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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.

  • FBR suggested to abolish multiple audit provisions

    FBR suggested to abolish multiple audit provisions

    KARACHI: The Federal Board of Revenue (FBR) has been suggested to abolish multiple provisions of audit under Income Tax Ordinance, 2001 and simplify procedure for ease of doing business.

    Karachi Chamber of Commerce and Industry (KCCI) in its proposals for budget 2021/2022 said that presently audit proceedings can be started u/s 177 as well as through balloting u/s 214C and like-wise enquiries can also be made by the Commissioner u/s 122(5A). There is a concept of a special audit panel u/s 177(11) as well.

    Sub-Section 7 is ambiguous and provides the Commissioner and his sub ordinates with a tool to harass, extort and victimize any taxpayer at will.

    The Commissioner can re-open the Audit of any person or firm at will on unsubstantiated grounds. SEC.177 SUB-SECTION 4: Any person employed by a firm to conduct audit function may be authorized by the Commissioner to exercise powers under sections 175 and section 176.

    The KCCI said that revenue collection through such recovery proceedings is hardly Rs.92.0 Billion whereas the costs due to litigation, involvement of entire tax collection machinery and declining number of tax filers, is far more than the collection.

    Multiple audits under various provisions have eroded the trust of tax-payers in the FBR. RTOs and LTUs. Audit functions under various Provisions have created confusion and complexity in Tax regime.

    Such provisions are also prone to misuse and a source of harassment.

    The chamber proposed that all audit functions should be brought under one provision of Income Tax Ordinance rather than various over-lapping provisions with clear and well defined parameters. Audit Parameters should be transparent and open to taxpayers.

    Further, Sub-Section 7 may be deleted.

    Powers of the Commissioner and sub-ordinate officials should be curtailed to restore the trust of Tax Payers and encourage broadening of tax-base.

    Such Audits should be restricted to specific queries or objections and call for relevant document only rather than opening and re-opening a comprehensive audit every time.

    Giving rationale the KCCI said that bring transparency and clarity to audit functions and rules governing the same.

    Prevent harassment to tax payers and abuse of powers by Inland Revenue officials. This will also help in broaden tax base by restoring confidence in the system.

  • FBR urged to lower duty, tax on import of motorcycle spare parts

    FBR urged to lower duty, tax on import of motorcycle spare parts

    KARACHI: Khalid Waheed chairman All Pakistan Importers & Dealers Association appeal to the FBR to lower the custom duties and withdraw the addition custom duty on the commercial import of motorcycle’s spare parts.

    (more…)
  • FBR issues procedure for availing exemption certificate by erstwhile FATA/PATA residents

    FBR issues procedure for availing exemption certificate by erstwhile FATA/PATA residents

    ISLAMABAD: Federal Board of Revenue (FBR) issued a procedure for issuing tax exemption certificate for residents of erstwhile FATA/PATA.

    The FBR issued circular No. 13 of 2021 stating that a standardized procedure for the issuance of Exemption Certificate on quarterly basis is being rolled out so as to ensure fair operationalization of the exemptions enshrined in the law. Accordingly, a FATA/PATA-domiciled person appearing on the “active taxpayers’ list” instituted by FBR in terms of section 181A of the I.T.0, 2001, and intending to import “plant, machinery, equipment” or “industrial inputs” for installation or consumption at his own manufacturing site would lodge a written application to the Commissioner Inland Revenue (CIR) concerned providing therein: –

    (i) Production capacity of the manufacturing unit, and if the same has increased over time, the month from which the enhanced production capacity was installed along with particulars of the additional manufacturing capacity;

    (ii) Month-wise quantity of (a) raw material imported, and (b) purchased locally since July, 2020 (or 1 st month of the tax year);

    (iii) Quantity of stock available from earlier imports;

    (iv) Month-wise details of Gas and Electricity consumed since July, 2020 (or lm month of the tax year);

    (v) Month-wise particulars of goods produced;

    (vi) Month-wise details of post-dated cheques (PDCs) deposited earlier with Customs authorities, if any;

    (vii) List of buyers of the goods produced;

    (viii) Bank statement for the past quarter;

    (ix) Electricity/Gas bills for the past quarter; and

    (x) Month-wise proof of Federal Excise paid — only in case of goods covered under the Federal Excise Act, 2005.

    The commissioner Inland Revenue would ensure that particulars supplied by the taxpayer are verified before the issuance of Exemption Certificate. In case any data are not verified, the taxpayer would be given an opportunity to complete the application, provide the required information, and make up the deficiency. The Exemption Certificate issued will be directly mailed to the Collector Customs concerned with a copy thereof being duly marked to Member (IR Operations) and Member (Customs Operations), and under no circumstances will be handed over to the taxpayer. If the CIR decides to reject the application for a Exemption Certificate, the previous PDCs deposited would be encashed.

