Tag: Finance Act 2020

Procedure for alternate dispute resolution

ISLAMABAD: Federal Board of Revenue (FBR) has laid down procedure for alternate dispute resolution (ADR) in order to provide a platform to taxpayers for expeditious resolution of their cases.

A new section 134A has been introduced to Income Tax Ordinance, 2001 through Finance Act 2020.

Section 134A. Alternative dispute resolution.

(1) Notwithstanding any other provision of this Ordinance, or the rules made thereunder, an aggrieved person in connection with any dispute pending before a court of law or an appellate authority pertaining to—

(a) the liability of tax against the aggrieved person, or admissibility of refunds, as the case may be;

(b) the extent of waiver of default surcharge and penalty; or

(c) any other specific relief required to resolve the dispute, may apply to the Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application, which is under litigation in any court of law or an appellate authority, except where criminal proceedings have been initiated or where interpretation of question of law having effect on identical cases is involved having effect on other cases.

(2) The Board may, after examination of the application of an aggrieved person, appoint a committee, within sixty days of receipt of such application in the Board, comprising,—

(i) Chief Commissioner Inland Revenue having jurisdiction over the case;

(ii) two persons from a panel notified by the Board comprising of chartered accountants, cost and management accountants, advocates, having minimum of ten years’ experience in the field of taxation and reputable businessmen.

(3) The Board shall communicate the order of appointment of committee to the court of law or the appellate authority where the dispute is pending and the Commissioner.

(4) The Committee appointed under sub-section (2) shall examine the issue and may, if it deemed necessary, conduct inquiry, seek expert opinion, direct any officer of the Inland Revenue or any other person to conduct an audit and shall decide the dispute through consensus, within one hundred and twenty days of its appointment.

(5) The Committee may, in case of hardship, stay recovery of tax payable in respect of dispute pending before it for a period not exceeding one hundred and twenty days in aggregate or till the decision of the committee or its dissolution, whichever is earlier.

(6) The decision of the committee under sub-section (4) shall be binding on the Commissioner when the aggrieved person, being satisfied with the decision, has withdrawn the appeal pending before the court of law or any appellate authority and has communicated the order of withdrawal to the Commissioner:

Provided that if the order of withdrawal is not communicated to the Commissioner within sixty days of the service of decision of the committee upon the aggrieved person, the decision of the committee shall not be binding on the Commissioner.

(7) If the Committee fails to decide within the period of one hundred and twenty days under sub-section (4), the Board shall dissolve the committee by an order in writing and the matter shall be decided by the court of law or the appellate authority where the dispute is pending.

(8) The Board shall communicate the order of dissolution to the court of law or the appellate authority and the Commissioner.

(9) The aggrieved person, on receipt of the order of dissolution, shall communicate it to the court of law or the appellate authority, where the dispute is pending.

(10) The aggrieved person may make the payment of income tax and other taxes as decided by the committee under sub-section (4) and all decisions and orders made or passed shall stand modified to that extent.

(11) The Board may prescribe the amount to be paid as remuneration for the services of the members of the committee, other than the member appointed under clause (i) of sub-section (2).

(12) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.

July 14, 2020
Taxpayers need to update profile to ensure active status

ISLAMABAD: Taxpayers are mandatorily required to update their profit in order to keep their name in the Active Taxpayers List (ATL), sources in Federal Board of Revenue (FBR) said.

Amendment has been made to Income Tax Ordinance, 2001 through Finance Act, 2020, which is approved by the National Assembly.

A new sub-section 2 has been included to Section 182A of the Ordinance, to make it mandatory for taxpayers to update their profile on the FBR’s online system in order to ensure their names are on the ATL.

The new sub-section is read as:

“(2) Where a person fails to furnish or update a taxpayer’s profile within due date or time specified in sub-section (3) of Section 114A or within the date as extended by the Board (FBR) under Section 214A, such person shall not be included in the active taxpayers’ list for the latest tax year ending prior to the aforesaid due date or extended date:

“Provided that without prejudice to any other liability under this ordinance, such person shall be included in the active taxpayers’ list upon filing the taxpayers’ profile after the due date or extended date, if the person pays surcharge at Rupees –

(a) twenty thousand in case of a company;

(b) ten thousand in case of an association of persons; and

(c) one thousand in case of an individual.”

Through the Finance Act, 2020 fine and penalty have also been prescribed:

Any person who is required to furnish or update a taxpayer’s profit but fails to furnish or update within the due date: such a person shall pay a penalty of Rs2500 for each day of default from the due date subject to a minimum penalty of Rs10,000.

July 12, 2020
Period for filing withholding tax statement reduced

ISLAMABAD: Withholding agents are required to file statement of deduction and collection on quarterly basis instead bi-annual.

The change has been brought through Finance Act, 2020 by amending section 165 of the Income Tax Ordinance, 2001.

