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 asks refund claimants to open CDC account

KARACHI: Federal Board of Revenue (FBR) has asked taxpayers, who opted for a sales tax refund through bonds, to open their accounts with the Central Depository Company (CDC).

In an advisory issued on Monday, the FBR said that refund claimants who have opted for sales tax payments through bonds should open investor account with the CDC if they do not already have such accounts.

FBR said that refund claimants who have opted for payment through bonds but have not provided proper CDC account as per given format, can update CDC accounts by visiting FBR website.

May 27, 2019
FBR bans entry of unauthorized persons, Lappoos into custom houses

KARACHI: Federal Board of Revenue (FBR) has restricted entry of unauthorized persons, including privately hired persons by customs officials (Lappoos), into custom houses with immediate effect.

In a statement issued on Monday, Pakistan Customs said that FBR chairman Syed Muhammad Shabbar Zaidi ordered the ban on entry of unauthorized persons into customs station in order to ensure transparency in clearance system.

The FBR chairman while taking notice of presence of large number of visitors for making the entire clearance system doubtful, had ordered Customs Wing to strictly restrict, entry into Customs Houses, only to the concerned traders, their authorized representatives and members and relevant trade bodies/ associations.

Accordingly Customs Wings is in process of issuing instructions to its field formations for immediately restricting entry of all un-authorized persons, the statement said.

The visiting hours for traders and their authorized representatives for fulfillment of needed legal formalities in cases involving second review before Assistant / Deputy Collectors shall be limited from 10:00 Am to 1:00 PM.

The press release said that Pakistan Customs is operating its Web Based One Customs (WeBOC) system in order to facilitate the trade and provide ease of doing business in carrying out imports, exports and transit trade.

This system is available 24/7 and allows on-line submission and processing of documents as well as electronic payments of duty and taxes.

As such the need for traders and their representatives to physically visit offices of Customs has drastically been reduced.

May 27, 2019
FBR suggested reduced corporate tax rate for job creation

KARACHI: Federal Board of Revenue (FBR) has been suggested to reduce corporate tax rate by one percent for companies creating 50 or more new jobs in a year.

Pakistan Business Council (PBC) in its tax proposals for budget 2019/2020 suggested the government to reduce tax rate for companies creating more jobs during a year.

“One percent lower tax rate for existing companies that create 50 or more new jobs on their own payroll in a year.”

Giving rationale to the proposal, the PBC said that Pakistan needs to find employment for two million youth each year.

The PBC further suggested first year depreciation allowance for investment in making upgrades to the provision of facilities (including lifts, ramps) for the specially challenged in the workplace or business.

It further suggested 0.5 percent lower tax rate for providing livelihoods to specially challenged persons equal to five percent of the workforce.

Giving rationale to the changes, the PBC said that in order to demonstrate a commitment to creating livelihoods for all and work toward target of sustainable development goal – “By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.”

It further said that no or limited facilities that allow access in the workplace or business for the specially challenged thereby deterring the disabled from working.

May 27, 2019
FTO orders recovery from IR officers in unlawful bank account attachment

ISLAMABAD: Federal Tax Ombudsman (FTO) has ordered recovery from officers of Inland Revenue Officers in a case of unlawful recovery through bank attachment of a taxpayer.

The FTO ordered dated May 21, 2019 in a complaint filed by a taxpayer against unlawful recovery of tax demand from the bank account of the complainant outstanding against a private limited company, and undue delay in refunding the same.

The complainant also sought for award of cost and compensation along with additional payment for delayed refund.

The complainant as an individual assessed to tax at Regional Tax Office (RTO) – III Karachi. According to the taxpayer, the Inland Audit Officer Unit 2 Haripur, RTO Abbotabad, without considering the fact that the complainant was assessed to tax at, RTO-III Karachi against whom no tax demand was outstanding and without serving on him any prior notice, illegally attached his bank accounts and recovered Rs1.714 million.

The findings of the FTO in this case showed that administrative excesses for improper motives, neglect, inattention, delay, incompetence, ineptitude and inefficiency in the discharge of duties and responsibility and as a consequence unlawful recovery of tax liability outstanding against a private limited concern from the bank account of the complainant tantamount to maladministration.

The FTO directed the FBR to:

i. recover Rs0.45 million from Muhammad Asghar Khan Niazi, Zonal CIR, RTO Abbottabad and Hafiz Muhammad Rafaqat, IAO, Unit RTO Abbottabad (costs and compensation) in equal shares and arrange to pay the same to the complainant;

ii. fix responsibility regarding administrative excesses neglect, inattention, delay, incompetence, ineptitude and inefficiency in the administration or discharge of duties and responsibility and initiate appropriate disciplinary proceedings against the officials found accountable;

iii. direct the commission – IR concerned to issue additional payment for delayed refund to the complainant.

