KARACHI: The filing of wealth statement has been made mandatory for persons filing annual income tax return for tax year 2019.
(more…)Tag: Income Tax Ordinance 2001
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Persons not required filing income tax return, wealth statement
The Income Tax Ordinance, 2001, under Section 115, specifies classes of persons exempted from filing annual income tax returns and wealth statements for the tax year 2019.
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FBR bars tax officials from entering taxpayers premises for search, audit
ISLAMABAD: Federal Board of Revenue (FBR) has barred officers of Inland Revenue from entering premises of taxpayers for search and audit purposes.
The FBR issued a notification on Monday and restricted IR officers for invoking Section 175(1) of Income Tax Ordinance, 2001.
The FBR received numerous complaints of taxpayers that tax officials were abusing powers available under this section.
The IR officers were allowed under this section to enter and search premises.—
(1) In order to enforce any provision of this Ordinance (including for the purpose of making an audit of a taxpayer or a survey of persons liable to tax), the Commissioner or any officer authorised in writing by the Commissioner for the purposes of this section –
(a) shall, at all times and without prior notice, have full and free access to any premises, place, accounts, documents or computer;
(b) may stamp, or make an extract or copy of any accounts, documents or computer-stored information to which access is obtained under clause (a);
(c) may impound any accounts or documents and retain them for so long as may be necessary for examination or for the purposes of prosecution;
(d) may, where a hard copy or computer disk of information stored on a computer is not made available, impound and retain the computer for as long as is necessary to copy the information
required; and(e) may make an inventory of any articles found in any premises or place to which access is obtained under clause (a).
The FBR said that in exceptional cases the section may be invoked but with the prior permission of the chief commissioner of Inland Revenue.
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Abolition of SRO 1125 does not affect income tax concessions
KARACHI: The abolition of SRO 1125(I)/2011 has not taken away concessions available under income tax laws, the ministry of law and justice said in its opinion.
The SRO 1125(I)/2011 has been rescinded through Finance Act, 2019 and all the benefits available under this such as zero-rating of sales tax and reduced rates of sales tax had been abolished.
The Federal Board of Revenue (FBR) sent an Office Memorandum (OM) to the ministry of law and justice explaining that SRO 1125(I)/2011 dated December 31, 2011 had prescribed zero-rate sales tax for a particular class of taxpayers, while SRO 480(I)/2007 dated June 09, 2007 had specified the Sales Tax Procedure Rules, 2007.
Both SROs stood rescinded through SRO 694(I)/2019 dated June 29, 2019.
“Thus, in view of the aforesaid recession there is no doubt that the sales tax concession available under SRO 1125 and SRO 480 is no longer available.”
The ministry said that the answer to the queries raised in the OM warrants to be divided into two parts. The first part deals with Part II of the First Schedule to the Income Tax Ordinance, 2001, which deals with imports under Section 148 of the 2001 Ordinance; while the second part deals with Section 235-B(1) of the 2001 Ordinance.
“We have been instructed to the effect that Part II of the First Schedule to the 2001 Ordinance has given a certain reprieve to a ‘specified class of taxpayers’ for the purposes of import under section 148 of the 2001 Ordinance. In prescribing the said reprieve of income tax, the specified class of taxpayers who qualify for the said concession have been described in Part II of the First Schedule to the 2001 Ordinance to be those who are covered under SRO 1125 i.e. the notification which had prescribed the zero rated sales tax.”
“Therefore, the precise query posed to us is whether the repeal of SRO 1125 automatically also takes away the income tax concession given under Part II of the First Schedule to the 2001 Ordinance, in respect of imports under Section 148 of the 2001 Ordinance, 2001? The simple answer is that the concession prescribed in Part II of the First Schedule to the 2001 Ordinance has not been taken away.”
It is only for the purpose of a handy and convenient description of the person who are meant to enjoy the benefit or reprieve under Part II of the First Schedule to the 2001 Ordinance have been cross referred or defined to be the ‘specified class of taxpayers’ who qualify for the reprieve under SRO 1125.
The said reference is only for the purpose of a convenient identification of that class which is meant to enjoy the concession under Part II of First Schedule to the Income Tax Ordinance, 2001, the ministry said.