    The FBR issued the procedure In pursuance to the amalgamation of FATA/PATA regions via 25th Amendment to the Constitution, in order to boost economic development therein, the Government of Pakistan, vide Clause (146) of Part I of 2nd Schedule to the Income Tax Ordinance, 2001 (hereinafter “the I.T.0, 2001”), exempted income “of any individual domiciled or company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber PalchtunIchwa and Balochistan…with effect from the Is’ day of June, 2018 to the 30th day of June, 2023.”

    The “provisions of sections in Division III of Part V of Chapter X and Chapter XII” of the I.T.0, 2001, pertaining to withholding taxes have also been rendered inapplicable to FATA/PATA-domiciled tax persons vide Clause (110) of Part IV of 2nd Schedule to the 1.T.0, 2001.

    Although, FBR’s stated position continues to be that section 148 by dint of its being in Division II (instead of Division III) of Part V of Chapter X of the I.T.0, 2001, it has consciously been excluded from the nexus of Clause (110) by the Legislature as also emphatically articulated by FBR vide letter No.DOC.No.1(1)-M(IR-Ops)/2020/165904-R dated 21-09-2020, yet in view of Hon’ble Peshawar High Court’s judgement in W.P.No.442-M of 2020 to the contrary, and till its reversal by the Supreme Court of Pakistan in a CPLA filed by FBR, FATA/PATA-domiciled tax persons could avail exemption u/s 148 of the I.T.0, 2001.

    There, however, does exist significant confusion as to the mechanism of operationalization of the exemptions enshrined in the law. In particular, a controversy has recently raged vis-a-vis application of withholding tax at the import stage as to whether it would be available to a FATA/PATA-domiciled persons per se or it would trigger on issuance (and production) of exemption certificate as stipulated in section 148/159 of the I.T.0, 2001.

    The Hon’ble Peshawar High Court in W.P.No.442-M of 2020 titled as Hadi Khan Silk Mills Vs. Federation of Pakistan has also categorically held that FATA/PATA-domiciled tax persons “shall be exempt from levy and imposition of advance tax payable under section 148.. .at import stage, till the period mentioned in Clause 146” of Part 1 of 2nd Schedule to the I.T.0, 2001.

    More importantly, the Hon’ble High Court, in the same judgement, has gone on to address the critical question as to how this particular exemption would operationalize by mandating “that for seeking exemption from payment of advance income tax under section 148 of the Ordinance at import stage, the petitioners shall have to seek exemption from the levy thereof, under section 159 of the Ordinance.” The Hon’ble High Court has re-affirmed this mechanism in W.P.No.1219-M of 2020 titled Sohrab Sons & Co. Vs. Government of Pakistan & Others and W.P.No.2009- P of 2020 titled Ws Dawood Steel Vs. Federation of Pakistan & Others.

  • Tax recovery through bank accounts should only from unregistered persons

    Tax recovery through bank accounts should only from unregistered persons

    KARACHI: Federal Board of Revenue (FBR) has been urged to restrict its powers of tax recovery from bank accounts on unregistered persons.

    In its proposals for budget 2021/2022, Karachi Chamber of Commerce and Industry (KCCI) pointed out Section 140 of Income Tax Ordinance, 2001 that is related to recovery of tax from persons holding money on behalf of a taxpayer.

    According to the law for the purpose of recovering any tax due by a taxpayer, the Commissioner may, by notice, in writing, require any person –

    (a) owing or who may owe money to the taxpayer; or

    (b) holding or who may hold money for, or on account of the taxpayer;

    The chamber said that this provision and further access to information on bank accounts under other provisions of law, have been counter-productive and led to a flourishing cash economy. Many innovative ways have been evolved by businesses similar to block-chain and a local hundi system. Such provisions only affect the documented businesses while the entire undocumented sector is immune from such laws.

    The KCCI said that access to bank accounts may only be limited to accounts of unregistered persons with unusually high amounts of transactions.

    Commissioner should only be authorized to obtain information about the funds in accounts and to seek clarification as to the nature of transactions and sources of funds. Such persons may be brought into the tax-net.

    The chamber said that it will:

    1. Relief to the registered persons and restore confidence in banking system. Encourage official transactions.

    2. Bring unregistered persons into the tax-regime.

    3. Stimulate economic activities and growth. Increase bank deposits which may be used for lending to industry.

  • Exchange companies to pay 0.6pc withholding tax on cash withdrawal

    Exchange companies to pay 0.6pc withholding tax on cash withdrawal

    ISLAMABAD: The concessionary rate of tax allowed to exchange companies on cash withdrawal has been linked to active taxpayers list. The amendment has been brought through Tax Laws (Second Amendment) Ordinance, 2021, officials in Federal Board of Revenue (FBR) said.

