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Tag: Karachi Tax Bar Association

  • KTBA proposes amendments to automatic stay in recovery cases

    KTBA proposes amendments to automatic stay in recovery cases

    KARACHI: Karachi Tax Bar Association (KTBA) has recommended amendments to provisions of the Income Tax Ordinance, 2001 related to automatic stay in recovery notices.

    It is proposals for budget 2021/2022, the KTBA said that Sub-Section (2) of Section 138 if Income Tax Ordinance, 2001 provides that If the amount referred to in the notice issued under sub-section (1) is not paid within the time specified therein or within the further time, if any, allowed by the Commissioner, the Commissioner may proceed to recover from

    — the taxpayer the said amount by one or more of the following modes, namely:

    — attachment and sale of any movable or immovable property of the taxpayer;

    — appointment of a receiver for the management of the movable or immovable property of the taxpayer.

    — arrest of the taxpayer and his detention in prison for a period not exceeding six months arrest of the taxpayer and his detention in prison for a period not exceeding six months

    Provision of automatic stays not all exhaustive.

    The tax bar said that if a person pays ten percent of the disputed demand under section 140 even then the recovery from taxpayers may be made through the modes envisaged under sub-section (2) of section 138 which is harsh and rendered section 140 redundant and superfluous.

    The tax bar proposed that the condition of the payment of ten percent of amount due shall also be made applicable for section 138 to create synchronization between section 138 and 140 of the Ordinance.

    The proposed amendment seeks to address the inequity afforded in the law.

  • KTBA welcomes withdrawal of audit notices

    KTBA welcomes withdrawal of audit notices

    KARACHI: Karachi Tax Bar Association (KTBA) on Friday said that after intervention of the Federal Board of Revenue (FBR) many audit cases have been withdrawn from IRIS Portal, which were initiated under Section 122(5) of the Income Tax Ordinance, 2001.

    KTBA President Muhammad Zeeshan Merchant in a letter to Chief Commissioners of tax offices located in Karachi welcomed the steps taken for deletion of audit cases that were initiated without definite information.

    The KTBA on May 21, 2021 sent communication to all the chief commissioners of tax offices in Karachi informing them that Inland Revenue offices were issuing incorrect audit notices in order to avoid restriction of time limit as defined in the Income Tax Ordinance, 2001.

    The tax bar strongly criticized the issuance of faulty audit notices for tax year 2015 in order to avoid time restrictions.

    The KTBA said that notices had wrongly been issued by the field formation without properly appreciating returns of income tax as well as statements of wealth and also without proper application of mind as host of such cases pertains to income from property, salary, dividend etc. and also because the grounds advanced in the notices do not constitute ‘definite information’ within the meaning of Section of 122(8) of Income Tax Ordinance, 2001.

     “As the time limitation prescribed for initiating proceedings for the tax year 2015 draws closer, bar members are afraid of encountering more such weird notices in days to come, which in no way tend to serve the purpose of the Ordinance and are likely to create chaotic situation,” the tax bar said.

    In response to the KTBA letter, the FBR took notice and directed the IR officials to avoid opening audit cases merely on surmises and assumptions.

    The FBR said that it had received representations suggesting that the field offices were recklessly issuing notices under section 122(5) read with section 122(9) of Income Tax Ordinance, 2001 where purportedly the threshold of ‘definite information’ as defined under section 122(8) was not met.

    “It goes without saying that amendment proceedings under section 122(5) of the Ordinance, merely on basis of audit suspicion picked from within the declarations lodged by the taxpayers themselves, is an enforcement travesty and need to abate,” the FBR said.

    The scheme of law warrants that a taxpayer must be dealt with precisely as per principle of justice and fair play, it added.

    The FBR directed the field formation to adhere with law and due diligence must be ensured in respect of each taxpayer and no case should be opened merely on surmises and assumptions. “All taxpayers must be provided adequate opportunity of being heard, too,” the FBR added.

    In the instant letter, the KTBA said that most of cases notices with provoked and resentful reasons had been deleted/withdrawn from IRIS portal; whereas in some cases where online deleted/withdrawn communication was made the deletion/withdrawal was still awaited.

  • FBR urged to allow CGT exemption to private companies

    FBR urged to allow CGT exemption to private companies

    KARACHI: Tax practitioners have demanded the Federal Board of Revenue (FBR) to allow capital gain tax (CGT) exemption to private companies in order to encourage corporatization in the country.

    The Karachi Tax Bar Association (KTBA) in its proposals for budget 2021/2022, pointed out that as per section 37, gain on sale of shares of private companies shares is taxed at corporate tax rate.

    “This gain is reduced by 25 percent in case the holding period is more than one year,” the tax bar said.

    In case of gain on disposal of immovable property, the gain is exempt in case the holding period is more than 4 years.

