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.

Share of indirect taxes increases to 60.9 percent: Economic Survey

ISLAMABAD: Despite claims of authorities to increase the share of direct taxes in total revenue, the share of indirect taxes further increased to 60.9 percent in 2018/2019.

The Economic Survey 2018/2019 launched a day earlier, stated that the tax structure in Pakistan is skewed towards indirect taxes.

The share of indirect tax to FBR tax collection remained static around 60 percent over the last one decade.

“For fiscal year 2018/2019, the share of indirect tax collection set at 60.9 percent.”

Within indirect taxes, sales tax posted a growth of 11.8 percent in FY2018 against 2.0 percent increase in FY2017.

Strong aggregate demand and pass through of high international oil prices contributed in sales tax collection during FY2018.

The share of sales tax which constituted 64.4 percent of indirect taxes during FY2018 reduced gradually from 72.3 percent in FY2014.

Similarly, share of sales tax in total FBR tax is gradually coming down since FY2014 from 44.2 percent to 38.6 percent during FY2018.

“For FY2019, sales tax collection target set at Rs 1,700 billion which is 14.5 percent higher than last year collection and (constitute 63.0 percent of indirect tax and 38.3 percent of FBR tax collection target).”

The share of custom duty in indirect taxes has increased gradually from 17.6 percent in FY2014 to 26.4 percent in FY2018.

It is pertinent to mention that the maximum statutory rates of customs duty have been gradually reduced from 125 percent in FY1988 to 20 percent in FY2016 till date.

Consequently, the share of custom duty in FBR tax collection has reduced gradually from 45.7 percent in FY1991 to 15.8 percent in FY2018.

Custom duty collection momentum continued with the same pace and registered a growth of 22.5 percent in FY2018 against 22.8 percent in FY2017.

High aggregate demand, increase in general income level, high imports, higher commodity prices, exchange rate depreciation and fiscal measures such as regulatory duties on non-essential imports and an increase in additional custom duty by 1 percent led to increase in growth of custom duty.

Custom duty collection is estimated at Rs 735.0 billion for FY2019 which reflects an increase of 20.8 percent over last year actual tax collection.

On the other hand, the share of federal excise duty in indirect taxes declined by 9.3 percent in FY2018.

The tax base of Federal Excise Duty (FED) contracted over the years and now is restricted to only few commodities like cigarettes, cement, beverages, and international travel etc. Share of FED in total FBR tax collection has also fallen from 10.1 percent in FY2009 to 5.6 percent in FY2018.

FED registered a growth of 7.9 percent in FY2018 compared to 5.2 percent in FY2017. Collection from cement mainly fueled this growth momentum. FED is projected to Rs 265.0 billion which is 24.1 percent higher as compared with actual last year collection.

The projected share is 6.0 and 9.8 percent of FBR and indirect tax collection, respectively for FY2019.

June 11, 2019
FBR to force all NTN holders for filing tax returns

ISLAMABAD: Federal Board of Revenue (FBR) has chalked out a comprehensive plan to broaden the tax base by enforcing tax returns in the case of all National Tax Number (NTN) holders.

According to Economic Survey 2018/2019 released on Monday said that the FBR would take following measures to broaden the tax base:

— Creation of a central data bank

— Enforcement of return in the case of all NTN holders

— Preparation of directory of non-filers deductees

— Data to be obtained from NADRA, Telecom Cos, Banking Cos, Development Authorities, Schools, Clubs, Hotels etc

— Data of suppliers/buyers of sales tax returns of 5,000 big companies

— Raising expenditure on revenue collecting machinery from 0.8% to 1.5% of total revenue

— Registration of persons subjected to withholding of sales tax

— Registration of retailers under the new scheme introduced under Special Procedure Rules.

— Deployment of Technology to Identify Risk Areas to Support Risk Based Audit

It said that an audit plan has been reintroduced to accompany the self-assessment scheme and to overcome weak tax compliance.