May 26, 2019
Reduction in corporate tax for E&P companies recommended to attract foreign investment

KARACHI: Federal Board of Revenue (FBR) has been recommended to reduce corporate tax rate for exploration and production companies in order attract foreign investment in this sector and generate more revenue for the country.

The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020 said that the applicable tax rate for the Oil and Gas Exploration and Production sector is 40 percent.

Before the promulgation of Income Tax Ordinance, 2001, the tax rate was 50 percent to 55 percent, however, the royalty payment to government was adjusted against the tax liability, resulting in effective tax rate of approximately 35 percent or less.

Applicability of effective 40 percent tax rate has in fact increased the tax expense of the Oil and Gas Exploration and Production Companies, as against the incentives given to other sectors of the economy, whereby the tax rate will be gradually reduced to 30 percent.

The OICCI recommended that in order to incentivize oil and gas exploration in the country especially after the massive reduction in the international oil prices, the corporate tax rate on E&P sector should be reduced from the current 40 percent to the rate applicable to other corporate sector by making necessary amendments in the Income Tax Ordinance 2001 and Regulation of Mines and Oilfield and Mineral Development (Government Control) Act, 1948.

Giving rationale, the OICCI said that foreign investment will be encouraged in the country, which will eventually increase the tax collection of the government and will also greatly help to overcome the energy crises in the country.

The OICCI highlighted another issue of limitation on payment to federal government and taxes, and said that the rate of tax applicable on E&P companies on their Oil & Gas profits are given in their respective PCAs signed with government.

Under Rule 4AA of Part I of the Fifth Schedule to the Income Tax Ordinance, Super tax has been imposed at 3 percent for E&P companies earning Rs 500million (equivalent to US$ 5million).

It recommended that it is critical for E&P sector and recommended that the tax applicable should be calculated strictly in accordance with the provisions of the respective PCAs signed between Government and each E&P company and are legally binding, without changes throughout the full Lease period.

The chamber said that this will remove the negative investment scenario, and potential for litigation – due to the varying interpretations by the FBR from time to time (despite the signed PCAs with Government)

The OICCI said that tax credits under section 65A and 65B are not currently being allowed to E&P companies by the tax authorities despite the fact that appellate Tribunal decided the matter in favour of E&P companies.

Therefore, it is suggested that necessary clarification needs to be provided by tax authorities to assessing authorities.

In view the current energy deficit in the country and recent decision of appellate Tribunal, these credits should be allowed to the E&P companies to promote further investments in this sector.

Regarding depletion allowance, the OICCI said that clarity over definition of well head value for computation of depletion allowance is required.

As per clause 3 of Fifth Schedule, depletion is calculated at 15 percent of the gross receipts representing well-head value of production, but not exceeding 50 percent of taxable income.

E&P industry interprets above by calculating depletion at 15 percent of gross revenue before royalty deduction.

Tax authorities calculate depletion at 15 percent of Gross Revenue after deduction of royalty.

Therefore, it is proposed that amendment be introduced in the relevant clause in favor of E&P companies i.e. depletion to be calculated at 15 percent of revenues before royalty deduction.

The matter is under litigation at High Court level for various E&P companies. Clarification in the definition of Well head value will ease unnecessary burden of these litigations for E&P Companies, the OICCI added.

May 26, 2019
FBR notifies rules for applying amnesty scheme

KARACHI: Federal Board of Revenue (FBR) on Saturday issued rules for implementing tax amnesty scheme 2019.

The FBR on May 20, 2019 issued draft rules for inviting comments of stakeholders till May 22 to finalize the rules.

In this regard the FBR today (May 25) issued SRO 578(I)/2019 to issue the rules for Asset Declaration Ordinance, 2019.

Following is the text of the SRO 578(I)/2019:

Rule 1. Short title and commencement.

Sub-Rule (1): These rules may be called the Asset Declaration (Procedure and Conditions) Rules, 2019.

Sub-Rule (2): They shall come into force at once.

Rule 2: Definitions:

Sub-Rule (1): In these rules, unless there is anything repugnant in subject or context:

(a) ‘Ordinance’ means the Asset Declaration Ordinance, 2019; and

(b) ‘Value of assets’ means value as per Section 5 of the Ordinance as on the date of declaration.

Sub-Rule (2): All other words and expressions used but not defined in these rules shall have the same meaning assigned thereto under the Income Tax Ordinance, 2001, the Sales Tax Act, 1990, the Federal Excise Act, 2005, or the Benami Transactions (Prohibition) Act, 2017, the Ordinance and the rules made thereunder.

