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.

Karachi Tax Bar highlights issues in input tax adjustment on provincial invoices

KARACHI: Karachi Tax Bar Association (KTBA) on Wednesday wrote a letter to chairman of the Federal Board of Revenue (FBR) highlighting issues faced by taxpayers on disallowance of input adjustment against entry of provincial invoices.

The tax bar said: this is with reference to above cited subject and the following intimation uploaded on the web portal of Federal Board of Revenue:

“Manual entry of provincial invoices for input tax credit of services in Annex A is disallowed from 01 April 2021 for the tax period from March 2021, Taxpayers as buyers will get monthly input tax credit based on submission of sales invoices and Return in respective tax authority for which the data is made available in Purchase Data Tab. For previous data please contact at [email protected] subject Services data.”

KTBA highlighted the following issues which the Members of KTBA in general and Taxpayers in particular are facing due to the sudden change made through intimation on the web portal:

Till the filing of this letter, the data/invoices of all provinces are not synchronized and are not readily available automatically; this is not only creating problems for the Taxpayers to claim the Provincial Input Tax (Services Input Tax), but the Taxpayers would not be able to submit their monthly Sales Tax Returns for the Tax Period of March 2021 (last date of e-filing April 18, 2021) due to non-availability of Service Input Tax.

In most of cases, the KTBA observed that Service Input Tax data prior to Tax Period March 2021 is not available; due to which the Taxpayers are unable to claim Service Input Tax for tax periods prior to tax period March 2021.

At present, banks and other businesses such as courier services etc., as a routine deposit Provincial Sales Tax (Service Tax) as a bulk entry instead of depositing the same against each Taxpayer which is affecting in claiming the Service Input Tax.

At present, Service Input Tax of only those Taxpayers is being retrieved who have e-filed / submitted their returns which is unnecessarily delaying the filing of Sales Tax Returns as Service Input Tax is not available.

Our Members have informed that in certain cases, Taxpayers in some cases are unable to claim Service Input Tax in the Sales Tax Returns though the same is available under Annexure A.

Apart from above, there are other teething issues which are practically creating issues for the Taxpayers and Members of KTBA alike which are including but not limited to withholding tax on Service Tax showing as payable, Service Input Tax entries once deleted are not uploaded again and deferment of Service Input Tax, etc.

In view of above, the KTBA highlighted the following for your kind perusal and ready action:

Till the time this new system is fully functional; KTBA suggest to use both old as well as new system for claim of Service Input Tax to allow taxpayers to claim genuine Service Tax paid by them;

Old system of claim of Service Input Tax should be phased out in gradually instead of sudden disallowance;

Once the system is fully functional, KTBA suggests providing an option to claim Service Input Tax manually, which for any reason is not available up by the system, through manual entry with the option to upload the Service Tax Invoice not uploaded automatically. Such entry should then be checked and if found otherwise be routed through S. No. 7 (a) (b) (c) of the Sales Tax Return;

Ensure invoice wise entry by all Taxpayers ensuring entry against NTN / STRN of each Taxpayer in order not only to streamline the process but to proper claim of Input Tax both Federal and Provincial;

Claim of Service Input Tax be allowed instead of marking the same is “input tax not claimable”;

Field relating to Withholding tax on provincial sales tax should be removed from the Federal Sales Tax return; and

Feature of re-uploading of Service Input Tax be made available.

Although, KTBA feels that use of IT based technology/digitalization of records is the only way to resolve the multi-faceted complex issues vis-à-vis to address the issues of flying / fake input tax; however, sudden implementation of new scheme in the midst of MOU signed by the Federation and the Provinces to develop one Sales Tax Return is likely to create chaos and disorder for the Taxpayers.

In view of above submissions, KTBA feels that appropriate measures including but not limited to extension of date for the Tax Period of March 2021 for filing of Sales Tax Return and resolution of above highlighted issued be addressed forthwith to ease the pressure of the Taxpayers and Members of KTBA alike.