Substantial progress has been achieved for infrastructure upgradation and development with the introduction of the fully Inland Revenue Information System (Iris), which is available to all the field formations.

A paradigm shift from simple random selection to Parametric Computer Ballot selection of cases and finally risk based selection in audit has been introduced. Moreover, litigation against General Audit Policies was successfully defended before different Courts of Law.

Under the reform initiatives, Draft Audit policy for the Tax Year 2017 is under consideration and will be finalized after due deliberation/consultation with all concerned.

Moreover, Risk-based Audit Framework is being devised to ensure a more targeted and focused approach with the help of World Bank. Training modules have been prepared to import Investigative Audit Training to officers with the help of World Bank.

In order to promote tax culture, compliance and to dispel the general impression about evading taxation by individuals having prominent position in the society, FBR has under taken following initiatives for bringing a behavioral change regarding the tax culture perception in the society:

a) Publishing Tax Directory of Parliamentarians

b) Establishment of Financial Investigation Cell

c) Campaign against Tax Evaders

To simplify procedures and minimize contact between the taxpayers and the tax collectors, FBR management has made revolutionary changes in automation of tax procedures. Major achievements include:

i. Web Based One Customs (WeBOC) System of Clearance

ii. EDI – Electronic Data Interchange

iii. National Single Window (NSW)

iv. iv. Inland Revenue Information System (Iris)

Current initiatives

− Creation of Tax Policy Unit within Ministry of Finance

− Identification and scrutiny of evasion by High Net worth Individuals

− Administrative measures to increase tax collection by identifying untaxed wealth overseas and by data matching to identify non-filers

− Practical steps taken to curb Offshore Tax Evasion (UK and UAE properties, Panama and Paradise Leaks, etc.) and continuous monitoring of such cases

− Plaza Mapping at Lahore, Karachi and Islamabad

− Launch of Device Identification, Registration and Blocking System (DIRBS) to control smuggling of mobile devices

− Introduction of Currency Declaration System and Advanced Passenger Information System at major airports of the country

− Discouraging imports of luxurious goods through additional Regulatory Duties (RDs)

− Addressing under invoicing by signing MOU with China for exchange of pricing information

− Forensic audit in Sugar, Tobacco and Steel Industries to address leakages and tax evasion and in these industries

− Implementation of Tobacco Track & Trace System

− Resolving pending litigation

− Collection of pending arrears identified as collectable arrears

− Resolving 1.2 million automatically selected cases for audit U/s 214D

These reforms will start paying dividends in shape of improved compliance, higher revenue growth and improvement in tax-GDP ratio.

The tax revenues have increased significantly during last four years. The collection jumped from Rs 1,946 billion in FY2013 to Rs 3,844 billion in FY 2018, registering an overall growth of 97.5 percent.

Similarly, tax-GDP ratio of the country which was just 8.7 in FY2013 jumped to 11.1 in FY 2018.

With the help of these initiatives, FBR is moving towards a more efficient tax system; facilitating taxpayers, promoting investment and broadening the tax base in the years to come. It is envisioned that these resource mobilization efforts will result in further improvement of domestic tax revenues in coming years.

June 11, 2019
FBR nominates focal persons for tax amnesty scheme

ISLAMABAD: Member Inland Revenue – Policy has been nominated as the chief coordinator for successful implementation of tax amnesty scheme 2019.

A notification issued on Monday, the FBR designated Inland Revenue officers for the implementation of the tax amnesty scheme 2019.

The following officers have been nominated as focal persons:

Dr. Hamid Ateeq Sarwar, Member Inland Revenue – Policy, Chief Coordinator;

Faiz Ellahi Memon, Chief Commissioner-IR, Large Taxpayers Unit (LTU) Karachi, Coordinator South covering provinces of Sindh and Balochistan;

Bashir Ullah Khan, Chief Commissioner-IR, Regional Tax office, Rawalpindi, Coordinator North, Province of Khyber Pakhtunkhwa, Islamabad Capital Territory and areas falling within the jurisdiction of RTO Rawalpindi; and

Asim Majeed Khan, Chief Commissioner-IR, LTU Lahore, Coordinator Central covering province of Punjab (excluding areas falling within the jurisdiction of RTO Rawalpindi).

