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 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
NBP provides online exchange rate facility to Pakistan Customs

KARACHI: The Federal Board of Revenue (FBR) is receiving real time exchange rate from National Bank of Pakistan (NBP) for determination of customs valuation.

FBR has decided to electronically link customs automated system WeBOC with the Treasury and Capital Markets Group of the National Bank of Pakistan so that the daily exchange rate of major currencies are uploaded into WeBOC directly as soon as the same are notified.

Settlement of payments for Pakistan’s International Trade, like other countries, is done in international currencies. Value of imported goods is converted to Pak Rupees, using latest exchange rate of major currencies notified by the Treasury of the National Bank of Pakistan.

As per current procedure, Exchange rate for various currencies is procured from Treasury and Capital Markets Group office of National Bank of Pakistan by Pakistan Customs on daily basis either manually or by downloading the same from National Bank of Pakistan website.

It is then fed manually into the Customs automated system WeBOC for utilization in assessment of value of imports for calculating duties and taxes.

In order to further enhance the efficiency of this operation, FBR has decided to electronically link customs automated system WeBOC with the Treasury and Capital Markets Group of the National Bank of Pakistan so that the daily exchange rate of major currencies are uploaded into WeBOC directly as soon as the same are notified.

Necessary instructions have been issued to Director (Reforms & Automation), Karachi for development and deployment of required module in close consultation with National Bank of Pakistan on top priority basis. It is expected that this reform initiative will improve the efficiency and transparency of the process, and will also preclude any possibility of errors/omission.

May 23, 2019
Demonetizing high denomination currency notes recommended to eliminate avenues for untaxed funds

KARACHI: The foreign investors and multinational companies have suggested the government to demonetize high denomination currency notes to eliminate parking lots for untaxed funds.

The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020 suggested measures to eliminate legally permissible ‘parking lots’ for untaxed funds.

The OICCI – representative body of foreign investors in Pakistan and multinational companies – suggested that defective mode and manner of valuation of immovable properties should be addressed. “Registration of sale and purchase of real estate should only be on fair market value at the time of the transaction,” it suggested and said necessary information on market value of real estate can be easily obtained.

It further suggested that sale of all kinds of bearer securities, prize bonds, and other such items should be stopped.

Appropriate restrictions should be imposed on the hoarding of foreign currencies.

“High denomination currency notes should be demonetized.”

The OICCI also suggested introduction of books of account and cash registers.

The Federal Board of Revenue (FBR) does not have any proper shop-wise record of approximately 35 million SMEs, which are mostly sole proprietorship or partnerships, despite the fact that jurisdictions within the tax offices are location centric, especially for small and medium sized businesses.

It should be made mandatory for all businesses to maintain books of account and taxes should be levied on ‘net income’ basis only.

Registration of all retail outlets and electronic cash registers should be made mandatory without any turnover thresholds, which gives rise to tax evasion.

The installation of these registers should be inspected regularly by tax inspectors.

The FBR should engage with representatives of small manufacturers, wholesalers and retailers and ensure their buy-in for introduction of these documentation measures so that the previous back-tracking on these actions is not repeated.

The book keeping requirements /outline be regularly upgraded considering the best practices learnt from other neighboring countries in the region with similar business infra-structure.

May 23, 2019
FBR recommended tax exemption to inter-corporate dividend

KARACHI: Federal Board of Revenue (FBR) has been suggested to allow tax exemption to inter-corporate dividend for promoting group formation and consolidation and strengthen the overall corporate structure in Pakistan.

Pakistan Tax Bar Association (PTBA) – the umbrella of tax bars in the country – in its tax proposals for budget 2019/2020, said that through Finance Supplementary (Second Amendment) Act, 2019 a new clause in Part I of the Second Schedule of Income Tax Ordinance, 2001 was inserted, which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed group relief under section 59B, computed according to the following formula:-

A x B/C; Where,

A is the amount of dividend;

B is the shareholding of the company receiving the dividend in the company distributing the dividends; and

C is the total ordinary share capital of the company distributing the dividend.

The PTBA said that pursuant to the provisions of clause (103A) of Part I of the Second Schedule, any income derived from inter-corporate dividend was exempt for group companies entitled to group taxation under section 59AA or group relief under section 59B.

The Finance Act, 2015 then added a condition, that such exemption would only be available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded entities entitled to group relief under section 59B from the exemption entirely.

The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers of taxation on dividends issued by group entities.

This resulted in corporate structures becoming inefficient due to multiple taxation of the same income, on mere distribution within the group, even though no value addition was taking place. This also led to substantial litigation from various groups.

Although, to cater the above problem an exemption has been introduced via the Second Supplementary Act, 2019, it is imperative to note that the newly inserted clause provides a relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually been surrendered between the two entities and even then, only to the extent of the shareholding that the parent entity has in its subsidiary. In effect, this means that:-

— since the provisions of section 59B require listing within a specified period, the relief would not be available to private groups unless they are willing to list;

— the relief would be available only to the entities actually surrendering or receiving the losses, and not all companies within the entire corporate structure;

— based on a literal interpretation, the holding company (i.e. the entity receiving the dividend) may not be able to claim the exemption if the losses under group relief are transferred from one subsidiary to another (i.e. between sister concerns);

— since a company cannot surrender its losses for more than three years, this is not an indefinite relief; and

— the benefit may practically be availed only in specific cases since a company, both receiving dividends and availing group relief in the same year, is normally only possible in structures where a holding company has several subsidiaries.

Overall, this has significantly watered-down relief compared to the demands of the corporate sector, the benefit of which may likely be availed in very few cases that may comply with all the conditions.

It is therefore recommended to exempt inter corporate dividends as it was used to be prior to the amendments brought about by the Finance Act, 2016.

May 23, 2019
FBR advised to restore tax credit to sales tax registered persons

KARACHI: Federal Board of Revenue (FBR) has been proposed to restore tax credit to sales tax registered persons for documentation of the economy.

In its tax proposals for budget 2019/2020, the Pakistan Tax Bar Association (PTBA) said that the provisions of this section were applicable in case of sales made to the sales tax registered tax registered person.

The tax credit of 3 percent of tax payable was available to the seller for sales being made to the registered persons, however to promote documentation and registration with tax authorities it was suggested that this incentives should also be made available on purchases from registered persons as well.

“The government abolished this incentive available to the sellers instead of extending this credit to the purchasers as well,” the PTBA said.

It recommended that the application of above tax credit of making 90 percent sales to sales tax registered persons be restored and also be extended to persons making 90 percent of purchases from persons registered under the Sales Tax Act, 1990.

This change would enhance the number of sales tax registered person and documentation of the economy, the PTBA added.

May 23, 2019
FBR issues Urdu version of Tax Amnesty Scheme – 2019

ISLAMABAD: Federal Board of Revenue (FBR) on Wednesday issued Urdu version of presidential ordinance for Tax Amnesty Scheme – 2019.

The FBR said that the Urdu translated version had been issued for the facilitation of people to understand the scheme and participate/avail proactively.

However, the FBR said that the translated version can not be referred anywhere and English version will be treated as authentic document.

May 22, 2019