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Tag: Finance Act 2021

  • Finance Act, 2021: Withholding tax on banking transactions abolished; highlights of relief measures

    Finance Act, 2021: Withholding tax on banking transactions abolished; highlights of relief measures

    ISLAMABAD: The Finance Act, 2021 has abolished the withholding tax on banking transactions that were applicable under Income Tax Ordinance, 2001.

    Following are the details of relief measures announced in the Finance Act, 2021:

    Deletion of 12 withholding taxes

    ProvisionDescription
    153BCollection of tax on payment of royalty to residents
    231ACollection of tax on cash withdrawal
    231AACollection of tax on banking instruments
    236PCollection of tax on banking transactions other than through cash
    236YCollection of tax from persons remitting amounts abroad through credit or debit or prepaid cards.
    236BCollection of tax on domestic air travel
    236LCollection of tax on  international air travel
    236VCollection of tax on extraction of minerals
    233ACollection of tax  from members by a stock exchange registered in Pakistan
    233AACollection of tax on marginal financing by NCCPL
    234ACollection of tax from CNG stations
    236HACollection of tax on certain petroleum products

    Merging of 3 withholding taxes with other existing  provisions

    ProvisionDescriptionMerged with
    150ADeduction of tax on return on investment in SukuksProposed to be merged in section 151 for residents and in section 152 for non-residents which deal with such payments
    152ADeduction of tax on payments for foreign produced commercialsTo be merged with section 152 which deals with payments to non-residents
    236SCollection of tax on dividend in specieTo be merged with section 150 which deals with dividend

    Reduction in generalized rate on Minimum Tax on Turnover basis and increase in threshold for individuals and AOPs for chargeability of minimum tax

    Broadening of scope of IT services by inclusion of cloud computing and data storage services

    Exemption to Special Economic Zone Enterprises from payment of  minimum tax

    Ten year tax exemption for Special Technology Zone Authority, Zone Developers and Zone Enterprises

    Tax exemption on the import of capital goods and dividend income of private funds from investment in special technology zone enterprise

    Introduction of special tax regime for manufacturing SMEs

    Exemption from tax on income of deep conversion new refineries and BMR projects of existing refineries for 20 and 10 years respectively

    Reduced rate of withholding tax of 3% on oilfield services, warehousing services, logistic services, collateral management services and telecommunication services

    Inclusion of telecommunication services in definition of  industrial undertaking

    Exemption to Electronic warehousing receipts traded on Pakistan Mercantile Exchange 

    Allowance of provincial WWF and WPPF as a deductible allowance while calculating income

    Adjustment of business loss against property income

    Unconditional grant of exemption from tax to certain organizations

    Withdrawal of power of Commissioner to reject advance tax estimates presented by taxpayer

    Non recognition of gain/loss on disposal of assets to non-residents under gift from relative, inheritance and agreement to live apart

    Reduction in tax rate on capital gain tax on disposal of securities from 15% to 12.5%

    Withdrawal of power of tax authorities to conduct inquiry under section 122(5A)

    Inclusion of live animals, raw hides and unpackaged meat in definition of agriculture produce

    Reduction in tax liability by 25% for women entrepreneurs

    Exemption from tax on import of books and agriculture equipment

    Exemption from tax for  bagasse fired power generating units and reduced rate of tax on dividend income from such projects 

    Withholding tax rate for oil tanker services reduced from 3% to 2%

    Extension in time limits for availing tax benefits under section 100D and Eleventh Schedule vide Income Tax (Amendment) Ordinance 2021 dated 21.02.2021 made part of the bill.

    Tax exemptions and concessions for  Roshan digital accounts and implementation of electric vehicles and mobile phone policy implemented vide Tax Laws (Amendment) Ordinance, 2021 dated 11.02.2021 made part of bill

  • Finance Act, 2021: FBR to boost revenue collection through various revenue measures

    Finance Act, 2021: FBR to boost revenue collection through various revenue measures

    ISLAMABAD: The Federal Board of Revenue (FBR) shall boost tax collection through various measures adopted through Finance Act, 2021.

    The changes have been implemented from Thursday July 01, 2021 for the fiscal year 2021/2022.