    The rate of tax is 0.15 percent under section 231A on cash withdrawal by an exchange company, duly licensed and authorized by the State Bank of Pakistan, exclusively dedicated for its authorized business-related transactions, subject to the condition that a certificate issued by the concerned Commissioner Inland Revenue for a financial year mentioning details and particulars of its Bank Account being used entirely for business transactions is provided.

    Now, tax at rate of 0 percent will be charged 0.6 percent if the exchange company is not on active taxpayers list.

  • Tax concession to charitable organizations linked to return filing

    Tax concession to charitable organizations linked to return filing

    ISLAMABAD: A charitable organization is entitled for 100 percent tax credit only on filing annual return of income for the tax year, according to Tax Laws (Second Amendment) Ordinance, 2021.

    Sources in Federal Board of Revenue (FBR) said that the exemption regime has been replaced with tax credit for charitable organizations.

    Through Tax Laws (Second Amendment) Ordinance, 2021, the Section 100C of Income Tax Ordinance, 2001 has been replaced with the following:

    “100C. Tax credit for charitable organizations.– (1) The persons mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred percent of tax payable under any of the provisions of this Ordinance including minimum and final taxes in respect of incomes mentioned in sub-section (3) subject to the conditions and limitations laid down in sub-section (4). 

    (2) The provisions of this section shall apply to the following persons, namely:–:

    (a) persons specified in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance;

    (b) a trust administered under a scheme approved by the Federal Government and established in Pakistan exclusively for the purposes of carrying out such activities as are for the welfare of ex-employees and serving personnel of the Federal Government or a Provincial Government or armed forces including civilian employees of armed forces and their dependents where the said trust is administered by a committee nominated by the Federal Government or a Provincial Government;

    (c) a trust;

    (d) a welfare institution registered with Provincial or Islamabad Capital Territory (ICT) social welfare department;

    (e) a not for profit company registered with the Securities and Exchange Commission of Pakistan under section 42 of the Companies Act, 2017;

    (f) a welfare society registered under the provincial or Islamabad Capital Territory (ICT) laws related to registration of co-operative societies;

    (g) a waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or any other law for the time being in force or in the instrument relating to the trust or the institution;

    (h) a university or education institutions being run by non-profit organization existing solely for educational purposes and not for the purposes of profit;

    (i) a religious or charitable institution for the benefit of public registered under any law for the time being in force; and

    (j) international non-governmental organizations (INGOs) approved by the Federal Government.

     (3)  The following income is eligible for tax credit, namely:–

    (a) income from donations, voluntary contributions and subscriptions;

    (b) income from house property;

    (c) income from investments in the securities of the Federal Government;

    (d) profit on debt from scheduled banks and microfinance banks;

    (e) grant received from Federal, Provincial, Local or foreign Government;

    (f) so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:

     Provided that in the case of income under the head “income from business”, only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and

    (g) any income of the persons mentioned in clauses (a), (b) and (h) of sub-section (2) of this section.

    (4)  Eligibility for tax credit shall be subject to the following conditions, namely:-

    (a) return has been filed;

    (b) tax required to be deducted or collected has been deducted or collected and paid;

    (c) withholding tax statements for the relevant tax year have been filed;

    (d) the administrative and management expenditure does not exceed 15% of the total receipts: 

    Provided that clause (d) shall not apply to a non-profit organization, if-

    (i) charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; or

    (ii) total receipts of the non-profit organization during the tax year are less than one hundred million Rupees;

    (e) approval of Commissioner has been obtained as per requirement of clause (36) of section 2: 

    Provided that the condition of approval in respect of persons mentioned in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the first day of July, 2022 and the requirements of clause (36) of section 2, shall not be applicable for earlier years;

    (f) none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person:

    Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and

    (g) a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed form and manner.

    (5)  Notwithstanding anything contained in sub-section (1), surplus funds of organizations to which this section applies shall be taxed at a rate of ten percent.

    (6) For the purpose of sub-section (5), surplus funds mean funds or monies –

    (a)  not spent on charitable and welfare activities during the tax year; 

    (b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes;

    (c) which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year;  and 

    (d) are not part of restricted funds.

    Explanation.- For the purpose of this clause, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.”

  • Tax credit for eligible capital investment allowed

    Tax credit for eligible capital investment allowed

    ISLAMABAD: Tax credit of 25 percent on capital investment on an industrial undertaking has been allowed under Tax Laws (Second Amendment) Ordinance, 2021.

    Sources in Federal Board of Revenue (FBR) said that a new Section 65G has been introduced to Income Tax Ordinance, 2001 through amended ordinance.

    According to the new section:

    “65G Tax credit for specified industrial undertakings.- (1) When making certain eligible capital investments as specified in sub- section (2), the eligible taxpayers defined in sub-section (3) shall be allowed to take an investment tax credit of twenty-five percent of the eligible investment amount, against tax payable under the provisions of this Ordinance including minimum and final taxes. The tax credit not fully adjusted during the year of investment shall be carried forward to the subsequent tax year subject to the condition that it may be carried forward for a period not exceeding two years.