Rule 3: Manner of filing declaration:

Sub-Rule (1): For the purpose of Section 3 and 5 of the Ordinance, the declaration shall be filed on the form specified for the purpose on the web portal of the Board.

Sub-Rule (2): Where an asset declared by the declarant is only beneficial owned by the declarant or is owned by a Benamidar of the declarant, the name and identification of the legal owner or Benamidar shall also be declared.

Rule 4: Conditions for making declaration:

Sub-Rule (1): For the purpose of incorporation of undisclosed assets and undisclosed expenditure declared under the Ordinance:

(a) where income tax return for tax year 2018 has not been filed, the declarant shall, along with the declaration or such date as extended by the Board, file –

(i) income tax return for the tax year 2018; and

(ii) wealth statement or financial statement, as the case may be, as on June 30, 2018.

(b) where income tax return for tax year 2018 has been filed under the provisions of the Income Tax Ordinance, 2001, the declarant shall, along with the declaration or such date as extended by the board, revise –

(i) income tax return and financial statement for tax year 2018, if the declarant is a company; or

(ii) wealth statement or statement of assets and liabilities, if the declarant is an individual or an association of persons.

Sub-Rule (2): Where a person declares undisclosed sales in terms of Section 3, he shall declare the undisclosed sales subject to the Sales Tax Act, 1990 and the Federal Excise Act, 2005 from July 2014 to June 2018, in the first sales tax and federal excise return, due after the declaration.

Sub-Rule (3): For the purpose of Section 3 and 4 of the Ordinance, in case of payment of tax on foreign assets, –

(a) the fair market value and cost of such assets shall be declared in respective foreign currencies on board’s web portal;

(b) tax shall be paid in foreign currency as per procedure specified by the State Bank of Pakistan; and

(c) in case of tax payment after the June 30, 2019, liability of default surcharge shall be paid in foreign currency as per procedure specified by the State Bank of Pakistan.

Sub-Rule (4): For the purpose of clause (d) of Section 8 of the Ordinance, if such assets represent cash or any other form of foreign exchange bearer assets, the same or its proceeds shall be deposited and retained in a foreign bank account of the declarant till June 30, 2019 and bank statement as evidence thereof, shall be provided by July 30, 2019 or such date as extended by the Board.

Sub-Rule (5): For the purpose of clause (b) of Section 5 of the Ordinance, the value declared by the declarant as the fair value, cost or the price which the assets may ordinarily fetch on sale in the open market on the date of declaration shall be taken to be valid unless there is objective evidence to the contrary available with the Board.

Sub-Rule (6): Where foreign assets are shares of a company incorporated in Pakistan held by the declarant, whether beneficially or otherwise, it may be declared subject to the condition that such shares shall be repatriated into Pakistan with the prior approval of the State Bank of Pakistan and registration of such shares with the State Bank of Pakistan in the name of declarant on non-repatriable basis.

Sub-Rule (7): Where an asset being a receivable from a person is declared, complete particulars of the persons from whom the amount is receivable along with his identification and address shall also be declared.

Rule 5: Payment of tax for original demand:

For the purpose of sub-section (4) of Section 6 of the Ordinance, default surcharge and penalty shall not apply if, –

(a) tax determined by an Officer of Inland Revenue in the original order, is paid up to June 30, 2019; and

(b) such original order or an appellate order passed against such original order has not yet attained finality.

Explanation: An original order passed by an Officer of Inland Revenue or an appellate order passed by an appellate authority shall be taken to be final if no right of appeal has been provided against such orders or no appeal has been filed within the time limit prescribed under the applicable laws against such orders.

Rule 6: Payment of tax under other laws:

For the purpose of Section 4, 12 and 16 of the Ordinance, where the declarant has paid tax under the Ordinance, no tax shall be payable by the declarant under the Income Tax Ordinance, 2001, the Sales Tax Act, 1990 and Federal Excise Act, 2005 in respect of such undisclosed assets, undisclosed expenditure or undisclosed sales.

Rule 7: Revision of declaration:

Any person who having filed a declaration hereinafter referred to as the ‘original declaration’ discovers any omission, mistakes, computational error or wrong statement therein may file revised declaration within the due date specified in Section 3 of the Ordinance subject to the condition that the value of assets and the tax paid thereon shall not be decreased.

(PkRevenue.com takes no responsibility of any error of this text. The text is published in the interest of readers with ensuring no typo error.)