    The sources in the FBR said that the revenue measures are included a special regime for export of services at par with export of goods to be taxed at the rate of one per cent under final tax regime.

    Through Finance Act, 2021, block taxation of property income has been eliminated and the same is shifted to normal tax regime.

    The rate of capital gain tax has been enhanced on disposal of immovable properties.

    Reduction in block taxation on interest income has been allowed, if it exceeds Rs5 million.

    The interest income from federal government securities would be taxed under final tax regime at the rate of 15 per cent.

    Tax on “on” money on vehicles has been continued for the fiscal year 2021/2022, if vehicle is disposed without registration.

    The withholding tax scope has been expanded on supply chain below manufacturers and importers of specified sectors.

    The reduced threshold monthly electricity bill for withholding tax on electricity consumption has been reduced from 75,000 to 25,000 from domestic users not appearing on Active Taxpayers’ list (ATL).

    The tax authorities would not require issuing separate notice in concealment cases.

    Scope of withholding agents has been broadened for the purpose of collection of withholding tax on commission income under section 233 of Income Tax Ordinance, 2001.

    Withholding tax has been streamlined on sale and purchase of immoveable property under section 236C and 236K of the Ordinance.

  • Finance Act, 2021: fixed allowance to be treated as salary for income tax deduction

    Finance Act, 2021: fixed allowance to be treated as salary for income tax deduction

    ISLAMABAD: Any fixed amount paid to the employees on monthly basis shall be treated as salary for the purpose of income tax collection.

    Through Finance Act, 2021 an amendment has been made to Section 12 of the Income Tax Ordinance, 2001.

    The Section 12 of the Income Tax Ordinance, 2001 is read as:

    Salary.— (1) Any salary received by an employee in a tax year, other than salary that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Salary”.

    (2) Salary means any amount received by an employee from any employment, whether of a revenue or capital nature, including —

    (a) any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions);

     (b) any perquisite, whether convertible to money or not;

    (c) the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee’s duties of employment;

    (The following text in bold has been inserted through Finance Act, 2021)

    Explanation: For removal of doubt, it is clarified that the allowance solely expended in the performance of employee’s duty does not include –

    (i) allowance which is paid in monthly salary on fixed basis or percentage of salary; or

    (ii) allowance which is not wholly, exclusively, necessarily or actually spent on behalf of the employer;‖;

    (d) the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties of employment;

    (e) the amount of any profits in lieu of, or in addition to, salary or wages, including any amount received —

    (i) as consideration for a person’s agreement to enter into an employment relationship;

    (ii) as consideration for an employee’s agreement to any conditions of employment or any changes to the employee’s conditions of employment;

    (iii) on termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments;

    (iv) from a provident or other fund, to the extent to which the amount is not a repayment of contributions made by the employee to the fund in respect of which the employee was not entitled to a deduction; and

    (v) as consideration for an employee’s agreement to a restrictive covenant in respect of any past, present or prospective employment;

    (f) any pension or annuity, or any supplement to a pension or annuity; and

    (g) any amount chargeable to tax as “Salary” under section 14.

    (3) Where an employer agrees to pay the tax chargeable on an employee’s salary, the amount of the employee’s income chargeable under the head “Salary” shall be grossed up by the amount of tax payable by the employer.

    (4) No deduction shall be allowed for any expenditure incurred by an employee in deriving amounts chargeable to tax under the head “Salary”.

    (5) For the purposes of this Ordinance, an amount or perquisite shall be treated as received by an employee from any employment regardless of whether the amount or perquisite is paid or provided —

    (a) by the employee’s employer, an associate of the employer, or by a third party under an arrangement with the employer or an associate of the employer;

    (b) by a past employer or a prospective employer; or

    (c) to the employee or to an associate of the employee or to a third party under an agreement with the employee or an associate of the employee.

     (6) An employee who has received an amount referred to in sub-clause (iii) of clause (e) of sub-section (2) in a tax year may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rate computed in accordance with the following formula, namely: —

    A/B%

    where —

    A is the total tax paid or payable by the employee on the employee’s total taxable income for the three preceding tax years; and

    B is the employee’s total taxable income for the three preceding tax years.