The coordinators would further nominate focal persons in each RTO and LTU falling within their jurisdiction for the implementation of asset declaration scheme.

The FBR asked the chief commissioners-IR to transmit data relating to the asset declaration scheme on daily basis to the Chief Coordinator.

June 10, 2019
Proposals for budget 2019/2020 finalized; salary persons may get increase; rise in additional customs duty likely

ISLAMABAD: The ministry of finance has finalized proposals for budget 2019/2020 and will get approval from the Cabinet before presenting in the Parliament on June 11, 2019.

Prime Minister Imran Khan will chair the cabinet meeting on Monday in which the budget with record deficit will be approved.

The sources said that the cabinet would approve budget with estimated Rs3,000 billion deficit.

According to the proposals, the budget allocation for the defence would be around Rs1,250 billion, which will less than the allocation for the outgoing fiscal year.

An amount of Rs2,500 billion has been proposed for the payment of interest on the loan, the sources said.

The government may allocate Rs925 billion for the federal development expenditures.

The Federal Board of Revenue (FBR) may be assigned Rs5,500 billion as tax target for the fiscal year 2019/2020. While, the estimated earning from non-tax revenue may be at Rs1,250 billion.

The tax proposals would include:

Sales tax on sugar would be increased from 17 percent from existing 8 percent.

Income tax has been proposed on the earning of middle-man.

Increase in duty and taxes has been proposed poultry, electron and several other items.

Increase in additional customs duty is recommended from 2 percent to 3 percent.

Abolishing zero rating for five export sectors is also part of proposals. It is worth mentioning that the prime minister has already announced to abolishing subsidy to zero-rated sector.

The government likely introduce soft loan program for youth. An amount of Rs5 billion would be allocated for establishing agriculture institute.

Decrease in fertilizers prices would be recommended.

The government employees and pensioners may get increase of 10-15 percent. The proposal of increasing pay and pension would get approval at the cabinet meeting.

June 9, 2019
Profit on banking deposits: High tax rate planned for non-filers in budget 2019/2020

ISLAMABAD: A sharp increase in withholding tax rate (may be up to 30 percent) on profit on banking deposits has been planned for non-filers in order to make it almost impossible to stay remain unregistered, sources said.

Sources told PkRevenue.com that Federal Board of Revenue (FBR) a large sum of banking system deposits were remained undocumented resulting large number of people out of tax net and massive tax evasion.

Under Section 151 of Income Tax Ordinance, 2001 the withholding tax rate on profit on debt for filers is 10 percent with no limit on earned amount and 10 percent for non-filers up to Rs 0.5 million. However, 17.5 percent withholding tax rate for non-filers driving profit on debt above Rs0.5 million.

The sources said that the tax rate for non-filers driving profit on debt above Rs0.5 million may be increased to 30 percent.

According to State Bank of Pakistan (SBP) the total deposits of the banking system reached to all time high of Rs13.456 trillion by March 2019.

The sources said that the proposed increase in profit on debt would force the people having undocumented or black money parked in the banking system to file their returns in order to reduce the tax impact.

In return, the sources said, the FBR would get information of people having large amounts in the banking system.

June 9, 2019
Massive cut in tax exemptions, concessions likely in budget 2019/2020

ISLAMABAD: The government has planned to a massive cut tax in exemptions and concessions in the budget 2019/2020, which is scheduled to be announced on June 11, 2019.

Sources told PkRevenue.com that the government had committed with the World Bank and other international agencies to withdraw large size exemptions given to various sectors and individuals in order to boost revenue collection, especially in the wake of difficult economic situation.

The sources said that the Federal Board of Revenue (FBR) had already initiated policy making and would introduce phases to withdraw available tax concessions and exemptions.

