Tag: ICAP

KARACHI: Federal Board of Revenue (FBR) has been advised to relax export conditions to Afghanistan in order to improve exports and inflows of foreign exchange.

Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020 said that as per SRO 190(I)/2002 dated April 2, 2002, zero rating on Exports under section 4 of the Sales Tax Act is not applicable in respect of supply of certain categories of goods, exported by air or via land route to Afghanistan and through Afghanistan to Central Asian Republics.

Categories of goods specified in SRO 190(I)/2002 have been reproduced below for ready reference:

“(a) manufactured in the Export Processing Zones or in manufacturing bonds;

(b) exported, other than against irrevocable letters of credit, or advance payment, in convertible foreign currency;

(c) exported without fulfilling the conditions prescribed in paragraphs 8, 12B, entry 9 of the Schedule I and Schedule IV to the Export Policy and Procedure Order, 2000; and

(d) specified in the list below, namely: –

(i) cigar, cheroots, cigarillos, and cigarettes of tobacco or of tobacco substitutes;

(ii) dyes and chemicals;

(iii) yarn all types;

(iv) PVC and PMC materials;

(v) polyester metalized film;

(vi) ball bearings;

(vii) vegetable ghee and cooking oil (if exported from Export Processing Zones or manufacturing bonds); and

(viii) all petroleum products whether imported or produced locally (unless there is a Government to Government contract done through oil marketing companies only).”

The ICAP said that similar restrictions, on exports to Afghanistan and through Afghanistan to Central Asian Republic as specified in clause (a), (b) and (d) above are also part of the Export Policy Order, 2016 issued vide SRO 344(I)/2016 dated April 18, 2016.

The ICAP said that goods manufactured in manufacturing bonds are subjected to strict scrutiny by the Customs authorities from import until the final exports stage in accordance with the procedure given in Customs SRO 450(I)/2001 dated June 18, 2001.

Therefore, goods manufactured in the manufacturing bonds are less prone to be used for unscrupulous activities.

The ICAP further noted it understand that restriction on zero rating facility on all items, as per SRO 190(I)/2002 dated April 2, 2002 and SRO 344(I)/2016 dated April 18, 2016, should be revisited, in order to increase overall exports and to prevent other countries like India to capture the market in Afghanistan.

Considering such a situation, the ICAP recommended the following restrictions:

(i) restriction on exports via manufacturing bond be removed and only conditions relating to exports against irrevocable letters of credit, or advance payment, in convertible foreign currency should remain intact owing to the fact that goods manufactured through the manufacturing bond facility are subject to strict scrutiny of the Customs authority;

(ii) for export, other than through manufacturing bond, of goods specified in clause “(d)” of SRO 190(I)/2002 as well as items specified in Schedule III of the Exports Policy Order, 2016, exporters should be made liable to comply with the following conditions:

(a) export transactions must be executed against irrevocable letters of credit, or advance payment, in convertible foreign currency;

(b) zero rating be allowed only in case of exports by Manufacturers from Pakistan to manufacturers in Afghanistan;

(c) where the proof that goods exported have reached Afghanistan has been verified on the basis of a copy of import clearance documents by Afghan Customs Authorities; and

(d) exports should only be routed through authorized export land routes i.e. Torkham, Chaman, Ghulam Khan and Qamar Uddin Karez (when it becomes operational).

It said that restrictions under SRO 190(I)/2002 and SRO 344(I)/2016 were imposed to prevent misuse of zero rating benefits by traders by exporting goods to Afghanistan and thereafter re-importing the same via unlawful means.

The institute believed that a blanket restriction, on all goods manufactured in the manufacturing bond as well as on specific items, instead of bringing the desired results, has dented our Exports market and has also helped the other countries like India, to increase their exports to Afghanistan, which otherwise would have been supplied from Pakistan.

“These suggestions, if implemented in true spirit, will not only increase the overall Exports and Foreign Exchange reserves but will also encourage documented sectors thereby resulting in a major barrier for operations of undocumented sector,” the ICAP said.

KARACHI: Institute of Chartered Accountants of Pakistan (ICAP) has proposed restricting powers of Directorate General of Intelligence and Investigation (I&I) as multiple powers of tax authorities are causing hardship for taxpayers.

The ICAP in its tax proposals for budget 2019/2020 said that the Federal Board of Revenue (FBR) through SRO 115 (I)/2015 dated February 09, 2015 conferred upon the Directorate General (Intelligence and Investigation), Inland Revenue, the powers of the Chief Commissioner/Commissioner:

— to exercise powers and perform functions under Sections 174, 175, 176, 177 (other than power to initiate audit), 178, 179, 180, 181, 182, Part III, Part XI of Chapter X, Sections 205 and 221; and

— to investigate Suspicious Transactions Reports (STRs) or other assets of persons or classes of persons impounded by any department or agency of the Federal or Provincial government and prepare/transmit reports to respective RTOs or LTUs for the purpose of application of Section 111 and for taking appropriate action under the Income Tax Ordinance, 2001.