May 25, 2019
FBR advised to substantially reduce penalties on non-filing, late-filing of tax returns

The Pakistan Tax Bar Association (PTBA) has advised the Federal Board of Revenue (FBR) to significantly reduce penalties imposed on non-filers and late filers of income tax returns and wealth statements.
(more…)

May 25, 2019
New tax legislation sought for Islamic banking

KARACHI: Federal Board of Revenue (FBR) has been suggested to draft new legislation for taxation of Islamic banking.

It is proposed that the audited financial statements of Islamic banks as well as those of Islamic Banking branches/windows operations of conventional banks provided separately in the audited financial statements of conventional banks submitted to the State Bank of Pakistan should be taken as basis of calculation for income tax.

Overseas Investors Chamber of Commerce and Industry (OICCI) in tax proposals of budget 2019/2020 highlighted:

Rule 3: Treatment for Shariah compliant banking—

— Any special treatment for “Shariah Compliant Banking” approved by the State Bank of Pakistan shall not be provided for any reduction or addition to income and tax liability for the said “Shariah Compliant Banking” as computed in the manner laid down in this schedule.

— A statement, certified by the auditors of the bank, shall be attached to the return of income to disclose the comparative position of transaction as per Islamic mode of financing and as per normal accounting principles. Adjustment to the income of the company on this account shall be made according to the accounting income for purpose of this schedule.

It is recommended that new legislation to be drafted to provide neutrality in the light of below:

— The audited financial statements of Islamic Banks as well as those of Islamic banking operations of conventional banks provided separately in the audited financial statements of conventional banks and submitted to the State Bank of Pakistan shall form the basis for the calculation of income tax liability as provided in this Schedule.

The OICCI said that the objective of Rule 3 of 7th Schedule was to provide tax neutral treatment to IBIs, however, it is difficult to meet the condition of Sub-Rule (2) of Rule 3, keeping in view the diversified nature of Islamic banking transactions and equating each transaction to a conventional equivalence and then getting it certified by the auditor which is time consuming and costly for Islamic Banking Institutions. Moreover, it does not give space for differentiated transactions as each transaction from Income Tax purpose has to be equated with a conventional transaction.

It is thus proposed that the audited financial statements of Islamic Banks as well as those of Islamic Banking branches/windows operations of conventional banks provided separately in the audited financial statements of conventional banks submitted to the State Bank of Pakistan should be taken as basis of calculation for income tax with additions and deductions as provided in the Seventh Schedule to the Income Tax Ordinance, 2001 which is applicable to the entire banking industry in Pakistan.

May 24, 2019
FTO directs audit of all manufacturers for misusing SRO 1125

ISLAMABAD: Federal Tax Ombudsman (FTO) has directed Federal Board of Revenue (FBR) to conduct audit of all manufacturers who availed the benefit of SRO 1125(I)/2011.

In its suo moto action related to misuse of zero-rated sales tax facility under SRO 1125(I)/2011 the FTO detected systematic flaws and directed, through an order dated May 15, 2019, the FBR to take following measures:

— develop a comprehensive risk management framework in the working of IRIS based sales tax registration rules and revisit the approved risk engine and scores to mitigate the possibility of any misuse of ‘manufacturer status’ by the registered persons;

— “arrange audit of all manufacturers who availed the benefit of SRO 1125(I)/2011 to find out whether ‘manufacturer status’ was granted after fulfillment of requisite conditions and in cases of irregular approvals of manufacturers status fix responsibility on the dealing staff for proceedings under E&D Rules and take necessary measures under law/rules for recovery of losses caused to government revenues;

— direct PRAL and Directorate of Reforms and Automation (Customs) to develop and implement system/software for live data synchronization with WeBOC regarding sales tax registration to ensure blacklisted and suspended taxpayers are not able to import and get undue benefit of SRO 1125(I)/2011; and

— to direct all commissioners to conduct half yearly physical verification of all units registered in their jurisdiction as ‘manufacture’ to verify existence of manufacturing facility of all such units.

The FTO also directed the FBR to submit quarterly implementation report.

In the misuse of the SRO, the findings of the FTO observed that the review of sales tax registration rules and risk score weightage assigned to the risk parameters employed in the registration process which lead to misuse of ‘manufacturer’ status by registered persons for the purpose of tax evasion.

The FTO further observed that the FBR vide SRO 494 (I)/2015 dated June 30, 2015 showed that the IRIS based Sales Tax Registration module failed to timely incorporate the provisions of revised registration rules.

“The requisite changes in IRIS were incorporated after nine months vide SRO 227(I)/2016 dated March 21, 2016.”

