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  • Penalty amount for late return filing reduced up to 75 percent

    Penalty amount for late return filing reduced up to 75 percent

    KARACHI: Penalty amount for late return filing has been reduced up to 75 percent in order to encourage people to make compliance of mandatory filing of declaration of income.

    Sources in the Federal Board of Revenue (FBR) said that the reduction in penalty amount has been made part of the Income Tax Ordinance, 2001 and amendments have been introduced through Tax Laws (Second Amendment) Ordinance, 2021.

    They said that the penalty amount will be reduced by 75 percent in case tax return is filed within one month after the due date for filing income tax return.

    According to a commentary on Tax Laws (Second Amendment) Ordinance, 2021 released by PwC A. F. Ferguson & Co. the law prescribes penalty for non-filing of return of income within due date as under:

    a) 0.1 per cent of tax payable for the tax year under consideration for each day of default, subject to minimum penalty of Rs. 40,000 and maximum penalty up to 50 per cent of the tax payable for the tax year under consideration;

    b) In case, 75 per cent of the income is from salary, and the same is less than Rs. 5 million, minimum penalty is Rs. 5,000

    However, two new provisos have been added whereby:

    a) Minimum penalty has been prescribed at Rs. 5,000 if taxable income for the year is up to Rs. 800,000; and

    b) Amount of penalty is reduced by:

     75 per cent if the return of income is filed within one month of the due date;

     50 per cent if the return of income is filed within two months of the due date;

     25 per cent if the return of income is filed within three months of the due date.

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  • FBR urged to clarify income tax relief to group companies

    FBR urged to clarify income tax relief to group companies

    KARACHI: Federal Board of Revenue (FBR) has been urged to clarify group relief under income tax laws regarding a holding company can purchase losses of its subsidiary.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, stated that as per Section 59B of the Income Tax Ordinance, 2001, a holding company can purchase the loss of its subsidiary provided there is continued ownership of five years as mentioned in sub-section 2 of Section 59B.

    The PBC said that this subsection 2 of Section 59B has already been misinterpreted by the tax department in various companies that purchase of loss by the holding company is allowed in the sixth year i.e. after the end of continued ownership of five years.

    “Practically speaking, subsidiary companies mostly incur losses in the initial years of establishment due to huge amount of depreciation / initial allowance on new setup (plant & machinery, etc.) and mostly no losses incurred after a period of 5 years (i.e. in the sixth year).”

    Taking the approach used by the tax authorities, practically speaking, none of the holding company would be able to claim losses of its subsidiary.

    Therefore, the PBC suggested following amendment to Income Tax Ordinance:

    At the end of sub-section 2 of Section 59B, an explanation be added as below:

    “Explanation: For the removal of doubt, it is clarified that the holding company can adjust the losses of its subsidiary during the aforesaid period of 5 years.”

    The PBC said that the propose amendment would promote consolidation of businesses.