April 14, 2021
FBR recommended to reduce minimum tax for chemical companies

KARACHI: Federal Board of Revenue (FBR) has been urged to reduce minimum tax rate for chemical companies having large turnover with low profit margins.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 submitted to the FBR, recommended that minimum tax rate should be reduced to 0.2 percent for large chemical companies with large turnover with low profit margins.

It further recommended that clause b of Section 148(7) of Income Tax Ordinance, 2001 as deleted by the Finance Act, 2017 should be restated, which read as follows: “148(7) b fertilizer by manufacturer of fertilizer” to allow adjustment of tax deducted at import stage for fertilizer imported by a fertilizer manufacturer so as not to make it a final tax.

It recommended that exemption under Clause 42 read with section 153(3) of the Income Tax Ordinance, 2001 be available to all terminals without discrimination. The said clause be re-worded as follows:

“(42) The provisions of sub-section 3 of section 153 shall not apply in respect of payments received by a resident person for providing services by way of operation of terminal(s) at a sea-port in Pakistan or of an infrastructure project covered by the Government’s Investment Policy, 1997.”

For the fertilizer industry, the GST on supply of natural gas as feed stock is at 5 percent and as fuel stock is 17 percent. However, the output GST rate on sales of finished goods i.e. urea is 2 percent. This mismatch between input and output GST results in excessive input tax refundable build-up.

GST rate on supply of natural gas for fertilizer industry should be zero percent.

For the sales tax rate on raw material of paints, the OICCI made following recommendations:

i. Sales tax of 25 percent should be imposed on some basic raw materials like Titanium dioxide and other following categories for commercial importers.

ii. Enforcement measures to be made more effective in consultation with OICCI members, who are established taxpayers, to penalize tax evaders.

The OICCI highlighted that macro nutrients being imported under Chapter 31 of Pakistan Customs Tariff, enjoy reduced duties and taxes representing only 8 percent of the value imported whilst in case of micronutrients being imported under Chapter 28, the import duties and taxes are quite high representing 29% of import value.

It recommended to make necessary amendments in the revenue regulation to reduce sales tax and import duties on import of micronutrients.

April 14, 2021
Normal corporate tax rate for banking sector recommended

KARACHI: Foreign investors have recommended that corporate tax rates for the banking sector should be aligned with other sectors.

At present the banking sector is paying 35 percent corporate tax rate as compared with 29 percent corporate tax rate for other sectors.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 submitted to the Federal Board of Revenue (FBR) recommended that corporate tax rates for the banking sector should be aligned with other sectors.

Further super tax relief, as granted to other industries, should be given to banking sector as well.

Regarding the issue of Tax Deduction on Profit on Debt under section 151 of Income Tax Ordinance, 2001, the OICCI recommended that there should be a uniform withholding tax rate of 15 percent for all payments of profit on debt by omitting below provision inserted through Finance Act, 2020:

“Provided that the rate shall be 10 percent in cases where the taxpayer furnishes a certificate to the payer of profit that during the tax year yield or profit paid is rupees five hundred thousand rupees or less”, and Circular be withdrawn, to avoid litigation between banks and department.

For enhanced rate of tax on Additional income from additional investment in Federal Government Securities (Rule 6C of Seventh Schedule), the OICCI recommended Rule 6C of seventh schedule of Income Tax Ordinance, 2001 should be deleted whereby enhanced rate of 37.5 percent is applied on banks income from additional investment in Federal Government Securities.

According to Rules for person not appearing in Active Taxpayer List (Section 100BA and Tenth Schedule) if a withholding tax agent is satisfied that a person not appearing in Active Taxpayers List (ATL) is not required to file return, then before deducting tax he will furnish to the Commissioner a notice carrying particulars of taxpayer along with reason on the basis of which it is considered that the person is not required to file a return.

The OICCI recommended to delete the rule as branch managers are not conversant with tax laws. Alternatively, if FBR is satisfied that a person is not required to file return of income, his CNIC/Name should be included in an Exempt Taxpayer List (Similar to ATL) which should be issued periodically.

