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Tag: Finance Act 2019

  • 2019/2020: FBR explains withholding tax on profit on debt

    2019/2020: FBR explains withholding tax on profit on debt

    ISLAMABAD: Federal Board of Revenue (FBR) has explained levy of withholding tax on profit on debt for tax year 2019/2020 applicable from July 01, 2019.

    The FBR said that every person, other than a company, receiving profit on debt from persons mentioned in clause (a) to (d) of sub-section (1) of Section 151 are separately taxed at the rates provided in Division IIIA of Part I of the First Schedule.

    The section 151 explains:

    151. Profit on debt. — (1) Where –

    (a) a person pays yield on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account;

    (b) a banking company or financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution;

    (c) the Federal Government, a Provincial Government or a Local Government pays to any person profit on any security other than that referred to in clause (a) issued by such Government or authority; or

    (d) a banking company, a financial institution, a company referred to in sub-clauses (i) and (ii) of clause (b) of sub-section (2) of section 80, or a finance society pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than financial institution.

    The FBR said that prior to the Finance Act, 2019, the rates were 10 percent where profit on debt was up to Rs5 million, 15 percent where profit on debt was more than Rs5 million but not more than Rs25 million and 15 percent where profit of debt exceeding Rs25 million.

    Through Finance Act, 2019, the rates of imposition of tax under Section 7B mentioned in Division IIIA, Part I of the First Schedule have been enhanced as:

    01. Where profit on debt does not exceed Rs5 million, the tax rate shall be 15 percent;

    02. Where profit on debt exceeds Rs5 million but does not exceed Rs25 million, the tax rate shall be 17.5 percent; and

    03. Where profit on debt exceeds Rs25 million but does not exceed Rs36 million, the tax rate shall be 20 percent.

    The FBR said that where the profit on debt exceeds Rs36 million in a tax year, section 7B will not be applicable and the profit on debt will not be separately taxed for persons other than companies.

    In such cases, profit on debt will be chargeable to tax under the head ‘income from other sources’ under section 39 and tax shall be imposed at the rates specified in paragraph (1) or (2), as the case may be, of Division I, Part I of the First Schedule.

  • FBR issues withholding tax rates on cash, online banking transactions

    FBR issues withholding tax rates on cash, online banking transactions

    KARACHI: Federal Board of Revenue (FBR) has issued withholding tax card for tax year 2019/2020 and prescribed the rate of withholding income tax to be deducted/collected on transactions made through banking system either by cash or online transfers.

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  • FBR explains federal excise duty on edible oils

    FBR explains federal excise duty on edible oils

    The Federal Board of Revenue (FBR) has released detailed explanations regarding the revised implementation of the federal excise duty (FED) on ghee and cooking/edible oils, as introduced through the Finance Act, 2019.

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  • Persons not appearing in ATL will pay 100 percent increased withholding tax rate: FBR

    Persons not appearing in ATL will pay 100 percent increased withholding tax rate: FBR

    KARACHI: Persons whose names are not appearing in the Active Taxpayers List (ATL) will be subjected to hundred percent increased rate of withholding tax, Federal Board of Revenue (FBR) said in a circular issued to explain changes made in Income Tax Ordinance, 2001 through Finance Act, 2019.

    The FBR issued Circular No. 19 of 2019 and said that prior to Finance Act, 2019 a concept of non-filer existed in the Ordinance whereby higher tax rates of withholding were prescribed for persons who were non-filers.

    Such non-filers could claim adjustment of the higher tax collected at the time of filing of income tax returns. The aim was to compel the non-filers to file their returns of income. “However, it was observed that the non-filers, even though subjected to higher withholding rates, still had a propensity not to file their returns,” the FBR said.

    This proved detrimental to exercise of expansion or tax base. This was due to the absence of an explicit provision specifying a standard procedure for action against such persons.

    Through Finance Act, 2019 the concept of non-filers has been done away with and a new concept regarding persons not appearing in the active taxpayers list has been introduced. This concept is a m ore paradigm shift from the erstwhile non-filer higher tax regime in that it not only penalizes those persons not appearing in the ATL but also introduces an effective mechanism for enforcing returns from such persons.

