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Tag: Income Tax Ordinance 2001

  • Section 203A to result in corruption, harassment: FPCCI

    Section 203A to result in corruption, harassment: FPCCI

    KARACHI: Nasir Khan, acting president of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Wednesday said that the government has not incorporated practical, business-friendly and growth-promoting proposals of FPCCI in the budget; sent well before the Budget 2021-22.

    He maintained that it is a gross negligence on government’s part to ignore the apex representative body of Pakistan’s business, industrial and trade community.

    Nasir Khan also criticized the Section 203A of Income Tax Ordinance, 2001 introduced through the budget 2021/2022, which empowers and expands the discretionary powers of FBR.

    He added that it will only result in increase in corruption and harassment. He added that although Section 203A has been amended through introduction of slabs; but, still FPCCI is of the view that powers to arrest and prosecute will create fearful and discouraging environment for SMEs.

    He said that Section 203A is equivalent to NAB’s law and provision should be added to make FBR accountable; if it cannot establish any corruption or tax evasion. This Section 203A also violates basic rights and the honourable Supreme Court should intervene to protect the businessmen of the country.

    Acting President of FPCCI also pointed out that a blanket exemption for FED has been given to FATA and PATA; without surveying and quantifying the genuine needs and total demand of FATA and PATA population.

    This will render industries in adjacent regions and all over the country uncompetitive in comparison to those industrial units which are exempt from FED in FATA and PATA. He added that there is a strong possibility that industrial units may exploit the FED exemption and utilize it to produce for regions other than FATA and PATA. He also added that there must be a strict mechanism to avoid misuse of the FED exemption and subsequent prosecution.

    Nasir Khan also expressed his shock that FPCCI sent its recommendations on tax system reforms and simplification of tax rates to Prime Minister and he instructed FBR to have a consultative process with FPCCI; but, FBR did not start that process. He also mentioned that Shaukat Tarin promised that the budget will not be made without consulting FPCCI; but, unfortunately, that promise was also not kept.

    Nasir Khan has suggested that corporate courts should be established in the country to counter and balance the weak policies of the successive governments and ensure protection to SMEs.

    Nasir Khan mentioned that surprisingly FBR has made a banker the head of its Budget Anomalies Committees; who has no understanding of trade, SMEs and economic affairs.

    Zakaria Usman, Convener Budget Advisory Council of FPCCI, said that the government should ensure consistency of policies to encourage investment in the country.

    FPCCI demands that the Honourable Prime Minister of Pakistan must intervene and resolve the issues that are anti-business and anti-growth. FPCCI is ever-ready to resolve all outstanding issues through discussion and a mutually-beneficial dialogue.

  • FBR categorizes heads of income for tax collection

    FBR categorizes heads of income for tax collection

    The Federal Board of Revenue (FBR) in Pakistan has outlined five distinct heads of income for the purpose of tax collection from both individuals and corporate entities.

    (more…)
  • Domestic electricity consumers to pay tax on monthly bill above Rs25,000

    Domestic electricity consumers to pay tax on monthly bill above Rs25,000

    ISLAMABAD: The tax authorities have imposed tax on domestic electricity consumers – whose monthly bill is Rs25,000 and above.

    According to a commentary on budget 2021/2022 by KPMG Taseer Hadi & Co. currently, tax collection on domestic consumers of electricity is prescribed under section 235A of Income Tax Ordinance, 2001 whereby 7.5 per cent advance tax is required to be collected if the monthly electricity bill is of Rs. 75,000 or more.

    Such advance tax is adjustable against tax liability of such person. Whereas, tax collection on commercial and industrial consumer of electricity is prescribed under section 235 of the Income Tax Ordinance, 2001.

    The Finance Bill 2021 proposed to withdraw section 235A and also proposes to insert requirement of tax collection on domestic consumers of electricity in section 235 based on following criteria:

    —if the consumer’s name is not appearing in Active Taxpayers List (ATL);

    —monthly bill is Rs. 25,000 or more;

    —tax rate will be 7.5 per cent;

    —tax collection on annual bill amount up to Rs360,000 will be minimum tax;

    —tax collection on monthly bill over and above Rs. 30,000 will be adjustable against tax liability of a person.

    The Bill further proposed to exclude those persons whose entire income is subject to final tax or minimum tax regime under any provisions of the Income Tax Ordinance, 2001 from the application of the above section.