Sources in Federal Board of Revenue (FBR) said that the change was brought on the proposal of business community as submission of record bi-annual was creating difficulties.

The withholding statement was required to file on monthly basis. However, through Finance Supplementary (Second Amendment) Act, 2019 the relevant law was amendment and it was made on bi-annual basis.

And now it is again reduced to quarterly basis through Finance Act 2020.

The FBR sources said that the withholding statement is required to be submitted on:

(a) in respect of quarter ending on the 31^st day of March, on or before the 20^th day of April;

(b) in respect of quarter year ending on the 30^th day of June, on or before the 20^th day of July;

(c) in respect of quarter ending on the 30^th day of September, on or before the 20^th day of October; and

(d) in respect of quarter ending on or before the 31^st day of December, on or before the 20^th January.

The FBR sources said that the withholding agents would provide following details of persons whose tax were deducted along with the statement, which would include:

(a) the name, Computerized National Identity Card Number, National Tax Number and address of each person from whom tax has been collected under Division II of this Part or Chapter XII or the Tenth Schedule or to whom payments have been made from which tax has been deducted under Division III of this Part or Chapter XII or the Tenth Schedule in each quarter.

(b) the total amount of payments made to a person from which tax has been deducted under Division III of this Part or Chapter XII or the Tenth Schedule in each quarter.

(c) the total amount of tax collected from a person under Division II of this Part or Chapter XII or the Tenth Schedule or deducted from payments made to a person under Division III of this Part or Chapter XII or the Tenth Schedule in each quarter; and

(d) such other particulars as may be prescribed:

Provided that every person as provided in sub-section (1) shall be required to file withholding statement even where no withholding tax is collected or deducted during the period.

Explanation.— For the removal of doubt, it is clarified that this sub-section overrides all conflicting provisions contained in the Protection of Economic Reforms Act, 1992 (XII of 1992), the Banking Companies Ordinance, 1962 (LVII of 1962), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and the regulations made under the State Bank of Pakistan Act, 1956 (XXXIII of 1956), if any, on the subject, in so far as divulgence of information under section 165 is concerned.

July 11, 2020
FBR empowered to recover income tax on sectoral benchmark basis

ISLAMABAD: The officials of Federal Board of Revenue (FBR) have been authorized to recover income tax on sectoral benchmark ratio basis where a taxpayer fails to provide record or required details.

The concept of sectoral benchmark ratios has been introduced through Finance Act 2020 for making recovery of unexplained income by taxpayers. In this regard an amendment has been made to Section 177 of Income Tax Ordinance, 2001.

A new subsection 2AA has been introduced to Section 177, under which, where a taxpayer

(a) has not furnished record or documents including books of accounts;

(b) has furnished incomplete record or books of accounts; or

(c) is unable to provide sufficient explanation regarding the defects in records, documents or books of accounts,

Is shall be construed that taxable income has not been correctly declared and the commissioner shall determine taxable income on the basis of sectoral benchmark ratios prescribed by the FBR.

An explanation has been added to sub-section, stating that the expression ‘sectoral benchmark ratios’ means standard business sector ratios notified by the board on the basis of comparative cases and includes financial ratios, production ratios, gross profit ratio, net profit ratio, recovery ratio, wastage ratio and such other ratios in respect of such sectors as may be prescribed.

July 11, 2020
Assessment oversight committees formed to settle taxpayers’ cases

ISLAMABAD: Assessment oversight committees have been formed at all tax offices of Inland Revenue in order to settle the cases of taxpayers in expeditious manner, officials at Federal Board of Revenue (FBR) said.

The committees have been formed following amendment made to Income Tax Ordinance, 2001 through Finance Act, 2020, which was recently approved by the National Assembly.

The committee shall comprise the following tax authorities having jurisdiction over the taxpayer, namely:

(a) the Chief Commissioner Inland Revenue;

(b) the Commission Inland Revenue; and

(c) the Additional Commissioner Inland Revenue.

A new section 122D has been inserted to Income Tax Ordinance, 2001 for agreed assessment in certain cases.

Under this section where as taxpayer, in response to a notice under sub-section of Section 122, intends to settle his case, he may file offer of settlement in the prescribed form before the assessment oversight committee in addition to filing reply to the commissioner.

The committee after examining the offer may call for the record of the case and after affording opportunity of being heard to the taxpayer, may decide to accept or modify the offer of the taxpayer through consensus and communicate its decision to the taxpayer.

Where the taxpayer is satisfied with the decision of the committee:

(a) the taxpayer shall deposit the amount of tax payable including any amount of penalty and default surcharge as per decision of the committee;

(b) the commissioner shall amend assessment in accordance with the decision of the committee after tax payable including any amount of penalty and default surcharge as per decision of the committee has been paid;

(c) the taxpayer shall waive the right to prefer appeal against such amended assessment; and

(d) no further proceedings shall be undertaken under this ordinance in respect of issues decided by the committee unless the tax has not been deposited by the taxpayer.