    In this regard a new section 100BA to Income Tax Ordinance, 2001 has been introduced which provides that collection or deduction of advance income tax, computation of income and tax payable thereon shall be determined in accordance with the rules in the newly introduced ‘The Tenth Schedule’ which envisages the entire path to be adopted by the Inland Revenue Department to enforce returns from persons who make financial transactions yet choose not to file their returns of income.

    The FBR said that the persons whose names are not appearing in the ATL will be subjected to 100 percent increased tax rate.

    The FBR further said that where a withholding agent is of the opinion that 100 percent increased tax is not required to be collected on the basis that the person was not required to file return, the withholding agent shall furnish a notice to the commissioner having jurisdiction over withholding agent setting out –

    a. The name, CNIC or NTN and address of the person not appearing in the ATL

    b. The nature and amount of the transaction on which tax is required to be collected or deducted; and

    c. Reason on the basis of which it is considered that the person was not required to file return or statement, as the case may be.

  • Unexplained foreign remittances will be subject to tax: FBR

    Unexplained foreign remittances will be subject to tax: FBR

    ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday said that unexplained foreign remittances will be subject to income tax.

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  • FBR sets 200pc penalty for offshore tax evasion

    FBR sets 200pc penalty for offshore tax evasion

    ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday said the amended income tax law attract 200 percent penalty amount of tax evaded in cases of undeclared offshore assets.

    The FBR issued income tax circular to explain the changes brought through Finance Act, 2019 regarding offshore assets and tax evasion.

    The FBR said that through the Finance Act, 2019, the term “offshore Assets” has been defined by inserting a new clause (38AA) in section 2 of Income Tax Ordinance, 2001, which includes any movable or immovable assets held, any again, profit or income derived, or any expenditure incurred outside Pakistan.

    The term “offshore evader” has been defined by inserting a new clause (38AB) in section 2 and it means a person who owns, possesses, control, or is the beneficial owner of an offshore assets and dos not declare, or under declares or provides inaccurate particulars of such assets to the Commissioners.

    Penalty has also been provided in serial No. 22 in sub section (1) of section 182 that where an offshore tax evader is involved in offshore tax evasion in the course of any proceedings under this Ordinance before any Income Tax authority or the appellate tribunal, such person shall pay a penalty of Rs100,000 or an amount equal to 200 percent of the tax sought to be evaded, whichever is higher.

    Prosecution for concealment of an offshore assets has been provided by inserting a new section 192B according to which any person who fails to declare an offshore assets to the Commissioner or furnishes inaccurate particulars of an offshore assets and the revenue impact of such concealment or furnishing of inaccurate particulars is ten million rupees or more shall commit an offence punishable on conviction with imprisonment up to three years or with a fine up to Rs. 500,000, or both.

    A new sub-section (5) has been added in section 145 as per which the Commissioner may freeze any domestic assets of a person where on the basis of information received from an offshore jurisdiction, the Commissioner has reason to believe the such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any assets.

    The Commissioner may freeze any domestic assets of the person including any assets beneficially owned by such person for a period of 120 days or till the finalization of proceedings including recovery proceedings and any other proceeding under the Ordinance, whichever is earlier.

    The term “offshore enabler” has been defined by inserting a new clause (38AC) in section 2 to include any person who enables, assist, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore assets, which has resulted or may result in tax evasion.

    Penalty has been provided in serial no.23 of sub-section (1) of section 182 that where in the course of any transaction or declaration made by a person an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion in the course of any proceedings under the Ordinance, such person shall pay a penalty of Rs 300,000 or an amount equal to 200 percent of the tax which was sought to be evaded, whichever is higher.

    Prosecution for enabling offshore tax evasion has been provided by inserting a new section 195B to the effect that any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in offshore tax evasion, shall commit an offence punishable on conviction with imprisonment for a term not exceeding seven years or with a fine up to five million rupees or both.

    The term “asset move “has been defined by inserting a new clause(5C) in section 2 and it means the transfer of non offshore assets to an unspecified jurisdiction by or an behalf of a person who owns, possesses, controls or is the beneficial owner of such offshore asset for the purpose of tax evasion.