The original provision of the Seventh Schedule should be restored where provision for bad debts as per the Prudential Regulations of SBP and supported by an Auditors certificate was allowable as a tax deduction to the banks. Alternatively, threshold for allowing provision for bad debts should be increased to 2 percent of gross advances to corporate customers.

The rule 9 of the Seventh Schedule of ITO 2001 should be deleted as it is being misused and leading to unnecessary litigation.

April 13, 2021
Abolishing withholding tax, reducing sales tax rate on telecom services recommended

KARACHI: Federal Board of Revenue (FBR) has been urged to abolish withholding tax rate at 12 percent on telecom services to promote the accessibility of internet/data services to the low-income group.

Similarly, Federal Excise Duty (FED) is charged at 17 percent on telecom services which is on higher side as compared to other sectors, and general rate.

Provincial authorities levy a much lower rate of sales tax on other services. Since sales tax is a consumption tax (on usage), the decrease in sales tax rate will result in increased usage of telecom services and consequently drive tax collection upwards.

There should be single sales tax rate across all jurisdiction to remove the anomalies and undue hardships being faced by telecom sector in terms of compliances in different jurisdictions, thus, to provide ease of doing business.

These recommendations have been sent by Overseas Investors Chamber of Commerce and Industry (OICCI) to the Federal Board of Revenue (FBR) for the budget 2021/2022.

The OICCI further recommended that since the insertion of 9th Schedule in Sales Tax Act, 1990 effective 1st July 2014, the matter is in litigation. This tax should be abolished, ab initio, by accepting the decision of Lahore High Court as the resolution of the matter will result in additional upside on the corporate tax side for the exchequer and eliminate the undue litigations.

On the issue of advance tax on Auction/ Renewal of telecom licenses at 10 percent under section 236A of Income Tax Ordinance, 2001, the OICCI recommended that this tax should be abolished being irrational and burdensome on CMOs keeping in view the financial/ tax position.

The chamber said that as large utility providers, Cellular Mobile Operators’ (CMO) are subject to deduction/collection of withholding of income tax on large number of transactions, which increases the cost and complexity of tax compliance and an additional administrative burden for the telecom sector and negatively impacts the overall business environment.

It is recommended:

i. Exemption should be given to the telecom sector from deduction or collection of all types of withholding taxes, like banking and oil sector. There will be no loss of revenue to the exchequer as the tax collection mechanism will be simplified in terms of real time payment of advance tax Under Section 147 on quarterly basis.

Furthermore, this measure will also make the tax claims and its verification mechanism more transparent with minimum operational hassles as maintaining the thousands of records especially for advance tax on utility bills and imports is itself a very cumbersome procedure.

ii. Amendments need to be made in the section 147 for the calculation of tax liability. Currently the calculation of tax liability is based on the last assessed position and turnover of the year. The assessed position should not be used as a basis of calculation of tax liability until and unless an independent forum (i.e. At least Tribunal) has also confirmed the assessed position.

The OICCI recommended to reduce the custom duty rates for batteries (8507.6000) to 5 percent and to abolish additional custom duty and Regulatory duty, as these batteries are used with solar and power systems and are core asset for telecom infrastructure services provider. Reduction in duties will further encourage alternate energy resources for Telecom sector e.g. Solar etc.

On the issue of custom duty and Regulatory duty on import of telecom equipment, it is recommended to restore SRO 575, reduce Custom duty to 5 percent and abolish the Additional Custom duty and Regulatory duty as the core assets needs to be imported for provisioning of telecom services.

The OICCI demanded exemption from advance tax on electricity for Telecom Tower Infrastructure Companies. The chamber said that currently taxpayers can obtain exemption certificate for non-deduction of tax on electricity bills under section 235(3) of ITO 2001 if their income is exempt under the law or by discharging their advance tax liability for the year. Such exemption is not available to telecom service providers as their tax liability is minimum under section 153(3) of the ITO, 2001.

