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Tag: Finance Act 2021

  • Scope of withholding agents expanded for collection on immovable properties transactions

    Scope of withholding agents expanded for collection on immovable properties transactions

    ISLAMABAD: The Federal Board of Revenue (FBR) has said that certain persons/authorities have been brought in to the definition of withholding agents for collection of tax on immovable property transactions.

    In this regard the FBR said that changes have been made to Income Tax Ordinance, 2001 through Finance Act, 2021.

    The FBR said that all persons effecting sale and purchase of properties are required to collect tax under section 236C and 236K of the Ordinance.

    However, due to the lack of explicit provision certain persons like public and private real estate projects, joint ventures and private commercial concerns are not collecting these taxes which is giving rise to undue litigation.

    These have been added in the list of withholding agents in section 236C and 236K.

    Law provides mechanism for collection of tax on purchase of property in installments where payment for purchase of property is made in installments.

    Such taxpayers have to pay withholding tax again at the time of transfer. It has been made possible that such person may not be subjected to double withholding tax collection by amending explanation in section 236K .

  • Withholding tax rates for industrial, commercial consumers revised

    Withholding tax rates for industrial, commercial consumers revised

    ISLAMABAD: The Federal Board of Revenue (FBR) has said that withholding tax rates for industrial and commercial consumers have been revised.

    Withholding tax on domestic electricity consumption was collected at the flat rate of 7.5% if the monthly domestic electricity bill exceeded Rs. 75,000.

    In order to promote documentation and broadening of tax base this withholding tax has been:

    — done away with in case of persons appearing on Active Taxpayer’s List irrespective of amount of bill.

    — threshold for collection of tax has been reduced from Rs. 75,000 to Rs. 25,000.

    The new rate of collection of tax from commercial and industrial consumers from gross amount of bills shall be as set out in the following Table, namely :-

    TABLE

    S.NoGross amount of BillTax
    1upto Rs. 500Rs. 0
    2exceeds Rs. 500 but does not exceed Rs. 20,00010% of the amount
    3exceeds Rs.20,000Rs. 1950 plus 12% of the amount exceeding Rs. 20,000 for commercial consumers Rs. 1950 plus 5% of the amount exceeding Rs. 20,000 for industrial consumers

    Taxpayer’s are entitled for exemption certificate under section 235 on discharge of their advance tax liability. However the language of law was constructed to the effect that advance tax liability for the whole tax year was required to be discharged to obtain this certificate. Now this ambiguity has been resolved by making necessary changes in sub section (3) of section 235 of the Ordinance. Now the taxpayer can obtain certificate for a quarter by discharging their advance tax liability for the quarter.

  • Services export brought under final tax regime

    Services export brought under final tax regime

    ISLAMABAD: The Federal Board of Revenue (FBR) has said that export of services has been brought under final tax regime effect from July 01, 2021.

    The FBR in an explanation to Finance Act, 2021 stated that in line with the policy of the government to attract legal flow of remittances into the country and to promote export of services in all sectors of economy, a special regime at par with export of goods regime has been introduced through insertion of section 154A of the Income Tax Ordinance, 2001.

    The service providers would be subjected to 1 per cent withholding tax under Division IVA of Part III of First Schedule of the Ordinance on their export proceeds remitted in Pakistan through Banks and authorized dealers of foreign exchange. This would be final tax.

    The Board has also been empowered to include or exclude certain services from operation of this section. Moreover, the Board may prescribe rules for the purposes of this section.

  • Changes made to minimum tax regime through Finance Act 2021

    Changes made to minimum tax regime through Finance Act 2021

    ISLAMABAD: The Federal Board of Revenue (FBR) has issued explanation to changes made through Finance Bill, 2021 in Income Tax Ordinance, 2001 related to minimum tax regime.

    The FBR said that previously, minimum tax on turnover at the rate of 1.5 per cent of turnover was payable by all companies and individuals/ Association of Persons (AOPs) having turnover exceeding Rs. 10 million. This is an alternative tax. It is payable when the normal tax liability in cases of exemption, loss, tax credits or for any other reason, is less than tax payable on turnover basis.

    It can be carried forward for adjustment against next year’s tax liability however it cannot be carried forward if person has sustained loss for a year. 4 different types of changes have been made in this regime which are summarized below:

    — Generalized reduction in minimum turnover tax paid from 1.5 per cent to 1.25 per cent

    — Enhanced threshold for individuals and AOPs from Rs10 million to Rs100 million to pay minimum tax

    — Allowing carrying forward of minimum tax for adjustment against normal tax liability even in cases of loss to provide relief to businesses sustaining loss and to maximize equity

    Division IX of Part I of First schedule has been substituted as below:

    1. 0.75 per cent minimum tax to be applicable on:

    (a) Oil marketing companies, Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited (for the cases where annual turnover exceeds rupees one billion.)