According to the amendment, where the committee has been able to arrive at the cons or where the taxpayer is not satisfied with the decision of the committee, the case shall be referred back to the commissioner for decision on the basis of reply of the taxpayer in response to notice under section 122 notwithstanding proceedings or decision, if any, of the committee.

This section shall not apply in cases involving concealment of income or where interpretation of question of law is involved having effect on other cases.

Further, the FBR may make rules regulating the procedure of the committee and for any matter concerned with, or incidental to the proceedings of the committee.

July 8, 2020
Finance Act 2020: wealth statement cannot be revised after five years

ISLAMABAD: A wealth statement cannot be revised after the expiry of five years from the date of filing of income tax return, officials at Federal Board of Revenue (FBR).

The amendment has been approved by the National Assembly by passing the Finance Act, 2020. The amendment has been introduced in sub-section 3 of Section 116 to Income Tax Ordinance, 2001.

The sources said that under Income Tax Ordinance, 2001 taxpayers had already been allowed to revise their wealth statement by providing reasons for the revision and before any notice issued by a tax office in this regard.

However, through amendment Commissioner Inland Revenue has been empowered to declare the revised wealth statement if he found any ill intention of the taxpayer.

According to the amendment: “Provided that where the commissioner is of the opinion that the revision under this sub-section is not for the purpose of correcting a bona fide omission or wrong statement, he may declare such revision as void through an order in writing after providing and opportunity of being heard.”

An explanation has also been included through amendment which said: “For the removal of doubt it is clarified that wealth statement cannot be revised after the expiry of five years from the due date of filing of return of income for the tax year.”

A taxpayer is required to file wealth statement under Section 116 along with annual income tax return by providing particulars included:

(a) the person’s total assets and liabilities as on the date or dates specified in such notice;

(b) the total assets and liabilities of the person’s spouse, minor children, and other dependents as on the date or dates specified in such notice;

(c) any assets transferred by the person to any other person during the period or periods specified in such notice and the consideration for the transfer;

(d) the total expenditures incurred by the person, and the person’s spouse, minor children, and other dependents during the period or periods specified in the notice and the details of such expenditures; and

(e) the reconciliation statement of wealth.

July 8, 2020
Finance Act 2020: Amended list of persons required to file annual income tax return

ISLAMABAD: Persons falling under final tax regime are now required to file annual income tax returns. In this regard amendment has been made through Finance Act, 2020.
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July 7, 2020
FBR imposes restriction on deduction of profit on debt payable to associated enterprise

ISLAMABAD: Federal Board of Revenue (FBR) has imposed restriction on deduction of profit on debt payable to associated enterprise in order to comply with OECD action on profit shifting.

The restriction has been imposed through introduction of Section 106A of Income Tax Ordinance, 2001 through Finance Act, 2020, recently passed by the National Assembly of Pakistan.

Tax experts at EY Ford Rhodes Chartered Accountants said that in line with Action Plan 4 of the OECD’s recommendations on Base Erosion and Profit Shifting (BEPS), the new section has been introduced which imposes a restriction on deduction of profit on debt payable to associated enterprise.

The salient features of the new section are:

— Deduction of foreign profit on debt in excess of fifteen percent of taxable income before depreciation, amortization and foreign profit on debt shall be disallowed to a foreign controlled resident company (other than an insurance or banking company);

— The section shall not apply if the total foreign profit on debt claimed as a deduction is less than Rs10 million for a tax year;

— Where the foreign profit on debt cannot be fully adjusted against the taxable income for a tax year, the excess amount shall be added to the amount of foreign profit on debt for the following tax year and shall be treated to be part of that deduction, or if there is no such deduction for that tax year, be treated as the deduction for that tax year and so on for three tax years following the year in which the foreign profit on debt was claimed as an expense;

According to FBR sources this section shall apply in respect of foreign profit on debt accrued with effect from the first day of July, 2020, even if debts were contracted before the first day of July, 2020;

July 7, 2020
Finance Act 2020: Hotel business allowed carry forward loss for eight years

ISLAMABAD: The hotel industry in Pakistan has received a significant tax relief, as the government has allowed businesses in this sector to carry forward losses for a period of eight years starting from the tax year commencing on July 1, 2020. This amendment, introduced through the Finance Act, 2020, was recently approved by the National Assembly.
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July 5, 2020
FBR issues formula for computing capital gain tax on immovable property sale

ISLAMABAD: Federal Board of Revenue (FBR) has issued formula for computation of capital gain tax on disposal of immovable property as amended through Finance Act, 2020.
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July 5, 2020