    An unspecified jurisdiction means a jurisdiction which has not committed to automatically exchange information under the Common Reporting Standard with Pakistan. The term “specified jurisdiction “has been defined by inserting a new clause (60A) in section 2 and it means any jurisdiction which has committed to automatically exchange information under Common Reporting Standard with Pakistan.

    Penalty has also been provided in serial 24 of sub-section (1) of section 182 that any person who is involved in asset move from specified to un-specified territory shall pay a penalty of Rs. 100,000 or an amount equal to 100 percent of the tax, whichever is higher.

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    FBR makes mandatory purchase of immovable property through banking channel

  • FBR makes mandatory purchase of immovable property through banking channel

    FBR makes mandatory purchase of immovable property through banking channel

    ISLAMABAD: Federal Board of Revenue (FBR) has made mandatory the purchase of immovable property of fair market value above Rs5 million through banking channel.

    The FBR issued explanation to the Finance Act, 2019 on Tuesday regarding purchase of assets through banking channel under Section 75A of Income Tax Ordinance, 2001.

    The FBR said that a new section 75A has been introduced in the Ordinance which requires that no person shall purchase immovable property having fair market value greater than Rs.5,000,000 or any other asset having fair market value more than Rs.1,000,000 otherwise than by a crossed cheque drawn on a bank or through crossed demand draft or crossed pay order or any other crossed banking instrument showing transfer of amount from one bank account to another bank account.

    Fair market value of immovable property shall be the value notified by the Board under sub-section (4) of section 68 or the value fixed by provincial authority for the purpose of stamp duty, whichever is higher.

    In case the transaction is not through banking channel as specified above,-

    (a) such person cannot claim deductions mentioned in sections 22,23,24 & 25 on such assets. Hence, no deduction for depreciation, initial allowance, intangibles and pre-commencement expenditure shall be allowable for assets purchased otherwise than through banking channel as specified above;

    (b) the amount of purchased through cash which was required to paid through banking channel as stated above, shall not be treated as cost as per section 76 for computation of any gain in sale of such asset.
    Further, any person purchasing immovable property having fair market value greater than five million through cash or bearer cheque shall pay a penalty of 5% of the value of property determined by the Board under sub-section (4) of section 68 or the value determined by the provincial authority for the purposes of stamp duty, whichever is higher.

    The above provisions of law are illustrated through the following examples.

    Example 1

    Mr A is deriving income from business and has declared taxable income as under.

    Sale: 100,000,000.

    Cost of sales: 70,000,000.

    Breakup of cost of sale

    Initial depreciation on machinery: 10,000,000.

    Normal depreciation of machinery: 6,000,000.

    Salaries: 40,000,000.

    Fuel and utilities: 14,000,000.

    Gross profit: 30,000,000.

    Admin & distribution expenses: 10,000,000

    Taxable income: 20,000,000

    Mr. A had bought machinery of Rs40 million for the year through cash. As per section 75A, business deduction under section 22 & 23 pertaining to initial depreciation of Rs10,000,000 and normal depreciation of Rs6,000,000 shall not be admissible. Hence, Rs16,000,000 will be added in taxable income resulting in taxable income of Rs36,000,000.

    Mr. A subsequently sells the machinery after three years at Rs12,000,000. For the purpose of computing gain, the cost of the asset has to be deducted from the sale price but in this case, the machinery was purchased through cash, hence, the cash amount cannot be treated as cost. Resultantly, Rs12,000,000 will be treated as gain chargeable to tax under the head “income from business”.

    Example 2.

    Mr. B derives income from salary only. He has purchased immovable property through cash and the FBR value of the property is Rs8,000,000 but the DC value of property for the purpose of stamp duty is Rs6,000,000. As per serial No. 21 of section 182, penalty at 5 percent of FBR value of property of DC value, whichever is higher, is to be imposed. In this case, the FBR value of property is greater than DC value, hence penalty shall be imposed at 5 percent of Rs8,000,000 at Rs400,000.

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  • FBR notifies revision in exemption regime under sales tax laws

    FBR notifies revision in exemption regime under sales tax laws

    ISLAMABAD: Federal Board of Revenue (FBR) has issued changes brought through Finance Act, 2019 in exemption regime under Sixth Schedule of the Sales Tax Act, 1990.