  • Finance Bill amends concealment of income definition

    Finance Bill amends concealment of income definition

    ISLAMABAD: The Finance Bill, 2021 has proposed to redefine the concealment of income by including suppression of receipts liable to tax.

    According to budget 2021/2022 documents, the Finance Bill 2021 proposed to make amendment in the Income Tax Ordinance, 2001 regarding concealment of income.

    The proposed amendment explains concealment of income includes –

    “(a) the suppression of any item of receipt liable to tax in whole or in part, or failure to disclose income chargeable to tax;

    (b) claiming any deduction or any expenditure not actually incurred; and

    (c) any act referred to in sub-section (1) of section 111 of Income Tax Ordinance, 2001.

    Explanation.- For the removal of doubt, it is clarified that where any item of receipt declared by the taxpayer is claimed as exempt from tax, or where any deduction in respect of any expenditure is claimed, mere disallowance of such claim shall not constitute concealment of income or the furnishing of inaccurate particulars of income, unless it is proved that the taxpayer deliberately claimed exemption from tax in respect of the aforesaid item of receipt or claimed deduction in respect of such expenditure not actually incurred by him.”

  • Budget 2021/2022: salient features of measures taken in income tax

    Budget 2021/2022: salient features of measures taken in income tax

    ISLAMABAD: The federal government on Friday announced budget for fiscal year 2021/2022 and notified relief and revenue measures in income tax.

    REVENUE MEASURES

    • Special regime for export of services at par with export of goods to be taxed @ 1% under final tax regime.

    • Elimination of block taxation of property income and shift to normal tax regime.

    • Reduction of block taxation on capital gain on disposal of immoveable properties if gain exceeds Rs. 20 million.

    • Reduction in block taxation on interest income, if it exceeds Rs. 5 million.

    • Tax on “on” money on vehicles, if vehicle is disposed without registration.

    • Expansion of scope of withholding tax collection from supply chain below manufacturers and importers of specified sectors (sections 236G and 236H).

    • Reduction in threshold of monthly electricity bill for withholding tax on electricity consumption from 75,000 to 25,000 from domestic users not appearing on Active Taxpayers’ list.

    • Removal of requirement of issuance of separate notice in concealment cases.

    • Withholding of tax on rental income of sub-lessee.

    • Broadening of scope of withholding agents for the purpose of collection of withholding tax on commission income (section 233).

    • Streamlining withholding tax collection on sale and purchase of immoveable property (section 236C and 236K).

    • Rationalization of withholding tax regime for exporters.

    • Taxability of profit on debt component of GP fund and other such funds.

    • Withdrawal of personal income tax exemptions.

    • During the current financial year, Tax Laws (Second Amendment) Ordinance, 2021was promulgated to implement corporate income tax reforms to provide level playing field to all businesses. Certain tax credits, concessions and exemptions were withdrawn. The provisions of the Ordinance have been made part of the Finance Bill.

    RELIEF MEASURES

    • Deletion of 12 withholding taxes

    Sections of Income Tax Ordinance, 2001

    153B: Collection of tax on payment of royalty to residents.

    231A: Collection of tax on cash withdrawal.

    231AA: Collection of tax on banking instruments.

    236P: Collection of tax on banking transactions other than through cash.

    236Y: Collection of tax from persons remitting amounts abroad through credit or debit or prepaid cards.

    236B: Collection of tax on domestic air travel.

    236L: Collection of tax on international air travel.

    236V: Collection of tax on extraction of minerals.

    233A: Collection of tax from members by a stock exchange registered in Pakistan.

    233AA: Collection of tax on marginal financing by NCCPL.

    234A: Collection of tax from CNG stations.

    236HA: Collection of tax on certain petroleum products.

    • Merging of 3 withholding taxes with other existing provisions

    Merged with

    150A: Deduction of tax on return on investment in Sukuks.

    Proposed to be merged in section 151 for residents and in section 152 for non-residents which deal with such payments.

    152A: Deduction of tax on payments for foreign produced commercials.

    To be merged with section 152 which deals with payments to non-residents.

    236S: Collection of tax on dividend in specie.

    To 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 10 years.

    • 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.

    • 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.

    STREAMLING MEASURES

    • Strengthening mechanism of Alternate dispute resolution.

    • Elimination of requirement of filing of application for automated issuance of refund.

    • Introduction of time limitation for disposal of show cause notices.

    • Recording of e-hearing to be admissible evidence.

    • Automated issuance of exemption certificates if application is not disposed by Commissioner within 15 days.

    • Removal of requirement of updating tax profile.