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FBR explains tax treatment on foreign controlled entity by resident Pakistani
ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday explained treatment of tax on foreign controlled entity by a resident Pakistani.
The FBR issued Circular No. 13/2019 for explaining the Section 109A of Income Tax Ordinance, 2001.
The FBR said that a new section 109A had been introduced through Finance Act, 2018, which is effective from July 01, 2018. “Return for tax year 2019 will be the first year when provision of this section will become applicable.”
This section states the taxable income of resident person shall include income attributable to a “Controlled Foreign Company.”
The FBR said that in ordinary sense, income of a foreign company owned by a Pakistani resident is taxable in Pakistan only when such income is received from the non-resident entity.
Section 109A(1) of the Ordinance is a deeming provision which essentially creates legal fiction resulting in following exceptions:
(a) Corporate veil is pierced and income of a company is deemed to be the income of controlling entity; and
(b) income is taxed in the year it is earned not when it is actually received. This is the consequence of the first action because when corporate veil is pierced the income becomes taxable when earned.
Explaining the CFC, the FBR said that in order determine that a foreign company is a controlled foreign company either of the two conditions regarding control of the resident over foreign company has to be fulfilled:
(i) more than fifty percent of the capital or voting rights of the non-resident company are held, directly or indirectly, by one or more persons resident in Pakistan; or
(ii) more than forty percent of the capital of the voting rights of the non-resident company are held, directly or indirectly, by a single resident person in Pakistan.
However, a foreign entity which fulfills either of the above condition, cannot be treated as a CFC if:
(i) the shares of the company are traded on any stock exchange recognized by law of the country or jurisdiction of which the non-resident company is resident for tax purpose;
(ii) the non-resident company derives active business income as defined under Sub-Section (3) of Section 109A; and
(iii) tax paid, after taking into account any foreign tax credits available to the non-resident company, on the income derived or accrued, during a foreign tax year, by the non-resident company to any tax authority outside Pakistan is less than sixty percent of the tax payable on the said income under the Ordinance.
The FBR further explained the concept of active business income: It said that ‘Active Income’ for the purpose of exclusion from CFC regime requires simultaneous fulfillment of two conditions:
(i) cumulative income from dividend, interest, property, capital gains, royalty, annuity payment, supply of goods or services to an associate, sale or licensing of intangibles and management, holding or investment in securities and financial assets is less than 20 percent of the total income of the said company; and
(ii) principal source of the company is under the head ‘income from business’ in the country or jurisdiction of which it is a resident.
The FBR said that the term ‘direct control’ refers to direct ownership of capital or voting right in the foreign entity. However, the term ‘indirect control’ is very wide in its connotation. “It includes indirect control by a company through subsidiary companies in which the resident person holds capital or voting rights but also includes other companies in which the resident person exercises control through ownership of capital or voting rights.”
Regarding ‘attributable income’ under Section 109A(1) of the Ordinance the FBR said that it is in the hand of resident person. The taxable income is income generated by a controlled company that should have been taxed ‘when earned’ instead of ‘when distributed.’
The attributable income of the resident person shall be determined by comparing the percentage of control (whether direct or indirect) held by the said person over the CFC.
Certain other exclusion have also been prescribed by law which are:
(i) Income of a controlled foreign company shall be treated as zero, if it is less than ten million rupees.
(ii) If direct/indirect capital or voting right held by the resident person is less than 10 percent in the foreign entity.
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FBR excludes self-generated goodwill from intangibles
ISLAMABAD: Federal Board of Revenue (FBR) has said that self-generated goodwill or any adjustment arising on account of account treatment as may be prescribed in rules has been excluded from the definition of intangibles.
Explaining the changes made to Income Tax Ordinance, 2001 through Finance Act, 2019, the FBR said that the term intangible has been defined in sub-section (11) of section 24.
The Ordinance defines the intangible as: “any patent, invention, design or model, secret formula or process, copyright, trade mark, scientific or technical knowledge, computer software, motion picture film, export quotas, franchise, licence, intellectual property, or other like property or right, contractual rights and any expenditure that provides an advantage or benefit for a period of more than one year (other than expenditure incurred to acquire a depreciable asset or unimproved land).
