implementation of the law is not possible.

    (vi) The digital mode of payment is also impractical and is likely to affect the business transaction in the cases where petty cash payments, in aggregate exceed millions of rupees, which cannot be made digitally.

    (vii) It will not be out of place to mention that online transactions are still considered as unsecured mode, due to various type online frauds and hacking of software.

    Furthermore, a cyber attack on Pakistan’s leading bank last Friday also made the implementation in jeopardy. The PTBA has also pointed its concerns about the cyber security issue.

    FBR applies digital payment amid cyber security incident
  • Tax exemption from total income during tax year 2022

    Tax exemption from total income during tax year 2022

    the Federal Board of Revenue (FBR) has granted tax exemptions from total income during the tax year 2022 to various classes of individuals and entities under Part 1, Second Schedule of the Income Tax Ordinance, 2001.

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