The FTO observed that the FBR had failed to take timely action in integrating the registration modules in IRIS system thereby providing opportunity to the unscrupulous elements to take advantage of the weaknesses in the registration procedure of the sales tax department.

“Moreover, modification in the registration module was carried out after nine months of the revision of sales tax registration rules, but evidently no exercise was carried out by the field formation to verify that the existing manufacturers were registered in conformity with the provisions of revised rules.”

The FTO mentioned two cases i.e. M/s. Aran Mart International and M/s. Venus & Co. where FBR had failed to monitor their transactions and took belated action to recover short levied government dues.

In its case specific recommendations, the FTO asked the FBR to direct the Directorate General Intelligence and Investigation to:

a. conduct detailed investigation to find out real owners of M/s. Aran Mark International by interalia utilizing information available in customs clearance documents and instruments used for payment of import duties and taxes; and

b. recover the amount of illegal concessions availed by M/s. Aran Mart International uder the law/rules; and

c. ascertain IR staff responsible for approving ‘manufacturer status’ of M/s. Aran Mart International either through collusion or failure to take precautionary measures for protection of government revenue for taking disciplinary action under E&D Rules and for recovery under the law/rules; and

d. initiate criminal proceedings against the owners of M/s. Aran Mart International along with those delinquent tax functionaries who deliberately and with ulterior motive connived to approve the ‘manufacturer’ status of M/s. Aran Mart International.

The FBR has also been asked to direct the Chief Commissioner IR, Corporate RTO Karachi to recover from M/s. Venus & Co. sales tax amounting to Rs32.799 million and further tax of Rs8.7 million assessed by the department.

The FBR has been further asked to direct the Directorate of Intelligence and Investigation (Customs) to investigate and fix responsibility of clearance of import after suspension of STR of the M/s. Aran Mart International.

May 24, 2019
FBR suggested removing impediments in availing exemption certificates for industrial growth

KARACHI: Federal Board of Revenue (FBR) has been suggested to remove restriction of exemption certificates for import of plant and machinery for new projects in order to promote industrial growth in the country.

Pakistan Tax Bar Association (PTBA) in its tax proposals for budget 2019/2020 said that existing procedures and rules for obtaining exemption certificates for import of plant & machinery and raw material by taxpayers has serious restrictions which causes hardship and increases cost of doing business.

The PTBA highlighted following issues related to exemption certificates:

Current income tax rules do not support issuance of exemption certificate for import of raw material by manufacturers starting new business or in the process of expanding the current product or launched a new product etc. These restrictions are hindering industrial growth in the country;

For qualifying for exemption, maximum import of raw material is restricted to the extent of 125 percent of the material previously imported and consumed;

In order to qualify for exemption, the law requires minimum tax (equal to higher of last two years tax liability) to be paid before qualifying for exemption. This means that in the case of lower taxable profits due to expansion or operational reasons, the taxpayer will inevitably have a tax refundable in the current year;

In case of newly established undertakings, tax credit under section 65D of Income Tax Ordinance, 2001 is not being allowed by the department while working out tax liability of the last two years;

Coupled with a high rate of withholding at 5.5% these restrictions badly affect working capital of the manufacturers; and

Currently, certificate of exemption from withholding tax on imports under Section 148 of Income Tax Ordinance, 2001 is not allowed to persons who are importing raw material, plant, machinery, equipment and parts for its own use unless they qualify as industrial undertaking.

The tax paid at import stage on such imports by persons other than the industrial undertaking is treated as a final tax.

The tax bar recommended that in order to address the issues faced in respect of claim of exemption under section 148 of the ITO, following amendments are proposed:-

Restrictions in respect of issuance of exemption certificate for new projects / capacity expansions / formula and process changes may be removed which will allow industrial growth in the country;

Maximum volume restriction be at least enhanced to 150 percent of last year’s raw material imported;

Requirement to meet the tax payment equal to previous two tax years be abolished and may be linked with payment of advance tax liability for the respective period (as in the case of exemption under section 153);

Amendments may be made to allow tax credit under section 65D while working out previous year’s tax liability for newly established undertakings already under immense cash-flow burden. This would help eliminate piling up of unnecessary refunds for newly established undertakings; and

The rate of tax on import of raw material and plant & machinery may be gradually reduced to 1 percent.

Clause (a) of sub-section (7) of Section 148 should be amended as under:-

“Raw material, plant, machinery, equipment, parts or any other goods by any person for its own use”.

In present situation, high rate of withholding at 5.5% coupled with these restrictions badly affect the working capital of the manufacturers. Removal of these hardships would provide incentive to industries and reduction of piling of huge refunds, it said.

May 24, 2019