    (7) Where —

    (a) any amount chargeable under the head “Salary” is paid to an employee in arrears; and

    (b) as a result the employee is chargeable at higher rates of tax than would have been applicable if the amount had been paid to the employee in the tax year in which the services were rendered, the employee may, by notice in writing to the Commissioner, elect for the amount to be taxed at the rates of tax that would have been applicable if the salary had been paid to the employee in the tax year in which the services were rendered.

    (8) An election under sub-section (6) or (7) shall be made by the due date for furnishing the employee’s return of income or employer certificate, as the case may be, for the tax year in which the amount was received or by such later date as the Commissioner may allow.

  • Finance Act, 2021: New tax regime for small, medium enterprises introduced

    Finance Act, 2021: New tax regime for small, medium enterprises introduced

    ISLAMABAD: A new tax regime has been introduced for small and medium enterprises offering options of reduced rate of income tax and final tax.

    Through Finance Act, 2021 a small and medium enterprise has been defined as a person who is engaged in manufacturing as defined in clause (iv) of sub-section (7) of section 153 of the Income Tax Ordinance, 2001 and his business turnover in a tax year does not exceed two hundred and fifty million rupees:

    Provided that if annual business turnover of a small and medium enterprise exceeds two hundred and fifty million rupees, it shall not qualify as small and medium enterprise in the tax year in which annual turnover exceeds that turnover or any subsequent tax year.

    RULES FOR COMPUTATION OF PROFIT AND GAINS FOR SMALL AND MEDIUM ENTERPRISES

    1. Application.- These rules shall apply to small and medium enterprises as defined in Clause (59A) of Section 2 of the Ordinance.

    2. Registration.- Small and medium enterprise shall be required to register with FBR on its Iris web portal or Small and Medium Enterprises Development Authority on its SME registration portal (SMERP).

    3. Categories and tax rates.- There shall be following two categories of small and medium enterprises and tax on their taxable income shall be computed at the tax rates given in the table below, namely:-

    Sr. No.CategoryTurnoverRates
    (1)(2)(3)(4)
    1.Category-1Where annual business turnover does not exceed Rupees 100 million7.5% of taxable income
    2.Category-2Where annual turnover exceeds Rupees 100 Million but does not exceed Rupees 250 Million15% of taxable income

    4. Option for Final Tax Regime.-

    (1) The small and medium enterprises may opt for taxation under final tax regime at the rates given in the table below:

    Sr. No.CategoryTurnoverRates
    (1)(2)(3)(4)
    1.Category-1Where annual business turnover does not exceed Rupees 100 million0.25% of gross turnover
    2.Category-2Where annual business turnover exceeds Rupees 100 million but does not exceed Rupees 250 million0.5% of gross turnover

    (2) Option under sub-rule (1) of this rule shall be exercised at the time of filing of return of income and option once exercised shall be irrevocable for three tax years.

    (3) The provisions of section 177 and 214C shall not apply to SME who opts for taxation under sub-rule (1) of this rule.

    5. Audit.-

    (1) SMEs who opt for taxation under normal law under rule 3 may be selected for tax audit through risk based parametric computer ballot under section 214C of the Ordinance if its tax to turnover ratio is below tax rates given in rule 4 of these rules.

    (2) The cases selected under sub-rule (1) of this rule shall not exceed 5% of the total population of SMEs whose tax to turnover ratio is below tax rates given in rule 4 of these rules.

    6. Exports.- The export proceeds of SMEs shall be subject to tax as per rates prescribed in Rule (4) under final tax regime.‖;

    7. Exclusion from Minimum Tax on Turnover.- The provisions of section 113 of the Ordinance shall not apply to SMEs.

    8. Tax on Supply of Goods.-The tax deductible under clause (a) of sub-section (1) of section 153 shall not be minimum tax where payments are received on sale or supply of goods by SMEs.

    9. Provisions of Ordinance to apply.- The other provisions of the Ordinance shall apply mutatis mutandis to the SMEs.

  • FBR to arrest persons on concealment above Rs25 million

    FBR to arrest persons on concealment above Rs25 million

    ISLAMABAD: The Federal Board of Revenue (FBR) has been empowered to arrest a person for concealing above Rs25 million under code of criminal procedure.