According to Pakistan Revenue Mobilization Program funded by the World Bank, the FBR had already launched several initiatives including ongoing review of tax policy to formulate a medium-term tax policy framework and propose measures to reduce tax expenditure for the budget 2019/2020.

The cost of tax exemptions and concessions in the fiscal year 2017/2018 was around Rs541 billion, which included: income tax Rs61.78 billion; sales tax Rs281 billion; and customs duty Rs198.15 billion.

The sources said that in the first phase around 50 percent exemptions and concessions would be withdrawn in the budget 2019/2020.

The World Bank on Pakistan report said multiple exemptions and discounted rates to select industries, economic actors, and economic activities (e.g. sugar, textiles, and fertilizer industries; ‘associations’ in the real estate sector; imports for infrastructure projects under the China-Pakistan Economic Corridor) are granted in each year’s budget law, which distort competition and economic actors’ incentives. In FY2017/18, Pakistan’s tax expenditure (i.e., tax revenue foregone due to exemptions and concessional rates) was estimated at 2 percent of GDP, primarily due to exemptions from General Sales Tax (GST) and customs duties.

“Substantial exemptions also apply to property taxes, whereby properties below a certain size are exempted regardless of location, while revenue is also lost due to unrealistically low valuations used for taxation purposes.”

The Capital Gains Tax (CGT) returns negligible receipts due to the zero rate applied to capital gains from the sale of immovable property after more than four years of ownership, and rates of 5-10 percent for properties sold after one to four years of ownership, the report said.

The present PTI-led government has issued a roadmap for stability, growth and productive employment issued in April 2019 and stated that tax policy has to balance the revenue objective with equity and growth objectives.

Presently tax policy has a predominant revenue focus and as such is likely to create distortions in the economy which can adversely affect the growth and equity objectives.

In addition, even the revenue objective is compromised by large scale exemptions. To correct this shortcoming, the government intends the following:

i) Enact a law to ensure that no tax exemption is allowed through law or notification without an estimate of its cost independently by the tax department as well as the concerned ministry. Such cost will be made public before notification of the exemption.

ii) Review all existing exemptions, with the purpose of eliminating as many of those as possible. Even if an exemption is to be retained its cost will be determined and made public. Ministry of Finance to publish annually a statement of tax expenditures to show how much revenue is being foregone due to exemptions.

iii) Ensure that all exemptions, existing or newly proposed, will have a sunset clause (ideally not more than 5 years).

iv) Publish a list of all government owned, quasi-government and government-linked enterprises availing tax exemption/concession in any way along with quantification of the tax expenditure. In addition, a plan be prepared for phasing out of these concessions.

v) Withdraw FBR powers to issue SROs to grant exemptions. This power will vest only with the Parliament.

vi) Ensure that all non-procedural existing SROs will expire at the end of the fiscal year. Steps taken over the last two years to incorporate all exemptions granted through SROs to be made part of the body of law.

June 9, 2019
Salary income threshold may be revisited after huge tax loss

ISLAMABAD: The government may restore threshold of taxable salary income to June 30, 2018 level in the budget 2019/2020 after facing Rs50 billion revenue loss in the current fiscal year and considering difficult economic situation in the year ahead.

Sources said reverting tax rates for salary persons to the June 30, 2018 position was under consideration for budget 2019/2020. However, no decision in this regard has been taken so far, the sources said.

The new threshold may be between Rs600,000 and Rs800,000 for tax exempt income and further tax slabs may be notified accordingly, the sources said.

In Finance Act, 2018 the rates of taxes upon salary income were considerably reduced and the threshold was increased from Rs.400,000 to Rs.1,200,000.

However, in order to ensure income tax return filing a token tax of Rs1,000/year was imposed on salary persons deriving income between Rs400,000 and Rs800,000 and tax of Rs2,000/year was imposed on persons deriving salary between Rs800,000 to Rs1,200,000.

These changes brought about a substantial decrease in the withholding taxes collected through various government and private withholding agents.