    • Clarity regarding taxation of income of co-operative societies from sale and services to its own members.

    • Delegation of power of Federal Government to Board with the approval of Federal Minister in-charge.

    • Extension of time limitation for issuance of notice for filing of return in case of foreign income or foreign assets.

    • Time limitation for completion of assessment in pursuance of orders of the Commissioner.

    • Streamlining measure for monitoring of withholding taxes requiring taxpayers to file online statement along with reconciliation.

    • Establishment of Directorate of compliance Risk Management in FBR.

    DOCUMENTATION MEASURES

    • Tax credit on installation of point of sale machines.

    • Notification of business bank accounts made mandatory.

    • Measures for the documentation of business of used cars.

    • Harmonization of procedure for investigation and prosecution of offences under domestic tax laws.

  • SHC declares income tax on undistributed profits as unconstitutional

    SHC declares income tax on undistributed profits as unconstitutional

    KARACHI: Sindh High Court (SHC) on Friday declared levy of tax on undistributed profits under Section 5A of Income Tax Ordinance, 2001 as unconstitutional and set aside all the show cause notices and demand notices issued by the tax authorities under the section.

    A division bench of the SHC ordered in Sapphire Textile Mills Limited vs Federation of Pakistan & Others: “insertion of Section 5A in the Income Tax Ordinance, 2001, including amendments theretho from time to time, does not fall within the parameters delineated per Article 73 of the constitution of Pakistan, 1973, hence, the provision impugned is found to be ultra vires of the constitution, and is hereby struck down.”

    It ordered further that as a consequence, any show cause / demand notices or constituents thereof, seeking enforcement of Section 5A of the Income Tax Ordinance, 2001, are hereby set aside.

    A large number of taxpayers filed petition before the higher court seeking relief against action initiated by Federal Board of Revenue (FBR).

    The petitioners challenged the Section 5A of the Income Tax Ordinance, 2001, which was initially inserted in the Ordinance through Finance Act, 2015 and amended through Finance Act, 2017, ostensibly in order to induce certain public companies to distribute dividends among their shareholders.

    In original form, as inserted through Finance Act, 2015, the tax was levied upon the reserves of a company. However, post Finance Act, 2017 the levy befell upon accounting profit before tax of a company.

    The petitioners requested the court to declare the provision as unconstitutional. The plain reading of Section 5A suggests that it amounts to double taxation, as income received or taxed in the same hand ceases to be income.

    It is submitted: “the regulation of companies is undertaken inter alia vide the Companies Act, 2017, being special in nature, and any attempt at such regulation by inserting penal provisions into the Ordinance routed through a money bill, was prima facie unmerited.”

    Counsel for the respondents submitted: “5A did not amount to double taxation as it contemplated an independent levy.”

    It was argued that 5A identified a class to be taxed, hence, could not be considered discriminatory.

    It was concluded that the legislature had ample power to regulate economic behavior and 5A was merely one specie of exercise of such power.

    The court observed that 5A of the Ordinance amounts to legislation, not contemplated in the Constitution to be undertaken vide a money bill. “In such a scenario no rationale has been articulated before us to justify the regulation of companies behavior, pertaining to dividends, to be effected vide a money bill, within the mandate of Article 73 of the Constitution, while abjuring the regular legislative process.

    “Therefore, it is our deliberated view that section 5A of Income Tax Ordinance, 2001 cannot be sustained on the constitutional anvil; hence, could not be construed to have legal effect.”

  • FBR officials given access to declarations filed under amnesty scheme

    FBR officials given access to declarations filed under amnesty scheme

    ISLAMABAD: The senior officials of the Federal Board of Revenue (FBR) have been authorized to access declarations of undisclosed income and assets under amnesty scheme of year 2019.

    The FBR issued SRO 369(I)/2021 to notify Assets Declaration Rules, 2021 dated March 31, 2021. Under rule 15 access has been authorized to declarations under the act i.e. Assets Declaration Act, 2019.

    According to the rule 15: Member Information Technology and Member IR (Operations) are authorized by the FBR to access the declarations under Section 14 of the Act, on their own or when a request by the concerned chief commissioner IR, supported with reasons, is forwarded to any of the aforementioned Members for provision of a copy of the declaration.

    Rule 8 of the notified SRO explained about treatment of asset, income or expenditure in a declaration. According to it the amount of asset, income or expenditure in a valid declaration for and upto tax year 2018 shall not be included in a taxable income of the declarant for any tax year under the Income Tax Ordinance, 2001.