The FBR said that amortization deduction has been allowed under Section 24 for the cost of a person’s intangibles that have a normal useful life exceeding one year and that are wholly or partly used by the person in the tax year in deriving income from business chargeable to tax.
Amortization deduction for a tax year is computed by dividing the cost of the intangible over normal useful life of the intangible in whole year.
Prior to the Finance Act, 2019, sub-section (4) of Section 24 stated that where an intangible had a normal useful life of more than ten years or where its useful life was not ascertainable, it was treated to have a normal useful life of 10 years.
Through the Finance Act, 2019, sub-section (4) of Section 24 has been substituted to the effect that an intangible shall now be amortized over its actual normal useful life which can extend beyond ten years also.
Further, where the normal useful life is not ascertainable, the intangible shall be treated to have normal useful life of 25 years.
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FBR issues withholding tax rates on cash, online banking transactions
KARACHI: Federal Board of Revenue (FBR) has issued withholding tax card for tax year 2019/2020 and prescribed the rate of withholding income tax to be deducted/collected on transactions made through banking system either by cash or online transfers.
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FBR issues rules for filing biannual withholding statement
ISLAMABAD: Federal Board of Revenue (FBR) on Wednesday notified amendments to Income Tax Rules, 2002 under which withholding agents are required to file withholding statements biannually instead monthly.
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Withholding Tax Card: non-ATL persons to pay 30pc tax on dividend income
KARACHI: Federal Board of Revenue (FBR) has issued withholding tax card for tax year 2019/2020 effective from July 01, 2019 under which person not appearing on the Active Taxpayers List (ATL) shall pay up to 30 percent on dividend income.
According to documents made available to PkRevenue.com, the FBR said that every person paying dividend shall collect withholding tax under Section 150 of the Income Tax Ordinance, 2001 at the time the dividend is actually paid.
The following rates shall be applicable for tax year 2019/2020:
(a) In the case of dividend paid by Independent Power Purchasers (IPPs) whereas such dividend is a pass through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be reimbursed by Central Power Purchasing Agency (CPPA-G) or its predecessor or successor entity:
The tax rate shall be 7.5 percent and in case persons not appearing in the ATL the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 15 percent.
(b) In cases other than mentioned at (a) above the tax rate shall be 15 percent and if persons not appearing in the Active Taxpayers’ List the rate of tax required to be deducted/collected, as the case may be, is to be increased by 100 percent of the above (as specified in the First Schedule to the Income Tax Ordinance, 2001 (updated as per Finance Act, 2019), i.e. 30 percent.
The FBR further said that special purpose vehicle, company shall collect withholding tax under Section 150A of Income Tax Ordinance, 2001 from Sukuk holders on payment of gross amount of return on investment.
On Payment of return on investment in Sukuks:
a) In case the Sukuk- holder is a company, the tax rate shall be 15 percent and if persons not appearing in the Active Taxpayers’ List the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 30 percent.
b) In case the Sukuk – holder is an individual or an association of person, if the return on investment is more than one million, the tax rate shall be 12.5 percent and if persons not appearing in the Active Taxpayers’ List then the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 25 percent.
c) In case the Sukuk – holder is an individual and an association of person, if the return on investment is less than one million, the tax rate shall be 10 percent and if persons not appearing in the Active Taxpayers’ List then the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 20 percent.
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Withholding Tax Card: Tax rates on imports of goods for ATL, non-ATL persons
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Withholding Tax Card: Tax rates on imports of goods for ATL, non-ATL persons
KARACHI: Federal Board of Revenue (FBR) has issued withholding tax rates on imports of goods for persons appearing on Active Taxpayers List (ATL) and for persons not on ATL under Section 148 of Income Tax Ordinance, 2001 for tax year 2019/2020 effective from July 01, 2019.
According to documents made available to PkRevenue.com the FBR said that the collector of customs shall collect the withholding tax rate at the prevailing rates from persons on the Active Taxpayers List (ATL) and double amount of tax from those persons, who are not on the ATL.
