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Tag: Finance Bill 2020

  • Restriction imposed on revising wealth statement

    Restriction imposed on revising wealth statement

    KARACHI: Taxpayers have been barred from revising their wealth statement after expiry of five years.

    An amendment has been proposed to Income Tax Ordinance, 2001 through Finance Bill, 2020.

    According to interpretation of Finance Bill, 2020 by Deloitte Yousuf Adil Chartered Accountants, presently, revision of wealth statement is allowed without a requirement to obtain approval of the Commissioner Inland Revenue, as is otherwise required for revision of return of income.

    It is now proposed that such revision of wealth statement shall be contingent upon the similar approval of the Commissioner, which shall be granted, in case of bona fide omission or misstatement.

    “However, no such revision is allowed after the expiry of five years from the due date of filing of return of return of concerned tax year.”

    Another amendment has been proposed regarding assessment. The chartered accountants explained that currently where a taxpayer has furnished a return of income, the Commissioner Inland Revenue shall be treated to have made an assessment of taxable income and tax due thereon equal to amounts specified in the return.

    Further, such return shall be taken for all purposes to be an assessment order issued by the Commissioner.

    In order to ensure accuracy of the returns filed by taxpayers, automated adjusted assessment mechanism is being proposed.

    Under this mechanism, the return filed shall be subject to an automatic review and adjustment within six months of filing of return for rectification of any numerical errors or incorrect claims, losses, deductible allowances or tax credit, or wrongful carry forward of losses that are apparent from the return of income.

    In this regard, a notice shall be issued to the taxpayer before the adjustments are effected in the return, which is required to be responded within 30 days of the date of notice.

    Further, where no such adjustments are made within the specified period of six months, the return filed shall be deemed to have been automatically adjusted on the day the return is filed and automatic intimation through IRIS shall be forwarded to the taxpayer.

    The existing provisions as to deemed assessment order will now apply to adjusted return rather than the original return filed by the taxpayer.

    For the purposes of this section, the following definition are proposed to be introduced vide Finance Bill 2021:

    “Arithmetical Error” includes any wrong or incorrect calculation of tax payable including any minimum or final tax payable

    “An incorrect claim apparent from any information in the return” shall mean a claim, based on an entry, in the return

    i. of an item, which is inconsistent with another entry of the same or some other item in such return;

    ii. regarding any tax payment which is not verified from the collection system; or

    iii. in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction.

    The amended provision does not cater for situations where the tax payers have to make adjustments in the return due to inability of the online return form to cater to unique circumstances of the business of the taxpayer.

    Application of this automated adjustment mechanism may create problems for the tax payers unless the online return is amended to cater for all situations that a tax payer may face in line with the provisions of law.

  • Concealed income to be added under business income

    Concealed income to be added under business income

    KARACHI: The Finance Bill 2020 has proposed amendment to laws pertaining to concealed income. Under the amendment the identified concealed income to be added under head of business income.

    The Finance Bill 2020 proposed amendment to Section 111 of Income Tax Ordinance, 2001.

    As per interpretation of Finance Bill, 2020, Deloitte Yousuf Adil Chartered Accountants explained that as per existing law, suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person’s income chargeable to tax under head “Income from Other Sources” to the extent it is not adequately explained.

    The Finance Bill 2020 proposes to tax such amount under head of “Income from Business”.

    Since, such items pertain to business activities of a person, therefore, the same should be liable to tax under head of Income from Business.

    Consequent to proposed amendments, the relevant expenses incurred would then be allowable.

    However, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall still be included in the person’s income chargeable to tax under the head “Income from Other Sources” to the extent it is not adequately explained.

  • Details of transactions exempted from withholding tax

    Details of transactions exempted from withholding tax

    ISLAMABAD: The Finance Bill, 2020 has proposed to withdraw withholding tax collection on nine different types of transactions under Income Tax Ordinance, 2001.

    According to budget commentary issued by PwC A F Ferguson, as part of reforms for ease of doing business, the government has proposed to withdraw following withholding tax provisions, which in government’s view were not generating enough revenues:

    01. Section 148A – Tax on local purchase of cooking oil or vegetable ghee by certain persons

    Two percent tax was chargeable on the purchase of locally produced edible oil by the manufacturers of cooking oil or vegetable ghee.