    The FBR explained: “For removal of doubt it is clarified that any assets, income or expenditure that can be plausibly traced as sourced in assets or income declared in a valid deduction shall not be called into question.”

    Rule 9 has explained about the proceedings under the Income Tax Ordinance, 2001 in respect of the information received other than under Common Reporting Standards (CRS).

    Sub Rule 1 stated that subject to sub-rule (2), no proceedings under any provisions of the Income Tax Ordinance, 2001 shall be initiated on the basis of any information relating to any asset, income or expenditure as the 30th day of June 2018 or any prior period, if the information relates to a declarant under the Asset Declaration Act, 2019 and the declarant files an irrevocable written statement along with documentary evidence to the effect that the source of the asset, income or expenditure in the received information has been the assets, income or expenditure declared under the Act. The declarant shall file such a statement on a notice under Section 176 of the Income Tax Ordinance, 2001 along with the related documentary evidence.

    Sub-Rule 2 of Rule 9 stated that the nature and source of asset, income or expenditure shall not be treated as explained and the Commissioner Inland Revenue or his delegate shall be entitled to proceed under Section 111 of the Income Tax Ordinance, 2001, on the basis of definite information acquired from any source other than a valid declaration itself, in following cases:

    (a) where the value of asset, income or expenditure, as at the 30th day of June 2018 or before as per the definite information is in excess of value as per declaration; and

    (b) where the source of asset, income or expenditure relates to a person other than the declarant.

    Sub-Rule 3 of Rule 9 stated that where an action under Section 111 of the Income Tax Ordinance, 2001 as undertaken in accordance with the sub-rule (2) results in invalidation of the declaration then such an action cannot be initiated without prior approval, for reasons to be recorded in writing, of the chief commissioner inland revenue as defined in clause (11B) of the Section 2 of the Income Tax Ordinance, 2001.

    Rule 10 explained declaration filed and the information received under CRS. According to sub-rule 1 of the Rule 10, where a foreign asset or income is reported to the FBR under CRS, then prior to any action under any provision of the Income Tax Ordinance, 2001, the FBR shall ensure compliance of the condition under the protocol for CRS including exchange of information by the person whose information has been received. On completion of that process, following procedure shall be followed:

    (a) the commissioner inland revenue of the concerned person or delegate of the commissioner shall issue a notice under section 176 of the Income Tax Ordinance, 2001;

    (b) the notice referred in clause (a) of this sub-rule shall enquire as to whether or not such asset, income or expenditure has been declared under the Voluntary Declaration of Domestic Assets Act, 2018 and the Foreign Assets (Declaration and Repatriation) Act, 2018 or Asset Declaration Act, 2019;

    (c) if the taxpayer informs the commissioner Inland Revenue or his delegate that the asset, income or expenditure, as reported under the CRS has been declared in a declaration, the commissioner Inland Revenue or his delegate shall require the taxpayer to provide a copy of the declaration; and

    (d) the taxpayer on receipt of such notice under section 176 of the Income Tax Ordinance, 2001 shall:

    (i) provide a copy of his declaration where such asset, income or expenditure, as the case may be, has been declared; and

    (ii) provide a copy of the declaration of another person, being the beneficial owner, where the asset, income or expenditure referred to in the CRS has been declared.

    Sub-Rule 2 of the Rule 10 stated that subject to the provision of Section 11 of the Asset Declaration Act, 2019, in case the information received under CRS as referred above are in agreement then a confirmation in writing shall be issued by the Commissioner Inland Revenue or his delegate that the asset, income or expenditure to the extent referred to in the letter has been declared under the respective declaration law.

    Through Rule 11, the FBR explained the beneficial ownership. The sub-rule 01 of Rule 11 stated that in case of matter relating to legal or beneficial ownership of an asset, income or expenditure, the claim of beneficial ownership shall not be questioned unless there is definite information that the asset was created out of sources of a person other than the person claiming the beneficial ownership.

    The sub-rule (2) of the Rule 11 stated where in the case of a foreign trust the source of contribution to the trust is claimed by any person other than settler, beneficiary or the trustees, the person so claiming shall be entitled to declare his contribution under the Asset Declaration Act, 2019. Such declaration shall not be called in question merely on account that such person is not the settler, beneficiary or trustee of the trust.