Enabling provision may be inserted in section 235 of the ITO, 2001 to empower the Commissioner to issue exemption certificate to Service Providers under minimum tax regime for non-deduction of advance tax on electricity bills.

April 13, 2021
367,159 taxpayers pay surcharge to enroll on ATL-2020

ISLAMABAD: Around 367,159 taxpayers have paid surcharge for appearance in the Active Taxpayers List (ATL) for availing exempt or reduced rates of withholding tax on various transactions.

According to weekly updated ATL for tax year 2020 issued on Monday the number of active taxpayers increased to 2,545,622 on the basis of income tax return filed within due date and after payment of surcharge after due date by April 11, 2021.

The Federal Board of Revenue (FBR) issued the new ATL for tax year 2020 on March 01, 2021 which carried 2,178,463 names of taxpayers, who were entitled to avail reduced or exempt rates of withholding tax on various transactions.

The filing of income tax returns is mandatory for all the taxpayers who have taxable income or specified under Section 114 of Income Tax Ordinance, 2001.

As per statute the compliance of mandatory return filing was not enough to avail the reduced rate facility. According to Section 182A of Income Tax Ordinance, 2001 the persons who fail to file annual return of income by due date or extended by commissioner Inland Revenue then their names would not be included in the active taxpayers list for the year for which return was not filed.

However, the persons would be included in the taxpayers list on filing return after the due date, if they pay surcharge at: Rs20,000 in case of a company; Rs10,000 in case of an association of persons; and Rs1,000 in case of an individual.

April 13, 2021
Taxpayers not to worry on system generated past six years audit notices: CCIR

KARACHI: Taxpayers should not worry on audit notices of past six years as most of those were system generated and Federal Board of Revenue (FBR) is trying to resolve the issue, a top FBR officials said on Monday.

While discussing tax issues at Karachi Chamber of Commerce and Industry (KCCI), Dr. Aftab Imam, Chief Commissioner Inland Revenue (CCIR) of Corporate Tax Office (CTO) Karachi explained the issues pertaining to audit notices.

He said that FBR was well-aware of this issue and it has been observed that most of them were system generated notices and the business community should not worry as FBR was trying its best to resolve this issue.

“There is no need to re-submit those documents again at the FBR which have already been submitted for audit and only the missing documents should be provided with a covering letter in which it should be clearly mentioned that the following relevant documents have already been provided while the missing documents are being sent,” he added.

He also assured to analyze the issue of higher turnover tax on yarn traders as compared to the profit margin and look into the possibility of restoring it back to 0.1 percent from 1.5 percent in the next budget.

The Chief Commissioner CTO mentioned that FBR was seriously working towards creating ease for the business community as the economy would only flourish when the businesses flourish that would automatically improve the tax revenue for the country. “Hence, we want to facilitate the business community and keeping in view FBR’s approach, most of the issues being faced today would be resolved in the next one-an-a-half year as we are very keen to create a tax-friendly environment”, he added.

He further sought business community’s assistance in identifying those millions of individuals who have been doing businesses of up to billions of rupees but they remain out of the tax net which was the basic reason for the exorbitant tax rates being suffered by the existing taxpayers. “The unregistered individuals have to be taken to task which would reduce the burden on existing taxpayers through reduction in tax rates”, he added.

Earlier, President KCCI M. Shariq Vohra, while welcoming Chief Commissioner CTO, appreciated that dedicated efforts and prompt response by Chief Commissioner CTO towards amicably resolving the FBR-related taxation issues being faced by business community. “We hope that the FBR would incorporate maximum number of recommendations given by KCCI in its budget proposals which have been recommended in the larger interest of the country”, he said, adding that it has always been KCCI approach to highlight the general issues which are not faced by a few individuals only but by the majority of stakeholders from a particular sector. “Our proposals for upcoming Budget for FY 2021-22 carry pivotal importance and will have a positive impact on business and investment climate, ease of doing business and overall growth of the economy.”