    02. Section 156B – Withdrawal of balance under Pension Fund

    A pension fund manager making payment from individual pension accounts, maintained under any approved Pension Fund, was required to deduct tax at the average rate of tax as calculated in section 12, from the amount so withdrawn by the pensioner before or after his retirement.

    03. Section 235B – Tax on steel melters and composite units

    Tax under this section was required to be collected from every steel melter, and composite steel units, registered for the purpose of Chapter XI of Sales Tax Special Procedure Rules, 2007 at the rate of one rupee per unit of electricity consumed for the production of steel billets, ingots and mild steel (MS products) excluding stainless steel.

    04. Section 235D – Advance tax on functions and gatherings

    Advance tax under this section was required to be collected by the prescribed person on the total amount of the bill from a person arranging or holding a function in a marriage hall, marquee, hotel, restaurant, commercial lawn, club, a community place or any other place used for such purpose including the food, service or any other facility is provided by any other person, from the person arranging or holding the function.

    05. Section 235F – Advance tax on cable operators and other electronic media

    Under this section, Pakistan Electronic Media Regulatory Authority was required to collect advance tax, at the time of issuance of licence for distribution services or renewal of the licence to a licencee.

    06. Section 236J – Advance tax on dealers, commission agents and arhatis etc

    Advance tax under this section was required to be collected by every market committee from dealers, commission agents or arhatis, etc. at the time of issuance or renewal of licences

    07. Section 236R – Collection of advance tax on education related expenses remitted abroad

    Advance tax was required to be collected by Banks, financial institutions, foreign exchange companies or any other person responsible for remitting foreign currency abroad for the purpose of education related expenses remitted abroad from the payer of education related expenses.

    08. Section 236U – Advance tax on insurance premium

    Advance tax was required to be collected under this section, by the insurance company at the time of collection of insurance premium from the person in respect of general insurance premium and life insurance premium.

    09. Section 236X- Advance tax on tobacco

    Pakistan Tobacco Board or its contractors, at the time of collecting cess on tobacco, directly or indirectly, shall collect advance tax at the rate of five percent of the purchase value of tobacco from every person purchasing tobacco including manufacturers of cigarettes.

  • Withholding statements to be filed on quarterly basis

    Withholding statements to be filed on quarterly basis

    ISLAMABAD: Withholding agents shall require to file statement on quarterly basis from fiscal year starting July 01, 2020.

    The Finance Bill, 2020 proposed amendments to Section 165 of Income Tax Ordinance, 2001, under which the filing of withholding statement will be on quarterly basis against existing biannual basis.

    The requirement of filing withholding statement on biannual basis was introduced through Finance Supplementary (Second Amendment) Act, 2019 as it was required to file on monthly basis.

    The bill proposed that filing requirement shall be:

    (a) in respect of quarter ending on the 31st day of March, on or before the 20th day of April; 92

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

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

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

    Another amendment has been proposed which stated that every person involved or engaged in economic transactions as prescribed by the Board shall furnish to the Commissioner a quarterly statement in the prescribed form and manner.

  • Bank account details made mandatory for registered taxpayers

    Bank account details made mandatory for registered taxpayers

    ISLAMABAD: All registered taxpayers are required to update their profile by providing details of bank accounts otherwise they will be excluded from Active Taxpayers List (ATL).

    The Finance Bill, 2020 has proposed amendment to insert Section 114A to the Income Tax Ordinance, 2001 to make the mandatory for all taxpayers to update their profile.

    According to budget commentary issued by PwC A. F. Ferguson Chartered Accountants, all existing registered taxpayers as well as those who will obtain registration by September 30, 2020 will be required to file and update their tax profile by December 31, 2020 whereas other taxpayers will be required to file and update their profiles within 90 days of registration.

    Furthermore, with regard to any changes in such profile, the updating is required to be made within 90 days of such change.

    Failure to file and update tax profiles in the above manner and within the prescribed dates could result in a taxpayer’s exclusion from active taxpayers list. However, such persons can be included back in active taxpayers list by filing the requisite information and paying the prescribed amount of surcharges.

    Following is the proposed new Section 114A to Income Tax Ordinance, 2001:

    “114A. Taxpayer’s profile.— (1) Subject to this Ordinance, the following persons shall furnish a profile, namely:—

    (a) every person applying for registration under section 181;

    (b) every person deriving income chargeable to tax under the head, “income from business”;

    (c) every person whose income is subject to final taxation;

    (d) any non-profit organization as defined in clause (36) of section 2;

    (e) any trust or welfare institution; or

    (f) any other person prescribed by the Board.