    Provided that where the asset, income or expenditure is reported under CRS in the name of settler, beneficiary of the trust or any person, proceedings shall be initiated against such person in the absence of a declaration by such settler, beneficiary or other persons;

    Provided further that in such a case any claim, by a third person as contributor to the asset, income or expenditure, shall only be considered if supported with documentary evidence.

    Through Rule 12, the FBR also explained declaration made by relatives of holder of public office. Sub-rule 1 of the Rule 12 stated that the status of a person as to the holder of public office or otherwise and the period during which a person remained holder of public office shall not be questioned or challenged by the commissioner Inland Revenue or his delegate if the same is confirmed by the relevant office.

    Sub-rule 2 of the Rule 12 stated that no declaration by a person entitled to file a declaration under the Asset Declaration Act, 2019 shall b questioned only for the reason that the declarant is a relative other than spouse and dependent children of the declarant of a person being a holder of public office unless it is confirmed through a definite information that the asset, income or expenditure have been created out of the undisclosed sources of a holder of public office.

  • First year allowance on plant, machinery withdrawn

    First year allowance on plant, machinery withdrawn

    ISLAMABAD: First year allowance has been withdrawn that was allowed on installation of plant and machinery by any industrial unit. The concession has been withdrawn through Tax Laws (Second Amendment) Ordinance, 2021.

    The first year allowance has been abolished that was available under Section 23A of Income Tax Ordinance, 2001 at the rate of 90 percent. An initial allowance was available at 25 percent for installation of plant and machinery, according to officials of the Federal Board of Revenue (FBR).

    The omitted section 23A was:

    First Year Allowance.—(1) Plant, machinery and equipment installed by any industrial undertaking set up in specified rural and under developed areas or engaged in the manufacturing of cellular mobile phones and qualifying for exemption under clause (126N) of Part I of the Second Schedule and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under section 23 at the rate specified in Part II of the Third Schedule against the cost of the “eligible depreciable assets” put to use after July 1, 2008.

    (2) The provisions of section 23 except sub-sections (1) and (2) thereof, shall mutatis mutandis apply.

    (3) The Federal Government may notify “specified areas” for the purposes of sub-section (1).

  • Computation of taxable income defined

    Computation of taxable income defined

    Income Tax Ordinance, 2001 has explained procedure for computation of taxable income.

    The Income Tax Ordinance, 2001 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR), explained COMPUTATION OF TAXABLE INCOME under Sections 9, 10 and 11 of the ordinance.

    9. Taxable income.—The taxable income of a person for a tax year shall be the total income under clause (a) of section 10 of the person for the year reduced (but not below zero) by the total of any deductible allowances under Part IX of this Chapter of the person for the year.

    10. Total Income.— The total income of a person for a tax year shall be the sum of the —

    (a) person’s income under all heads of income for the year; and

    (b) person’s income exempt from tax under any of the provisions of this Ordinance.

    11. Heads of income.— (1) For the purposes of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely: —

    (a) Salary;

    (b) Income from Property;

    (c) Income from Business;

    (d) Capital Gains; and

    (e) Income from Other Sources.

    (2) Subject to this Ordinance, the income of a person under a head of income for a tax year shall be the total of the amounts derived by the person in that year that are chargeable to tax under the head as reduced by the total deductions, if any, allowed under this Ordinance to the person for the year under that head.

    (3) Subject to this Ordinance, where the total deductions allowed under this Ordinance to a person for a tax year under a head of income exceed the total of the amounts derived by the person in that year that are chargeable to tax under that head, the person shall be treated as sustaining a loss for that head for that year of an amount equal to the excess.

    (4) A loss for a head of income for a tax year shall be dealt with in accordance with Part VIII of this Chapter.

    (5) The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income.

    (6) The income of a non-resident person under a head of income shall be computed by taking into account only amounts that are Pakistan-source income.

  • What is ‘start up’ under income tax ordinance?

    What is ‘start up’ under income tax ordinance?

    Income Tax Ordinance, 2001 has defined the meaning of ‘start up’ for the purpose of levying income tax.

    The Income Tax Ordinance, 2001 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR), defined ‘startup’ as:

     (i) a business of a resident individual, AOP or a company that commenced on or after first day of July, 2012 and the person is engaged in or intends to offer technology driven products or services to any sector of the economy provided that the person is registered with and duly certified by the Pakistan Software Export Board (PSEB) and has turnover of less than one hundred million in each of the last five tax years; or

    (ii) any business of a person or class of persons, subject to the conditions as the Federal Government may, by notification in the official Gazette, specify.