    (2) For the purposes of this section, the eligible investment means investment made in purchase and installation of new machinery, buildings, equipment, hardware and software, except self-created software and used capital goods.

    (3) For the purpose of this section, eligible person means –

    (a) green field industrial undertaking as defined in clause (27A) of section 2 engaged in –

    (i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

    (ii) ship building:

    Provided that the person incorporated between the 30th day of June, 2019 and the 30th day of June, 2024 and the person is not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project; and

    (b) industrial undertaking set up by the 30th day of June 2023 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from the date such industrial undertaking is set up.”

  • Return filing made mandatory for computer software exporters

    Return filing made mandatory for computer software exporters

    ISLAMABAD: The filing of income tax return is mandatory for persons engaged in exporting computer software to avail 100 percent tax credit.

    Sources in Federal Board of Revenue (FBR) on Saturday said that the exemptions for IT and IT enabled services had been withdrawn through Tax Laws (Second Amendment) Ordinance, 2021. However, a tax credit equal to 100 percent has been granted through the ordinance to facilitate the software exports.

    The sources said that certain conditions have been introduced including making return filing mandatory and provision of income tax audit has been added through the latest amended ordinance.

    Following new section has been added to Income Tax Ordinance, 2001 through Tax Laws (Second Amendment) Ordinance, 2021:

    “65F Tax credit for certain persons.- (1) Income of following taxpayers shall be allowed a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations detailed as under: –

    (a) persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects;

    (b) a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years;

    (c) persons deriving income from exports of computer software or IT services or IT enabled services upto the period ending on the 30th day of June, 2025:

    Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

     Explanation.- For the purpose of this clause, –

    (i) “IT services” include software development, software maintenance, system integration, web design, web development, web hosting and network design; and

    (ii) “IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing.

    (2) The tax credit under sub-section (1) shall be available subject to fulfillment of the following conditions, namely:-

    (a) return has been filed;

    (b) tax required to be deducted or collected has been deducted or collected and paid;

    (c) withholding tax statements for the immediately preceding tax year have been filed; and

    (d) sales tax returns for the tax periods corresponding to relevant tax year have been filed:

    Provided that nothing contained in this section shall preclude the applicability of section 214C or section 177.

  • No more tax credit for new industrial setup

    No more tax credit for new industrial setup

    ISLAMABAD: Tax credit available for establishing new industrial unit has been withdrawn through Tax Laws (Second Amendment) Ordinance, 2021. However, those units already availed the concession would remain eligible till the cutoff time.

    The Federal Board of Revenue (FBR) on Friday posted Tax Laws (Second Amendment) Ordinance, 2021 on its website.

    According to tax analysts as per Section 65D, where a taxpayer being a company formed for establishing and operating a new industrial undertaking including corporate dairy farming sets up a new industrial undertaking including a corporate dairy farm, it shall be given a tax credit, on basis of ratio of equity investment in industrial undertaking to total investment, of the tax payable, including on account of minimum tax and final taxes payable for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.

    This tax credit was available to the company that is incorporated and industrial undertaking is setup between the first day of July, 2011 and 30th day of June, 2021.

    Now through Ordinance this is omitted with condition that existing beneficiaries shall continue to avail benefits of repealed provisions for the periods and subject to conditions and limitations specified in this Section.

  • FBR official awarded ‘removal from service’ on undeclared money, assets

    FBR official awarded ‘removal from service’ on undeclared money, assets

    ISLAMABAD: Federal Board of Revenue (FBR) on Friday imposed major penalty of ‘removal from service’ upon Maqbool Ahmed, a BS-16 officer of Inland Revenue Service (IRS) for concealing assets and money in mandatory declarations besides hiding foreign trips.

    The FBR initiated disciplinary proceedings against Maqbool Ahmad, Inland Revenue Officer (BS-16), Regional Tax Office, Faisalabad under Government Servants (Efficiency & Discipline) Rules, 1973 on account of “Inefficiency” and “Misconduct”.

    The Chief Commissioner-IR, Regional Tax Office, Faisalabad being Authorized Officer issued Show Charge Sheet/ Statement of Allegations vide letter No. 1626 dated 08.10.2020.

    The authorities identified against the official that he had not declared properties made through unknown sources. Further, the official had travelled many times to the US without ex-Pakistan leave. In addition the official failed to provide details of money spent on his foreign trips.

    Member (Admn/HR), Authority in the case, has imposed major penalty of “Removal from Service” upon Maqbool Ahmad, Inland Revenue Officer (BS-16) (under suspension) under Rule 4(1)(b)(iii) of Government Servants (Efficiency & Discipline), Rules, 1973.