    Through Finance Act, 2021 a new section 203B has been inserted to Income Tax Ordinance, 2001, which stated as follow:

    203B. Power to arrest and prosecute:

    (1) Where on the basis of material evidence brought on record, as a result of audit conducted by the auditors in terms of sub-section (8) of section 177 read with section 214C of this Ordinance, an assessment is made or amended under section 121 or 122 of this Ordinance, as the case may be, and the assessing officer records a finding that the taxpayer has committed the offence of concealment of income which has resulted in non-payment of tax of Rupees one hundred million and above in case of a filer and rupees twenty five million or above in case of non-filer, the taxpayer may be arrested after obtaining written approval of the committee specified under sub-section (2).

    (2) The committee under sub-section (1) shall comprise the Minister for Finance and Revenue, the Chairman of the Board and the senior most member of the Board.

    (3) All arrests made under this Ordinance shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (Act V of 1898).

    (4) Notwithstanding anything contained in sub-sections (1) and (2) or any other provision of this Ordinance, where any person has committed offence of concealment of income or any offence warranting prosecution under this Ordinance, the Chief Commissioner with the prior approval of the Board may, either before or after the institution of any proceedings for recovery of tax, compound the offence if such person pays the amount of tax due along with such default surcharge and penalty as is determined under the provisions of this Ordinance.

    (5) Where the person suspected of offence of concealment of income or any offence warranting prosecution under this Ordinance is a company, every director or officer of that company whom the authorised officer has reason to believe is personally responsible for actions of the company contributing to offence of concealment of income or any offence warranting prosecution under this Ordinance shall be liable to arrest:

    Provided that any arrest under this sub-section shall not absolve the company from the liabilities of payment of tax, default surcharge and penalty imposed under this Ordinance.

    Through the Finance Act, 2021 another Section 203C has been inserted to the Income Tax Ordinance, 2001 under which procedure has been laid down to follow on arrest of a person.

    Following is the text of Section 203C:

    203C. Procedure to be followed on arrest of a person.– (1) When an officer of Inland Revenue authorized under sub-section (1) of section 203B in this behalf arrests a person under section 203B, he shall immediately intimate the fact of the arrest of that person to the Special Judge who may direct such officer to produce that person at such time  and place and on such date as the Special Judge considers expedient and such Officer shall act accordingly.

    (2) Notwithstanding anything contained in the sub-section (1), any person arrested under this Ordinance shall be produced before the Special Judge or, if there is no Special Judge within a reasonable distance, to the nearest Judicial Magistrate, within twenty-four hours of such arrest, excluding the time necessary for the journey from the place of arrest to the Court of the Special Judge or, as the case may be, of such Magistrate.

    (3) When any person is produced under sub-section (2) before the Special Judge, he may, on the request of such person, after perusing the record, if any and after giving the prosecution an opportunity of being heard, admit him to bail on his executing a bond, with or without sureties, or refuse to admit him to bail and direct his detention at such place as he deems fit:

    Provided that nothing herein contained shall preclude the Special Judge from cancelling the bail of any such person at a subsequent stage if, for any reason, he considers such cancellation necessary, but before passing such order he shall afford such person an opportunity of being heard, unless for reasons to be recorded he considers that the affording of such opportunity shall defeat the purposes of this Ordinance.

    (4) When such person is produced under sub-section (2) before a Judicial Magistrate, such Magistrate may, after authorising his detention in such custody at such place and for such period as he considers necessary or proper for facilitating his earliest production before the Special Judge, direct his production before the Special Judge on a date and time to be fixed by him or direct such person to be forthwith taken to, and produced before, the Special Judge and he shall be so taken.

    (5) Nothing in sub-section (3) or sub-section (4) shall preclude the Special Judge or the Judicial Magistrate from remanding any such person to the custody of an officer of Inland Revenue holding inquiry against that person if such officer makes a request in writing to that effect, and the Special Judge or the Judicial Magistrate, after perusing the record, if any, and hearing such person, is of the opinion that for the completion of inquiry or investigation it is necessary to make such order:

    Provided that the period of such custody shall not exceed more than fourteen days.