Revenue impact of this change remained Rs.32.4 billion during the period from July 2018 to February 2019, according to a report of FBR sent to ministry of finance.

It is estimated that total revenue loss on this account would be around Rs.50 billion in the current Financial Year, it added.

June 8, 2019
FBR to target large taxpayers for detailed field audit

ISLAMABAD: Federal Board of Revenue (FBR) to conduct tax audits of large taxpayers, who are selected through an automated risk-based tool.

According to World Bank’s updated report on ‘Pakistan Revenue Mobilization’ said that according disbursement linked Indicators (DLI) the FBR required to conduct tax audits on cases selected through an automated risk-based tool, informed by analysis of integrated data from multiple sources.

It sets targets for detailed field audits of large taxpayers, thereby making an efficient use of resources for the highest impact.

Riskbased audit is essential to deterring tax evasion and increasing compliance, especially for large taxpayers who use complex tax evasion techniques.

It also benefits compliant taxpayers, as it spares them the hassle and cost of ineffective mass audits and reduces the discretion of FBR officials to pick cases for audit.

The World Bank program also required the FBR to implement—through licensed agents—electronic production monitoring for high-risk sectors (e.g., sugar, cement, fertilizer) and electronic tracking of production, distribution, and sale of final products (tobacco, beverages).

It will increase compliance by reducing the risk of under-declaration of output, sales, and corporate profits, the report said.

The DLI related to new taxpayers with taxable incomes/sales identified through automated data sharing and ICT-based BI

(number)will ensures that the FBR will use the new ICT equipment and software that enables the BI and data mining tools to identify unregistered or noncompliant taxpayers.

It also disincentivizes the registration of individuals and firms without taxable income or sales, thereby avoiding inefficient use of FBR resources and negative impacts on micro firms and economically weaker households.

June 8, 2019
PTBA advises revisiting arrest, prosecution law under sales tax

KARACHI: Pakistan Tax Bar Association (PTBA) has advised the Federal Board of Revenue (FBR) to revisit law related to arrest and prosecution under Sales Tax Act, 1990.

In its tax proposals for budget 2019/2020, the apex tax bar said that under the existing law, every director and officer of the Company is liable to be arrested if the officer has reasons to believe that such director or officer is personally responsible for actions of the Company contributing tax fraud.

Accordingly, a person who is a nominee director or employee director can be held responsible for the liability of the company.

The PTBA said that as per interpretation of the law nominee or employee directors be who are not involved in the administrative matters of a taxpayer are being held responsible for the liability of the taxpayer.

“It is a trite law that before any coercive action is taken against any person; it is the duty of the Revenue Officer to provide proper opportunity of being heard and pass a judicious order to establish that the act of the registered person is willful and there was an element of mens rea.”

In the Income Tax Ordinance, 2001 such matters are covered under Section 139 thereof which comprehensively deals with the liability both in case of company and association of Persons. “Section 139 needs to be replicated in the Sales Tax Act, 1990 on the similar lines.”

The PTBA said that the proposed amendment would protect interest of the nominee/employee directors.

Pointing out the issue of recovery of arrears under sales tax law, the PTBA said under Section 48 which deals with recovery of arrears does not provide any time limit to initiate the recovery proceedings.

“By virtue of section 45B of the Act, a registered person aggrieved by any decision, may file an appeal within thirty days of the date of receipt of the order. On the contrary, under Rule 71 of the Sales Tax Rules, proceeding of recovery of impugned tax may be initiated after thirty days from the date of order.”

In addition, recovery proceedings may be initiated as soon as Commissioner Inland Revenue (Appeals) confirmed the Order under Section 45B of the Sales Tax Act or Section 33 of the Federal Excise Act.

The PTBA said that the section 45B, 48 and the rule are not harmonized. Sometimes order is served to the registered person after many days of the date of order and the recovery proceedings may be initiated under the Rule even if the time limit provided for filing of the appeal has not lapsed.

Therefore, it is recommended that Rule 71 should be amended to provide commencement of recovery proceedings after thirty days from the date of receipt of the order.