    (b) Pakistan International Airlines Corporation; and

    (c) poultry industry including poultry breeding, broiler production, egg production and poultry feed production

    2. 0.5 per cent to be applicable as minimum tax on:

    (a) oil refineries

    (b) motorcycle dealers registered under the Sales Tax Act, 1990

    3. 0.25 per cent to be applicable as minimum tax on:

    (a) Distributors of pharmaceutical products, fast moving consumer goods and cigarettes;

    (b) petroleum agents and distributors who are registered under the Sales Tax Act, 1990;

    (c) rice mills and dealers

    (d) Tier-1 retailers of fast moving consumer goods who are integrated with board or its computerized system for real time reporting of sales and receipts;

    (e) Person’s turnover from supplies through e-commerce including from running on online marketplace as defined in clause (38B) of Section 2.

    (f) Persons engaged in the sale of purchase of used vehicles

    (g) flour mills

    4. in all other cases the minimum tax rates shall be 1.25 per cent

  • Tax officials’ power to amend assessment without audit selection withdrawn

    Tax officials’ power to amend assessment without audit selection withdrawn

    KARACHI: Federal Board of Revenue (FBR) has said that the powers of Inland Revenue officers to conduct an inquiry for amendment of assessment without selection of audit have been withdrawn.

    The FBR while explaining major amendments made in Income Tax Ordinance, 2001, through of Finance Act, 2021 stated that tax authorities were authorized to conduct inquiry under section 122(5A) of the Income Tax Ordinance in certain matters regarding amendment of assessment without selection of case for audit under section 177 of the Ordinance.

    “This power to conduct an inquiry has been withdrawn,” the FBR said.

    The law prescribes a time limit of five years for amendment of assessment. Such proceedings were usually dragged for long periods after issuance of show cause notices. Now the time limit of 120 days has been prescribed to conclude these proceedings after issuance of show cause notice. Necessary changes have been made in section 122(9) of the Ordinance.

    The power of the commissioner to reject advance tax estimates has also been withdrawn. Necessary changes have been made in section 147 of the Ordinance.

    Law has not provided any time limitation to complete proceedings in pursuant to the orders of the commissioner under section 122A. Now proceedings shall be concluded within the time limit of 120 days.

  • Capital gain tax rates enhanced on disposal of immovable properties

    Capital gain tax rates enhanced on disposal of immovable properties

    ISLAMABAD: The Federal Board of Revenue (FBR) has said that the rates of capital gain tax (CGT) on disposal of immovable properties have been slightly enhanced through Finance Act, 2021.

    The FBR in its explanation to changes made through Finance Act, 2021 in Income Tax Ordinance, 2001, said that a separate block of taxation of capital gain on the sale of immoveable property is available under the Ordinance.

    The gain arising on the disposal of immovable property for more than 4 years, is not taxable.

    The capital gain arising on the disposal of immovable properties is taxable to extent of 100 per cent, 75 per cent, 50 per cent and 25 per cent, if property is sold within 1, 2, 3 and 4 years respectively.

    The gain so calculated on the basis of holding period was taxable at the rates ranging from 2.5 per cent to 10 per cent. Now these rates have been slightly enhanced through changes in Division VIII of Part I of First schedule of the Ordinance, however, the holding period concession remains intact.

    ―Division VIII

    Tax on capital gains on disposal of Immoveable Property

    The rate of tax to be paid under sub-section (1A) of section 37 shall be as follows:-

    TABLE S.NoAmount of GainRate of Tax
    (1)(2)(3)
    1.Where the gain does not exceed Rs. 5 million3.5 per cent
    2.Where the gain exceeds Rs. 5 million but does not exceed Rs. 10 million7.5 per cent
    3.Where the gain exceeds Rs. 10 million but does not exceed Rs. 15 million10 per cent
    4.Where the gain exceeds Rs. 15 million15 per cent
  • Law amended to prevent tax avoidance on gifts

    Law amended to prevent tax avoidance on gifts

    KARACHI: The Finance Act, 2021 has amended Income Tax Ordinance, 2001 to prevent tax avoidance on giving away gifts, official sources said on Friday.

    The Federal Board of Revenue (FBR) while explaining the Finance Act, 2021 stated that tax law had provided a special mechanism for treatment of transfer of assets under certain transactions.