    In case of capital gain on securities under section 37A, the gain is exempt on securities acquired before 1 July 2012.

    “Hence, investment in shares of private companies stands at comparative disadvantage,” the KTBA added.

    It is proposed that the gain on sale of private company shares should also be allowed exemption in case if the holding period is 10 years or more.

    The proposal has been submitted in order to encourage and benefit corporatization of business.

    The tax bar also highlighted that as per definition of dividend the distribution made by a company to its shareholders on reduction of capital shall be deemed dividend.

    This situation is generally referred to as buy-back of shares. On the other hand, under Rule 13P of the Income Tax Rules, 2002, the shares buy-back transaction is treated as Capital Gains.

    Thus, there exists a contradiction among the provisions of Ordinance and Rules.

    Contradictory provisions in law that needs to be corrected, the KTBA suggested. It is proposed that following exclusion after clause (f) in subsection (19) of section 2 be inserted:

    “Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 88 of the Companies Act, 2017 (XIX of 2017)”.

  • Tax on property income should be made final

    Tax on property income should be made final

    KARACHI: The Federal Board of Revenue (FBR) has been urged to rationalize rental income from property and individuals or Association of Persons (AOPs) should be taxes as full and final discharge of tax liability.

    Karachi Tax Bar Association (KTBA) in its proposals for budget 2021/2022 said that the rental income from property, AOP or individual and company (taxable as separate block of income) should be taxed at a uniform rate of 15 percent of the gross rent as full and final discharge of tax liability.

    The tax bar said that at present for every person except companies the income from property is chargeable to tax at the rate specified in Division (VIA) of Part-I of the First Schedule, which is considered to be their final tax liability and they are not allowed any expenditure against gross rent, except option provided under sub-section (7) of section 15A of the Income Tax Ordinance, 2001.

    The companies are required to pay normal tax (current at 29 percent) on such income after adjustment of admissible expenditure out of gross rent.

    The tax rate on rental income has been gradually increased from 20 percent to 35 percent for individuals and AOPs vide the Finance Act, 2019.

    Apart from that the lessor is also required to pay Sindh Sales Tax at 3 percent to SRB. It makes the total tax impact very unfair and exorbitant.

    The current taxation framework makes the total tax impact on property income very unfair and exorbitant.

    The KTBA further suggested that rental income taxable under normal tax regime should be allowed to be adjusted against business loss. The restriction imposed through Finance Act, 2013 needs to be reconsidered.

    The impact of taxes (direct and indirect) on rental income will be rationalized. Investors will be encouraged to declare their genuine rental income.

  • KTBA presents tax proposals for salary income

    KTBA presents tax proposals for salary income

    KARACHI: The Karachi Tax Bar Association (KTBA) has presented income tax proposals for salary income for incorporating in the Finance Bill 2021.

    In its proposals for budget 2021/2022, the tax bar highlighted the issue related to taxation of notional income.

    It said that the difference between the benchmark rate and the actual rate of interest is charged where actual rate of interest is charged at less than the benchmark rate by the employers on concessionary loans provided to the employees or otherwise it is treated as perquisite chargeable to tax

    The tax bar said 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.

    The KTBA proposed that the taxation of marginal income on loans obtained from the employer below benchmark rate should be exempted for lower threshold amounts. The minimum threshold of the loan amount on which the provisions of Section 13(7) of Income Tax Ordinance, 2001 may not apply should be raised to at least Rs.2,500,000/- from the existing limit of Rs.1,000,000/-.

    It is further suggested that benchmark rate currently fixed at ten percent be based on Kibor rate.

    Giving rationale to the proposal, the KTBA said that the change would result in facilitation and easement of salaried taxpayers.

    The tax bar highlighted the issue of withholding tax on salary income.

    It said as per section 149 of the Income Tax Ordinance, 2001, every person paying salary to employee shall deduct tax from the amount paid at specified rate after making tax adjustment of tax credit U/s. 61, 62 ,63 and 64 of the Ordinance and other adjustments.

    Complete tax credits though legally available are not adjusted in payroll run.

    The KTBA proposed that this section should include all tax credit under Part X Chapter III as are admissible against salary income.

    Giving rationale to the proposal, the KTBA said that the current scheme has apparently missed tax credit under section 62A of the Income Tax Ordinance, 2001. The proposed amendment would cater all the current credits and those to be introduced from time to time.

    The KTBA also highlighted the issue of employer contribution to Provident Fund.

    It said Under Clause (3), Part I, Sixth Schedule of the Ordinance, the employer’s contribution in the recognized provident fund in excess of Rs.150,000 (increased from Rs.100,000 by Finance Act, 2016) is deemed to be income of the employee.

    This provision is invalid as the accumulated balance (it includes employer’s contribution) due and becoming payable to an employee participating in a recognized provident fund is totally exempt from tax under Clause (23), Part I, Second Schedule.