Similarly, time limit of 30 days from the date of receipt of the order should be provided in section 48 to bring harmony between the Act and Rules.

The PTBA suggested that thirty days shall also be allowed for initiation of recovery proceedings in case demand is confirmed by the Commissioner Inland Revenue (Appeals) while disposing appeals filed under section 45B of STA and 33 of FEA.

Giving rationale to the proposal, the PTBA said that it would keep harmony between the Act and the Rules in the spirit of natural justice.

June 7, 2019
FBR urged to reduce withholding tax for FMCG distributors

KARACHI: Federal Board of Revenue (FBR) has been urged to reduce withholding tax rate to 0.2 percent for distributors of Fast Moving Consumer Goods (FMCG) companies as higher rate is increasing the cost of doing business.

The Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2019/2020, said that the distribution of FMCG is a high turnover and low margin business.

This fact has also been acknowledged to some extent by the FBR by prescribing minimum taxation rate for the distributors of FMCG Companies at 0.2 percent of their turnover i.e. reducing the basic rate of minimum tax by 80 percent.

The OICCI suggested that the basic rate of withholding tax under section 153 for distributors of FMCG sector should be reduced to 0.2 percent in line with section 113 of income tax ordinance, 2001.

Giving rationale, it said that the high rate of withholding tax is increasing the cost of doing business as the existing withholding tax rate is higher than the net margin of distributors.

Another proposal, the OICCI said that ‘Aerated waters’ is the only item within food and beverage industry that is subject to both sales tax (third schedule of the Sales Tax Act, 1990) and FED (First Schedule of Federal Excise Act, 2005), while all other beverages (like: Juices, Tea & Milk based drinks) are only subject to sales tax at 17 percent.

Earlier in 2011-2012, FED rate was reduced from 12 percent to 6 percent with commitment that it shall be eliminated in 2 to 3 years but this was not implemented.

The OICCI recommended that the Federal Excise Duty (FED) should be decreased from 11.5 percent to 8.5 percent, and eliminated gradually.

The chamber pointed out that after the withdrawal of 58R of Special Procedure Rules, 2007, relating to the payment of Extra Tax on Specified Goods vide SRO 608(I) 2014 dated 02/07/2014, Large Trading Houses are now unable to issue sales Tax Invoice to Customers.

Resultantly, all Professional Customers are inclined to directly purchase from Manufacturers as they are issuing Sales Tax Invoice to their Customers.

Therefore, it recommended that Rule 58R which was withdrawn vide SRO 608(I) 2014 be restored only for Large Trading Houses operating as Wholesale-cum-retail under Chapter-XII.

Giving rationale, it said that it would create level playing field for Large Trading Houses.

The OICCI also submitted proposal for input Sales Tax on purchase of electrical and gas appliances.

The Sales Tax Act, 1990 does not permit adjustment of Input Sales Tax on purchase of electrical and gas appliances (including visi-coolers & industrial gas appliances etc.) under section 8(1)(h) of the Act.

The Act should be amended to allow for adjustment of such input sales tax.
Visi-Coolers are an integral part of beverage business and inadmissibility of input tax places beverage business at a disadvantage vis-à-vis other businesses, besides such inadmissibility escalates the cost of doing business.

In other industries, it is reiterated, that all input tax relatable to ‘taxable supplies made or to be made’ is admissible. Removal of restriction shall provide level playing field.

The OICCI on the issue of further tax on sales to retailers, said with reference to section 14 of the Act, retailers are required to obtain sales tax registration excluding those retailers who are required to pay sales tax through their electricity bill.

Moreover, as per section 3(1A) further tax at the rate of 3 percent is to be charged where supplies are made to unregistered person other than those mentioned in SRO 648 dated July 9, 2013.

Therefore it is recommended that retailers who pay their sales tax through electricity bill to be excluded from further tax through inclusion in SRO 648 dated July 9, 2013.

It will clear the ambiguity regarding applicability of further tax on these retailers.

June 7, 2019