    The non-recognition rules provide that no gain or loss shall arise on disposal of assets under certain special arrangements enumerated in sub-section (1) of section 79 of Income Tax Ordinance, 2001.

    However, these rules did not apply if the recipient was a non-resident person. This was giving rise to anomalous situations in certain circumstances therefore, non-recognition rules have been extended in cases of disposal of assets between spouses under an agreement to live apart, inheritance and gift from a relative in case of non-residents.

    Sub-section (4A) of section 37 provides valuation of assets received under certain transactions. However, this was manipulated to avoid tax therefore a proviso has been inserted whereby the commissioner has been empowered to undo such a tax avoidance scheme.

    Gifts received from certain persons were made taxable in the hands of recipients. The provision has been broadened to exclude gifts received from relatives from this taxation in line with other provisions. Necessary changes have been made in clause (la) of sub-section (1) of section 39 of the Ordinance.

  • FBR explains changes to tax on property income through Finance Act 2021

    FBR explains changes to tax on property income through Finance Act 2021

    ISLAMABAD: The Federal Board of Revenue (FBR) has explained changes brought in tax on property income through Finance Act, 2021.

    The FBR said that the block taxation for property income available to non-corporate entities has been done away with.

    Following changes governing taxation of income chargeable to tax under the head income from property have been introduced;

    a. Property income of companies was taxable as normally computable income. However, in case of individuals and AOPs there was an option for property income to be taxed on gross rental bases. This distinction has been withdrawn and now property income shall be chargeable to tax under the head income from property under normal tax regime after admissible deductions. Necessary changes have been introduced in sections 15 and 15A of the Income Tax Ordinance, 2001. Subsequently, Division VIA of Part I of First Schedule has been omitted.

    b. Current year’s loss under any head of income has been allowed to be set off against the person’s income chargeable to tax under the head “income from property” by amending section 56 of the Ordinance.

    c. Withholding tax regime dealing with rental income from immoveable properties has been rationalized. The ambiguity regarding withholding of tax on rental income of immoveable property of sub-lessee has been removed. It has been explained that all persons making payment on account of immoveable property are required to withhold tax at the prescribed rates which have also been rationalized in Division V of Part III of First schedule.

  • Profit from government securities to be taxed at 15%

    Profit from government securities to be taxed at 15%

    ISLAMABAD: The Federal Board of Revenue (FBR) has said that interest income earned from investment in federal government securities will be taxed at the rate of 15 per cent under Final Tax Regime (FTR) with effect from July 01, 2021.

    In an explanation to Finance Act, 2021, the FBR said that interest income earned by all taxpayers except banking and insurance companies from investment in federal government securities shall be taxed at the rate of 15 per cent under final tax regime. This has been provided in clause (20) of Part III of the second schedule on the Income Tax Ordinance, 2001.

    The FBR said that the scope of separate block taxation on interest income has been reduced. Previously, interest income up to Rs 36 million in case of individuals and Association of Persons (AOPs) was chargeable to tax at the rates ranging from 15 per cent to 20 per cent under final tax regime.

    By virtue of new amendments; the interest income up to Rs5 million shall be taxed at the rate of 15 per cent under final tax regime. If the interest income is more than Rs5 million, it shall be taxed under normal tax regime.

    Uniform rate of withholding tax under section 151 of the Ordinance on interest income has been introduced at 15 per cent.

  • Finance Act, 2021: Withholding tax on phone, internet usage reduced

    Finance Act, 2021: Withholding tax on phone, internet usage reduced

    ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday said that the withholding tax rates on usage of phone and internet have been reduced to 10 per cent from 12.5 per cent with effect from July 01, 2021.

    For tax year 2022 the rate has been reduced to 10 per cent and it will be further reduced to 8 per cent beyond the tax year 2022.

    The FBR said that the withholding tax is applicable under Section 236 of the Income Tax Ordinance, 2001. Through the Finance Act, 2021 the withholding tax rates on the usage of phone and internet have been reduced from 12.5 per cent to 10 per cent for tax year 2022 and 8 per cent onwards.

    The FBR said that the Finance Act, 2021 inclusion of telecommunication sector in the definition of industrial undertaking under clause (29C) of section 2 of the Ordinance. This will enable them to adjust tax

    deducted under section 148 on import of capital equipment and plant & machinery for their own use. Reduction of withholding tax rate under section 153(1) of the Ordinance on telecommunication services from 8 per cent to 3 per cent under minimum tax regime.