He was of the opinion that taxpayers face immense hardships in getting petty issues resolved because of the unnecessary hindrances being creates by FBR officials which not only fetches a bad image for the entire department but also discourages new individuals to come into the tax net which was a very issue that requires immediate attention.

Shariq Vohra pointed out that many members of the business community have been receiving bulk audit notices nowadays in which huge number of documents for six years old cases of 2014 were being demanded which was not making any sense at all and it appears like an attempt to harass the business community. “The FBR, instead of intensifying the hardships for existing taxpayers, must take practical steps to somehow bring more and more people into the tax net which was in the larger interest of the country as it would not only improve the tax revenue but would also bring down the tax rates that would certainly go in favor of the economy”, he added.

Former Senior Vice President KCCI Ibrahim Kasumbi, in his remarks, particularly mentioned that the furniture industry comprising workshops, employing artisans and manual labor, has been receiving notices from tax authorities and field officers in many parts of Pakistan and they were being compelled to get registered as Tier 1 retailers which was unjust and not practicable for this trade. Hence, FBR must stop harassing shopkeepers, showroom and workshop owners in the name of registration in Tier-1 and the employment of hundreds of thousands skilled workers artisans and laborers has to be protected while this important industry of traditional hand-crafted furniture has to be preserved.

He further stated that consumption of black tea in Pakistan was 240,000 tons, but the imports through legal channels was hardly 100,000 tons due to high rates of customs duty, sales tax, regulatory duty (RD) and withholding tax (WHT). The remaining requirement was being fulfilled by smuggling, Afghan Transit Trade, and imports under various exemptions/concessions granted to Provincially Administered Tribal Areas (PATA) and Azad Kashmir. Hence, rates of customs duty, sales tax, RD & WHT have to be rationalized to prevent smuggling and massive leakage of revenue, he added.

April 12, 2021

Withholding tax collection from new car registration declines by 39pc in TY2020

ISLAMABAD: The collection of withholding tax on registration of new cars has declined by around 39 percent in tax year 2020 due coronavirus pandemic that has lowered the sales of locally assembled motor vehicles.

According to details released by Federal Board of Revenue (FBR) the collection of withholding tax fell to Rs5.88 billion in tax year 2020 as compared with Rs9.58 billion in the preceding tax year.

The drastic fall in revenue collection has been attributed to lower car sales that were impacted by COVID-19 and slowdown in the economy.

The annual sales of locally assembled cars posed a decline of 53 percent during fiscal year 2019/2020. According to Pakistan Automobile Assemblers Association (PAMA), the total car sales in the country were recorded at 110,583 units during fiscal year 2019/2020 as compared with 235,229 units in the preceding fiscal year.

The provincial motor vehicle registration authorities collect withholding tax on behalf of the FBR. The withholding tax has been collected on the registration of new motor car under Section 231B of the Income Tax Ordinance, 2001.

Following rates of withholding tax under Section 231B:

S. No.	Engine capacity	Tax
(1)	(2)	(3)
1.	upto 850cc	Rs. 7,500
2.	851cc to 1000cc	Rs. 15,000
3.	1001cc to 1300cc	Rs. 25,000
4.	1301cc to 1600cc	Rs. 50,000
5.	1601cc to 1800cc	Rs. 75,000
6.	1801cc to 2000cc	Rs. 100,000
7.	2001cc to 2500cc	Rs. 150,000
8.	2501cc to 3000cc	Rs. 200,000
9.	Above 3000cc	Rs. 250,000]

The above rates are applicable for persons on the Active Taxpayers list (ATL). However, the tax rate shall be enhanced by 100 percent in case person is not on the ATL.

April 11, 2021

Duty rebate payment to textile sector increases by over 100pc

ISLAMABAD: The payment of customs duty rebate to textile sector increased by over 100 percent during tax year 2020, which shows the commitment of Federal Board of Revenue (FBR) to facilitate the most import sector for resolving liquidity issues.

