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 urged to revise slabs for advance tax collection on motor cars

KARACHI: Federal Board of Revenue (FBR) has been urged to revise slabs of engine capacity of motor cars to give benefit to buyers in payment of withholding tax.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2021/2022 submitted to the FBR, said that advance tax under section 231B of Income Tax Ordinance, 2001 is collected by manufacturers on following categories:

On engine capacity 1001cc to 1300cc the advance tax is collected at Rs25,000.

While on engine capacity 1301 cc to 1600cc the advance tax is collected at Rs50,000.

OICCI recommended that as locally manufactured sedans passenger cars fall slightly above the 1300cc category the slightly higher engine capacity size results in these vehicles falling in higher tax bracket making it more expensive with higher upfront cost to customers.

Amendment should be made in the categories of vehicles mentioned in Division VII of Part IV of First Schedule as follows:

On engine capacity 1001cc to 1350cc the advance tax rate should be Rs25,000.

While on engine capacity 1351 cc to 1600cc the advance tax rate should be Rs50,000.

In its proposals for auto sector, the OICCI recommended that minimum tax rate should be reduced to 0.2 percent for authorized dealers of local vehicle manufacturers as they have high turnover and low margins.

The OICCI further said that exempt imports made under SRO 655(I)/2006 & SRO 656(I)/2006 from ACD levied vide SRO 1178 (I) 2015 and enhanced vide SROs 630 (I)/2018 and 670 (I)/2019.

Federal Excise Duty (FED) on locally manufactured vehicles should be withdrawn.

Levy of FED on locally manufactured vehicles be withdrawn by deleting the serial no. 55B of Table I of First Schedule to the Federal Excise Act, 2005 as it has resulted in significant increase of sales price of vehicles with consequential reduction in sales volume of the respective vehicle categories.

April 17, 2021
Only FBR registered cigarette brands to be sold in Pakistan: Member IR Operation

ISLAMABAD: Dr. Muhammad Ashfaq Ahmed, Member (Inland Revenue Operations) has said that authorities were in process of drafting new rules where-under cigarette brands registered with FBR could only be sold in Pakistani markets.

He said during his visit to Regional Tax Office (RTO) Rawalpindi on Friday where the tax office had seized two trucks which were illegally transporting non-tax paid counterfeit cigarettes for supply into local market.

The Member said that from July 1, 2021, Track & Trace System would be rolled out to cover tobacco manufacturing across the country, and that AJK Government had approached Federal Board of Revenue to extend the scope of Track & Track System to cigarette manufacturing units located inside AJK territory.

It is expected that over the next few months implementation of Track & Trace System and its extension into AJK, coupled with IREN’s valiant drive would help overcome the menace of counterfeit, illicit and non-tax paid cigarettes in the market.

Dr. Muhammad Ashfaq Ahmed appreciated Dr. Khalid Mahmood Lodhi, Chief Commissioner, RTO, Rawalpindi and his enforcement drive to curb movement of illicit cigarettes on the roads. He also announced special reward for the members of the raiding squad and encouraged them to continue working with full commitment and integrity.

According to details the trucks were loaded with 300 cartons of counterfeit cigarettes of Classic Brand, and 300 cartons of counterfeit cigarettes of Kissan Brand containing 6 million cigarette sticks. Market value of the seized cigarettes comes to Rs. 18,900,000/- involving unpaid duties and taxes at Rs. 12,646,500/-. Some of the counterfeit cigarette brands are manufactured in AJK, and then transported across into Pakistani markets without payment of duty and taxes.

April 17, 2021
World Bank, FBR discuss $400 million reform program

ISLAMABAD: The World Bank and Federal Board of Revenue (FBR) on Friday discussed reform program worth $400 million, which is aimed at automation of tax collection and simplification of tax compliance.
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April 16, 2021
FBR reinstates customs officials of Peshawar collectorate

ISLAMABAD: Federal Board of Revenue (FBR) on Thursday reinstated six customs officials into services, who were suspended for violating government service rules.

The following BS-16 officers of Model Customs Collectorate (Enforcement and Compliance), Peshawar, who were placed under suspension dated August 11, 2020 have been reinstated into services with immediate effect and until further orders:

1. Mazhar Elahi, Superintendent, MCC, (E&C), Peshawar

2. Syed Nazim Ali Shah, Inspector, MCC, (E&C), Peshawar

3. Afaaq Hussain, Inspector, MCC, (E&C), Peshawar

4. Shah Fahad, Inspector, MCC, (E&C), Peshawar

5. Zafar Ali, Inspector, MCC, (E&C), Peshawar

6. Farhad Khan, Inspector MCC, (E&C), Peshawar

The FBR said that suspension period from 11.08.2020 to-date is treated as spent on duty.

April 15, 2021
FBR collects Rs1.8bn advance tax on capital gains from sale of securities

KARACHI: Federal Board of Revenue (FBR) has collected Rs1.8 billion as advance tax on capital gains from sale of securities during first nine months of the current fiscal year.

According to statistics made available on Thursday, the Large Taxpayers Office (LTO) Karachi collected Rs1.8 billion during July – March 2020/2021 as compared with Rs1.63 billion in the corresponding period of the last fiscal year, showing an increase of 10 percent.

The FBR collects adjustable advance tax on capital gain from sale of securities under Section 147(5B) of the Income Tax Ordinance, 2001.

The rate of advance tax is two percent of the capital gains derived during the quarter, where holding period of a security is less than six months.

The rate of advance tax is 1.5 percent of the capital gains derived during the quarter, where holding period of a security is more than six months but less than twelve months.

The collection of advance tax on capital gains from sale of securities fell sharply by 96 percent to Rs11.24 million when compared with Rs269 million in the same month of the last year.

April 15, 2021
Harmonization of sales tax to complete by June

ISLAMABAD: Harmonization of sales tax between federal and provincial tax authorities may be completed by end-June 2021, officials in the Federal Board of Revenue (FBR) said on Wednesday.

The FBR said that the authorities were in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, which will be completed by end-June 2021.

The officials said that the government had shown commitment to the International Monetary Fund (IMF) of taking several measures including broadening of sales tax base.

The government has committed to reforms the General Sales Tax (GST) system, underpinned by a unified tax base and within the confines of the current constitution.

The authorities will: (i) eliminate all zero-rated goods (Fifth Schedule), except on export and capital machinery goods and move them to the standard sales tax rate; (ii) remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate; (iii) eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e., basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate; and (iv) remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate.

These reforms are expected to yield an estimated 0.7 percent of GDP on an annualized basis.

Moreover, the authorities are also in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, expected to be completed by end-June 2021.

April 14, 2021
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