    Following changes have been made in Table-1 of the Schedule:

    i. Exemptions at the existing serial numbers 2,3, and 72, relating to meat, fish, poultry meat etc. have been amended to clearly provide that these exemptions also apply to products specified thereunder even if these products are packed.

    ii. Under serial number 19, the products of milling industry, as sold in retail packing bearing brand names, have been excluded from purview of exemption, however, wheat and meslin flour shall remain exempt even if so packed or sold under a brand name. Redundant PCT Heading 1102.1000 has also been omitted.

    iii. Serial numbers 36 and 37 pertaining to Gold and Silver, in unworked condition, have been omitted. Gold and Silver have been placed in the 8th schedule and chargeable to sales tax at the reduced rate of 1%. Gold and Silver have also been excluded from the purview of minimum value-addition tax of@ 3% at import stage under Twelfth Schedule.

    iv. The expression “excluding electricity and natural gas” has been added in serial number 52A relating to exemption on goods supplied to specified hospitals. Now, such hospitals are no more eligible for exemption on supplies of electricity and gas.

    v. The exemption at serial number 85, as available to fat filled milk, has been restricted to such milk as is not sold in retail packing under a brand name or a trademark. Such packed and branded fat filled milk now shall be subject to 10% sales tax under Eighth Schedule.

    vi. In view of doing away with the special procedure for steel industry, the exemption available to vessels / ships for breaking at serial number 95 has been omitted. Vessels imported for breaking up are now taxable at 17%. Field formations of Customs should ensure chargeability of sales tax on import of vessels since 1st July, 2019.

    vii. New serial number 151 has been added. This is a transposition of exemption under SRO 1212(I)/2018 which now has been rescinded and which provided exemption on supplies made within the tribal areas. In the transposed form, it allows further exemption on imports of industrial input including plant and machinery imported by industrial units located within tribal areas. These exemptions on imported inputs / plant and machinery shall be available subject to security mechanism specified under this serial.

    viii. Newly added serial 152 provides exemption on supplies of electricity as made to all consumers in tribal areas. However, this exemption shall neither be available to industries established after 31st May, 2018, nor to any steel and ghee /oil industries.

    ix. Through new serial number 153, imports and supplies by manufacturers of steel billets, ingots, ship plates, bars and other long re-rolled profiles, have been exempted. In lieu of this exemption, federal excise duty has been imposed on these items in sales tax mode.

    In Table-2, relating to local supplies, two changes have been made:

    (i) Exemption under serial number 16 shall not be available to ginned cotton, as the same has been subjected reduced rate of 10% in Eighth Schedule, at newly inserted serial number 65 in Table 1.

    (ii) The exemption to cottonseed oil has been provided at serial number 25.

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  • Imported consumer items to be cleared on declared retail prices: FBR

    Imported consumer items to be cleared on declared retail prices: FBR

    ISLAMABAD: Federal Board of Revenue (FBR) has said that the consumers items falling under mandatory retail price print will be assessed at declared retail price at clearance stage instead of determination through customs value.

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  • FBR issues withholding tax rates for winning prize bonds

    FBR issues withholding tax rates for winning prize bonds

    KARACHI: Federal Board of Revenue (FBR) has issued withholding tax rates for winning prize bonds, cross word, raffle, lottery and quiz for tax year 2019/2020 as effective from July 01, 2019.

    The FBR said that every person making payment shall collect withholding tax from persons on active taxpayers list (ATL) and double the amount of the tax from persons not appearing on the ATL at the time the prize or winning were actually paid.

    The collection of withholding tax under Section 156 of Income Tax Ordinance, 2001 shall be final.

    The withholding tax shall be collected at the following rates:

    (I) Payments made for prize on quiz bond and cross word the tax rate shall be 15 percent of the gross amount.

    Persons not appearing in the Active Taxpayers’ List: The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 30 percent of the gross amount.

    (II) Payments on winning from a raffle, lottery, prize on winning a quiz, prize, offered by companies for promotion of sale crossword puzzles the tax rate shall be 20 percent of the gross amount.

    Persons not appearing in the Active Taxpayers’ List: The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 40 percent of the gross amount.