The ICAP recommended that the law should be amended so that the authority of Director General Intelligence and Investigation is exercised only to investigate Suspicious Transactions Reports (STRs) or other assets of persons or classes of persons impounded by any department or agency of the Federal or Provincial government and prepare / transmit reports to respective RTOs or LTUs for the purpose of application of Section 111 and for taking appropriate action under the Income Tax Ordinance, 2001 and should not exercise the powers under various sections of the Ordinance.

The creation of parallel authorities for the purpose of sections 174, 175, 176, 177, 178, 179, 180, 181, 182, Part III, Part XI of Chapter X, Sections 205 and 221 is causing problems to the taxpayers.

KARACHI: Federal Board of Revenue (FBR) has been recommended to exempt income tax on mortgage loans in order to facilitate salaried persons.

Currently the loans obtained from the employer below Benchmark interest rate is subject to tax, said Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020.

It recommended that the taxation of marginal income on loans obtained from the employer below benchmark rate should be exempted by deleting sub-section (7) of Section 13 of Income Tax Ordinance, 2001.

Alternatively, the minimum threshold of the loan amount on which the provisions of Section 13(7) would not be attracted, should be raised to at least Rs2,500,000 from the existing limit of Rs1,000,000.

Moreover, current benchmark rate of 10 percent of much higher than the prevailing KIBOR rates, therefore, benchmark rate should be reduced suitably to somewhere near KIBOR rate.

“Alternatively, at least the mortgage loans should be exempted from the operation of Section 13(7) of the Income Tax Ordinance, 2001.”

The institute said that this is not a significant source of revenue for the Government on the one hand and very rigid piece of legislation on the salaried taxpayer on the other hand who are hard hit by the present economic situation.

The taxation of this notional income is highly unjust since it taxes the notional income of the salaried person, which is against the basic principle of taxation since this notional income will never ever be received by the taxpayer.

Similar notional income in the hands of employees of educational institutions, restaurants, hospitals, clinics etc. is already exempt under clause (53A) of Part I of Second Schedule.

The rationale underlying this proposal is that:

a) It will boost the housing industry since in today’s economic situation and the presence of speculators in the property market it is next to impossible for a salaried employee to own a house on commercial mark-up rates. Once this industry takes off there will be provision of cheap houses and there will be increase in tax revenue from housing and allied sector;

b) It will contribute in enhancing the national economic activity by extending affordable loans and advances to middle class income group of society;

c) It will remove detrimental financial ramifications due to incremental rate of interest on notional income for all other salaried persons, who are already facing a tough challenge to survive within their paltry resources- all legally declared and tax paid; and

d) The FBR is also cognizant of this fact by stating in Clause (53A) that “any other perquisite or benefit for which the employer does not have to bear any marginal cost; and the Circular Letter 4(8)IT-J/91 dated June 30, 1991 issued by then CBR opines that “…it is not desirable to tax such notional income…”. The same principle should be applied in this situation.

KARACHI: Federal Board of Revenue (FBR) has been suggested to restrict non-filers of income tax returns from purchasing gold bars, jewelry and other luxury goods in order to broaden tax net.

“In addition to the restriction on purchase of immovable property and motor vehicles by non-filers, the punishment should be made even severe by foisting a restriction or imposing an additional charge of tax, on non-filers upon purchase of other luxury goods, including gold bars and jewelry, paintings, antiques, electronics etc.”

The suggestions were made by Institute of Chartered Accountants of Pakistan (ICAP) in its tax proposals for budget 2019/2020 in order to broaden the tax base and documentation of economy.

The institute said that the proposed restriction would eradicate the indifference between a filer and non-filer, and giving a sense of benefit to the filers, while non- filers should be penalized heavily.

Giving recommendations and rationales in this regard it said:

— Increase withholding income tax and sales tax for non-filers/unregistered persons by 50 percent higher rates; ‘further tax’ on sale to unregistered person should be increased to 5 percent.

— Extra tax on commercial and industrial utilities connection should be increased to 15 percent for unregistered person.

— Separate teams should be made and assigned responsibilities to visit the local shops, retail outlets and services providers to verify that proper sales tax invoices are generated and persons are registered with revenue authorities, if not they should be heavily penalized and compulsorily registered.

— All utility connections amounting to Rs2.4 million or more of non-filers should be forced to get registered by issuance of Show-Cause Notices.

In case of noncompliance, their utility connections should be disconnected.

— An additional charge of tax should be foisted on non-filers upon purchase of luxury goods, such as gold bars and jewelry, paintings, antiques, electronics etc.