    (2) A taxpayer’s profile—

    (a) shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed;

    (b) shall fully state, in the specified form and manner, the relevant particulars of—

    (i) bank accounts;

    (ii) utility connections;

    (iii) business premises including all manufacturing, storage or retail outlets operated or leased by the taxpayer;

    (iv) types of businesses; and

    (v) such other information as may be prescribed;

    (c) shall be signed by the person being an individual, or the person’s representative where section 172 applies; and

    (d) shall be filed electronically on the web as prescribed by the Board.

    (3) A taxpayer’s profile shall be furnished,—

    (a) on or before the 31st day of December, 2020 in case of a person registered under section 181 before the 30th day of September, 2020; and

    (b) within ninety days registration in case of a person not registered under section 181 before the 30th day of September, 2020.

    (4) A taxpayer’s profile shall be updated within ninety days of change in any of the relevant particulars of information as mentioned in clause (b) of sub-section (2).”

  • Filing annual tax return made mandatory for FTR taxpayers

    Filing annual tax return made mandatory for FTR taxpayers

    ISLAMABAD: The filing of annual income tax return has been made mandatory for taxpayers falling under Final Tax Regime (FTR).

    The Finance Bill, 2020 has proposed amendment to Section 114 of Income Tax Ordinance, 2001.

    A new clause (ae) has been inserted to Section 114 to make it mandatory for persons falling under FTR to file annual income tax returns.

    After proposed amendment the clause a of Section 114 shall be read as:

    (Note amendment in red)

    114. Return of income. — (1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:–

    (a) every company;

    (ab) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year; or

    (ac) any non-profit organization as defined in clause (36) of section 2;

    (ad) any welfare institution approved under clause (58) of Part I of the Second Schedule;

    (ae) every person whose income for the year is subject to final taxation under any provision of this Ordinance;

  • Tax amendments to property income introduced

    Tax amendments to property income introduced

    ISLAMABAD: Finance Bill, 2020 has proposed many changes to taxation of property income for tax year 2021.

    According to commentary of PWC A. F. Ferguson Chartered Accountants, prior to amendments made through Finance Act, 2019, rental income of non-corporate persons was taxed on a presumptive basis not allowing any deductions and allowances.

    The Finance Act, 2019 introduced an option for non-corporate persons deriving rental income exceeding Rs 4 million for taxation on net income basis at the applicable rate.

    The ceiling of Rs. 4 million for entitling this regime is now proposed to be done away.

    As a result, all non-corporate persons with rental income can now opt to be taxed at par with corporate persons.

    In case rental income is computed on net income basis, certain specific deductions are allowed, such as repair allowance, financial charges, insurance premium, local taxes, etc.

    In addition to these specific deductions, all other expenditure wholly and exclusive incurred for the purpose of rental income including administration and collection chares, etc. is allowed subject to a threshold of 6 percent of gross rentals.

    The threshold of 6 percent is now proposed to be reduced to 2 percent.

  • Process for automated scrutiny of income tax returns introduced

    Process for automated scrutiny of income tax returns introduced

    ISLAMABAD: An automated scrutiny of income tax returns has been introduced to Income Tax Ordinance, 2001 through Finance Bill, 2020.

    For this purpose a new sub-section 2A has been inserted to Section 120 of Income Tax Ordinance, 2001 through the Finance Bill, 2020.

    The new sub-section 2A is as:

    “(2A) A return of income furnished under sub-section (2) of section 114 shall be processed through automated system to arrive at correct amounts of total income, taxable income and tax payable by making adjustments for—

    (i) any arithmetical error in the return;

    (ii) any incorrect claim, if such incorrect claim is apparent from any information in the return;

    (iii) disallowance of any loss, deductible allowance or tax credit under Parts VIII, IX and X respectively of Chapter III; and

    (iv) disallowance of carry forward of any loss under clause (b) of sub-section (1) of section 182A:

    Provided that no such adjustments shall be made unless a system generated notice is given to the taxpayer specifying the adjustments intended to be made:

    Provided further that the response received from the taxpayer, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such notice, adjustments shall be made.