The payment of customs duty rebated was Rs18.31 billion during tax year 2020 as compared with Rs9 billion in the preceding tax year, showing an increase of 103.33 percent.

According to details released by the FBR, the major chunk of the rebate payment to textile sector was issued to ready-made garments and fabric made-ups.

The payment of customs duty rebate to ready-made garment industry was Rs6.5 billion during tax year 2020 as compared with Rs1.88 billion, showing a growth of 246 percent.

Similarly, the payment of duty rebate to fabric and made-up increased to Rs6.41 billion in tax year 2020 as compared with Rs1.12 billion in the preceding tax year, showing a rise of 472 percent.

The FBR has taken all possible measures to provide relief through payment of refunds and rebate to sectors of the economy for resolving liquidity issues during coronavirus pandemic.

The FBR issued rebate to the tune of Rs1.56 billion to hosiery industry during tax year 2020 and Rs1.24 billion to cotton fabric industry.

The FBR issued an amount of Rs24.4 billion as a total duty rebate during tax year 2020 as compared with Rs14 billion in the preceding tax year, showing an increase of 74 percent.

April 11, 2021
Listed companies should be exempted from electronic tax surveillance

KARACHI: Federal Board of Revenue (FBR) has been urged to exempt listed companies from electronic surveillance of business and records.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 said that through SRO 888 of 2020 dated September 21, 2020, a new chapter was introduced in Sales Tax Rules, 2006 whereby all registered persons are made liable to give continuous and full real-time electronic access to the premises, stocks, record, accounts and data, whether maintained electronically or otherwise, as and when required by an authorized officer as provided under section 38 of the Act.

The OICCI recommended that the scope should be restricted to the taxpayers having series of defaults or misconduct.

“Other taxpayers especially listed companies should be exempted from this requirement as they are subject to rigorous external audits, internal audit requirements by SECP and tax audits and monitoring by FBR,” it recommended.

April 11, 2021
FBR urged to allow commercial import of used cars to end auto assemblers monopoly

KARACHI: Federal Board of Revenue (FBR) has been urged to allow commercial import of used and reconditioned cars of models up to five years old to end monopoly of local car assemblers.

Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2021/2022 recommended the commercial import of used and reconditioned motor cars up to five years old.

The chamber said that during the past 40 years, assemblers of automobiles have enjoyed protective duties, exemptions and virtual monopoly in Pakistan’s automobile car market.

Contrary to initial agreements, the assemblers failed to implement deletion program up to 90 percent. Instead, they are importing CKD while they have created vendors who mostly import auto parts and supply to these assemblers.

Consequently, the so called vendor industry is only producing low quality and non-mechanical parts which is clearly visible in locally assembled cars.

So far the assemblers have only drained Pakistan’s foreign exchange reserves to the tune of billions of dollars.

Quality of automobiles produced by the assemblers is so poor that not a single unit of these cars has ever been exported to any country.

Despite such poor quality, artificial shortage is created to fetch a premium on the early delivery and allow undocumented investors to exploit genuine buyers.

The chamber said that import of reconditioned cars more than 3 years old model has been restricted to favor the assemblers and exploit the middle class people of Pakistan who can no more afford to buy even a small 660cc to 1000cc imported or local car.

Ironically, import of brand new cars of high capacity and premium brands is allowed which only benefits the elite. Middle class consumers have been deprived of their right to purchase reasonably priced used/reconditioned cars which have a better quality and safety standard than the locally assembled new vehicles.

Clearly there is an element of corruption, connivance and vested interest involved in formulating auto-policies. Unfortunately, the vested interests are also resisting to change the policy to allow import of reconditioned cars by reducing the Tariff rates and also permit import of cars of up to five year old models.

The chamber further said that enough protection has been given for decades to assemblers.

The chamber has given a comprehensive tariff plan for import of used and reconditioned cars.

April 10, 2021