The FBR said that 1 percent of the import value increased by Custom duty, sales tax and federal excise duty shall be collected. And in case persons not appearing in the Active Taxpayers’ List : The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 2 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
Tax to be collected from every importer of goods on the value of goods.
1 (i) Industrial undertaking importing remeltable steel (PCT Heading 72.04) and directly reduced iron for its own use;
(ii) Persons importing potassic of Economic Coordination Committee of the Cabinet’s decision No. ECC-155/12/2004 dated the 9th December, 2004
(iii) Persons importing Urea;
(iv) Manufactures covered under Notification No. S.R.O 1125(I)/2011 dated the 31st December, 2011 and importing items covered under S.R.O 1125(I)/2011 dated 31st December, 2011.
(v) Persons importing Gold; and
(vi) Persons importing Cotton
(vii) Persons importing LNG.
Minimum Tax [Section 148(7)]
The tax required to be collected under this section shall be minimum tax on the income of importer arising from the imports subject to sub-section (1) of this section and this sub-section shall not apply [i.e Adjustable] in the case of Import of:a. Raw material, plant, equipment & parts by an industrial undertaking for its own use;
b. [motor vehicle] in CBU condition by manufacturer of motor vehicle].
c. Large import houses as defined / explained in 148(7)(d)
d. A foreign produced film imported for the purposes of screening and viewing]
The tax collected under this section at the time of import of ships by ship-breakers shall be minimum tax. [Section 148(8A)]
Industrial undertaking importing Plastic raw material (PCT Heading 39.01 to 39.12) for its own use, the tax rate shall be
1.75 percent of the import value as increased by Custom-duty, sales tax and federal excise duty
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 3.5 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
2. Persons importing pulses shall pay 2 percent of the import value as increased by Custom-duty, sales tax and federal excise duty.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 4 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
3. Commercial importers covered under Notification No. S.R.O 1125(I)/2011 dated the 31st December, 2011 and importing items covered under S.R.O 1125(I)/2011 dated the 31st December, 2011, shall pay 3 percent of the import value as increased by custom-duty sales tax and federal excise duty.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 6 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
Commercial Importer importing Plastic raw material (PCT Heading 39.01 to 39.12) for its own use shall pay 4.5 percent of the import value as increased by Custom-duty, sales tax and federal excise duty.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 9 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
4. Persons importing coal shall pay 4 percent.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 8 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
5. Persons importing finished pharmaceutical products that are not manufactured otherwise in Pakistan as certified by the Drug Regulatory of Pakistan, shall pay 4 percent.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 8 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
6. Ship breakers on import of ship shall pay 4.5 percent.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 9 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
7. Industrial undertakings not covered under S.No 1 to 6 shall pay 5.5 percent.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 11 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
8. Companies not covered under S. Nos. 1 to 7 shall pay 5.5 percent.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 11 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
9. Persons not covered Under S.Nos1 to 8 shall pay 6 percent.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 12 percent of the import value increased by Custom –duty, sales tax and federal excise duty.
On Import of Mobile Phones by any Person (individual, AOP, Company) :
C&F Value of Mobile Phone (in USD ($) ) Tax (in Rs)
1. Up to $30 the tax rate shall be Rs. 702. Exceeding $30 & up to $100 the tax rate shall be Rs. 730
3. Exceeding $100 & up to $200 the tax rate shall be Rs. 930
4.Exceeding $200 & up to $350 the tax rate shall be Rs. 970
5.Exceeding $350 & up to $500 the tax rate shall be Rs. 3,000
6.Exceeding $500 the tax rate shall be Rs. 5,200.
Persons not appearing in the Active Taxpayers’ List :
The applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e.C&F Value of Mobile Phone (in USD ($) ) Tax (in Rs)
1. Up to $30 the tax rate shall be Rs. 140
2. Exceeding $30 & up to $100 the tax rate shall be Rs. 1,460
3. Exceeding $100 & up to $200 the tax rate shall be Rs. 1,860
4.Exceeding $200 & up to $350 the tax rate shall be Rs. 1,940
5.Exceeding $350 & up to $500 the tax rate shall be Rs. 6,000
6.Exceeding $500 the tax rate shall be Rs. 10,400.