    Provided also that where no such adjustments have been made within six month of filing of return, the amounts specified in the return as declared by the taxpayer shall be deemed to have been taken as adjusted amounts on the day the return was filed and the taxpayer shall be intimated automatically through IRIS.”;

    A new sub-section 7 has also been introduced in the section, which states:

    (7) For the purposes of this section,—

    (a) “arithmetical error” includes any wrong or incorrect calculation of tax payable including any minimum or final tax payable.

    (b) “an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return,—

    (i) of an item, which is inconsistent with another entry of the same or some other item in such return;

    (ii) regarding any tax payment which is not verified from the collection system; or

    (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction.”

  • Resident ship owners to pay tonnage tax at US 75 cents

    Resident ship owners to pay tonnage tax at US 75 cents

    ISLAMABAD: A Pakistan resident ship owning company shall pay tonnage tax of an amount equivalent to US 75 cents per ton, as proposed through Finance Bill, 2020.

    A new clause (c) has been inserted in Section 7A of Income Tax Ordinance, 2001 through Finance Bill, 2001 to levy the tax on resident ship owning company.

    “(c) A Pakistan resident ship owning company registered with the Securities and Exchange Commission of Pakistan after the 15th day of November, 2019 and having its own sea worthy vessel registered under Pakistan Flag shall pay tonnage tax of an amount equivalent to seventy five US Cents per ton of gross registered tonnage per annum.”

    The application of tax has been extended up to June 30, 2023 by amending sub-section 2.

    Before amendment the section is read as:

    7A. Tax on shipping of a resident person.—(1) In the case of any resident person engaged in the business of shipping, a presumptive income tax shall be charged in the following manner, namely:—

    (a) ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft purchased or bare-boat chartered and flying Pakistan flag shall pay tonnage tax of an amount equivalent to one US $ per gross registered tonnage per annum; and

    (b) ships, vessels and all floating crafts including tugs, dredgers, survey vessels and other specialized craft not registered in Pakistan and hired under any charter other than bare-boat charter shall pay tonnage tax of an amount equivalent to fifteen US cents per ton of gross registered tonnage per chartered voyage provided that such tax shall not exceed one US $ per ton of gross registered tonnage per annum:

    Explanation.—For the purpose of this section, the expression “equivalent amount” means the rupee equivalent of a US dollar according to the exchange rate prevalent on the first day of December in the case of a company and the first day of September in other cases in the relevant assessment year.

    (2) The provisions of this section shall not be applicable after the 30th June, 2020.

  • Definition of IRIS inserted to Income Tax Ordinance, 2001

    Definition of IRIS inserted to Income Tax Ordinance, 2001

    ISLAMABAD: The Finance Bill 2020 has proposed to insert definition of IRIS to income Tax Ordinance, 2001.

    The Finance Bill 2020 proposed many changes to Section 02 of the Ordinance.

    A new clause (30AC) to Section 2 of the Ordinance has been proposed to define IRIS

    “IRIS” means a web based computer programme for operation and management of Inland Revenue taxes administered by the Board;

    in section 2,—

    A new sub-clause (aa) to clause 29C of Section 2 has been inserted:

    “(aa) from the 1st day of May, 2020, a person directly involved in the construction of buildings, roads, bridges and other such structures or the development of land, to the extent and for the purpose of import of plant and machinery to be utilized in such activity, subject to such conditions as may be notified by the Board; and “;

    After clause (30), the following new clause shall be inserted, namely:—

    “(30A) “integrated enterprise” means a person integrated with the Board through approved fiscal electronic device and software, and who fulfills obligations and requirements for integration as may be prescribed;”;

    After clause (30AB), re-numbered as aforesaid, the following new clause shall be inserted, namely:-

    “(30AC) “IRIS” means a web based computer programme for operation and management of Inland Revenue taxes administered by the Board;”;

    For clause (31A), the following shall be substituted, namely:–

    “(31A) “Local Government” shall have the same meaning for respective provisions and Islamabad Capital Territory as contained in the Balochistan Local Government Act, 2010 (V of 2010), the Khyber Pakhtunkhwa Local Government Act, 2013 (XXVIII of 2013), the Sindh Local Government Act, 2013 (XLII of 2013), the Islamabad Capital Territory Local Government Act, 2015 (X of 2015) and the Punjab Local Government Act, 2019 (XIII of 2019) ;”; and

    In clause (36),—

    In sub-clause (a), for the expression “or development purposes” the expression “purposes for general public” shall be substituted; and

    In sub-clause (b), after the word “registered” the words “by or” shall be inserted.