    (6) When any person is arrested under this Ordinance, an officer of Inland Revenue shall record the fact of arrest and other relevant particulars in the register specified in sub-section (10) and shall immediately proceed to inquire into the charge against such person and if he completes the inquiry within twenty four hours of his arrest, excluding the time necessary for journey as aforesaid, he may, after producing such person before the Special Judge or the nearest Judicial Magistrate, make a request for his further detention in his custody.

    (7) While holding an inquiry under sub-section (6), an officer of Inland Revenue shall exercise the same powers as are exercisable by an officer in charge of a police station under the Code of Criminal Procedure, 1898 (Act V of 1898), but such officer shall exercise such powers subject to the foregoing provisions of this section while holding an inquiry under this Ordinance.

    (8) If an officer of Inland Revenue, after holding an inquiry as aforesaid, is of the opinion that there is no sufficient evidence or reasonable ground for suspicion against such person, he shall release him on his executing a bond, with or without sureties, and shall direct such person to appear, as and when required, before the Special Judge, and make a report to the Special Judge for the discharge of such person and shall make a full report of the case to his immediate superior.

    (9) The Special Judge to whom a report has been made under sub-section, (8) may, after the perusal of record of the inquiry, and hearing the prosecution, agree with such report and discharge the accused or, if he is of the opinion that there is sufficient ground for proceedings against such person, proceed with his trial and direct the prosecution to produce evidence.

    (10) An officer of Inland Revenue empowered to hold inquiry under this section shall maintain a register to be called “Register of Arrests and Detentions” in the prescribed form in which he shall enter the name and other particulars of every person arrested under this Ordinance, together with the time and date of arrest, the details of the information received, the details of things, goods or documents, recovered from his custody, the name of the witnesses and the explanation, if any, given by him and the manner in which the inquiry has been conducted from day to day and, such register or authenticated copies of its aforesaid entries shall be produced before the Special Judge, whenever such Officer is so directed by him.

    (11) After completing the inquiry, an officer of Inland Revenue shall, as early as possible, submit to Special Judge a complaint in the same form and manner in which the officer in-charge of a police station submits a report, before a court.

    (12) Magistrate of the first class may record any statement or confession during inquiry under this Ordinance, in accordance with the provisions of section 164 of the Code of Criminal Procedure, 1898 (Act V of 1898).

    (13) Without prejudice to the foregoing provisions of this section, Board, with the approval of the Federal Minister-in-charge, may, by notification in the official Gazette, authorize any other officer working under the Board to exercise the powers and perform the functions of an officer of Inland Revenue under this section, subject to such conditions, if any, that it may deem fit to impose.

  • Finance Act, 2021: Taxpayers given three months to update business bank accounts

    Finance Act, 2021: Taxpayers given three months to update business bank accounts

    ISLAMABAD: Declaring business bank accounts has become mandatory from July 01, 2021 otherwise a monetary penalty would be imposed. However, taxpayers have been given to update their registration profile along with business bank accounts up to September 30, 2021.

    According to the Finance Act, 2021 a new definition has been included in the Income Tax Ordinance, 2001 in which business bank account means a bank account utilized by the taxpayer for business transaction declared to the Commissioner through original or modified registration form prescribed under section 181.

    A Section 114A has been inserted through the Finance Act, 2021 under which every taxpayer will require to declare to the Commissioner the bank account utilized by the taxpayer for business transactions.

    Business bank account shall be declared through original or modified registration form prescribed under section 181.

    The Finance Act 2021 further imposed monetary penalty for not declaring the business bank account. Where any person fails to declare business bank account(s), in his registration application or fails to amend his registration profile to declare existing business bank account(s) willfully: Such person shall pay a penalty of Rs. 10,000 for each day of default since the date of submission of application for registration or date of opening of undeclared business bank account whichever is later:

    Provided that if penalty worked out as aforesaid is less than Rs.100,000 for each undeclared bank account, such person shall pay a penalty of Rs.100,000 for each undeclared business bank account:

    Provided further that this provision shall be applicable from the first day of October, 2021 during which period the taxpayer may update their registration forms.