    Without prejudice to foregoing, since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution.

    The tax bar proposed that Clause (3) Part 1, Sixth Schedule be amended to exempt employer contribution to bring it at par with clause (23) Part 1, Second Schedule.

    Alternatively, the threshold be based as Rs 150,000 or 1/10th of the salary whichever is higher.

    Giving rationale to the proposal, the KTBA said that since employer’s contribution does not constitute an actual receipt as the same is not at the disposal of an employee and therefore tax incidence should not be levied at the time of contribution.

    To another proposal, the KTBA said that as per clause (13)(iv) of part – I, there is existing limit of Rs.75,000/-.

    Gratuity exemption not indexed for inflation, it added.

    It should be increased to Rs.300,000/-, the KTBA proposed.

    Considering the inflationary effect since the current limit as set at the promulgation of Ordinance has remained unchanged.

    Similarly, the KTBA highlighted that as per clause (23A), withdrawal of 50 percent of balance is exempted subject to fulfillment of conditions.

    It said that it was an inadequate exemption.

    It is proposed to increase the exemption to the extent of withdrawal of actual amount invested in the pension fund and additional amount to be taxed at the rate of tax applicable on salaries.

    To exempt the portion of investment made in pension funds.

  • KTBA recommends abolishing alternative corporate tax

    KTBA recommends abolishing alternative corporate tax

    KARACHI: Tax practitioners have recommended to abolish alternative corporate tax (ACT) in the budget 2021/2022 as the levy is increasing cost of doing business.

    The tax bar in its proposals for the upcoming budget 2021/2022 recommended to abolish the ACT.

    As per section 113C of the Income Tax Ordinance, 2001, tax payable by company subject to tax under Division-II Part-I of 1st Schedule or minimum tax shall be higher of corporate tax or ACT.

    The tax bar said that it was increasing cost of doing business and regressive taxation.

    Therefore, the KTBA proposed that ACT Should be abolished.

    There is already a minimum tax regime which imposes tax on the gross turnover U/s. 113, alongside minimum tax regime for supplies, services, under various section of the Ordinance and hence ACT is only increasing  the complexity of the computations.

    Besides, the KTBA has also recommended to reduce the minimum tax rate.

    Currently rate of minimum tax is 1.5% of the turnover. The threshold for turnover in case of individuals and AOPs was decrease from Rs50 million to Rs10 million by the Finance Act, 2016.

    It resulted in increased cost of doing business and regressive taxation.

    The KTBA proposed that minimum tax on listed companies should be abolished and in case of other cases the rate of minimum tax should be gradually reduced by 0.2 percent annually so that by tax year 2025 the rate shall be reduced up to 0.5 percent. The threshold of turnover should be increase to Rs50 million.

    Moreover, minimum tax should also be allowed to be carried forward for adjustment in subsequent year even in case of losses.

    The receipts now brought under Minimum Tax (from Final Tax Regime) should be exempted from this minimum tax.

    Removal of minimum tax will promote industrialization. Decrease in turnover threshold will result the true declaration of turnover and created hardship for taxpayers, the tax bar added.

  • FBR urged to reintroduce income tax credit on registered sales

    FBR urged to reintroduce income tax credit on registered sales

    KARACHI: Federal Board of Revenue (FBR) has been urged to reintroduce income tax credit on registered sales in order to provide incentive to documentation of economy and increase the tax base.

    Karachi Tax Bar Association (KTBA) in its recommendations for budget 2021/2022 submitted to the FBR proposed the reintroduction of tax credit on registered sales.

    The KTBA said that the tax credit would provide incentive for documentation of economy and increase of the tax base a tax credit of 2.5 percent of tax liability was offered to manufacturers given in the year 2009 making 90 percent of their sales to persons registered under the Sales Tax Law.

    The tax credit was increased to 3 percent by Finance Act, 2016. However, this Tax credit was deleted by Finance Act, 2017.

    Years of efforts to document the economy has been pushed backwards and that too without any warning and rationale.

    The KTBA said that the tax credit should be re-introduced. Further this tax credit on 90 percent sales should be extended to persons making 90 percent of purchases from persons registered under the Sales Tax Act, 1990 as well.

    It will encourage the much-desired documentation of the economy.

  • KTBA presents proposals for budget 2021/2022

    KTBA presents proposals for budget 2021/2022

    KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday presented proposals for budget 2021/2022 to the Federal Board of Revenue (FBR).

    In its proposals the KTBA said that the tax-to-GDP ratio was a soaring issue for country’s economic managers. “On the other hand, tax measures undertaken in Pakistan have traditionally created higher taxation on formal economy and under taxation on information economy,” it added.

    Primarily, it is because of over dependence over withholding tax regime as well as due to higher tax expenditure and concessions/exemptions.

    In addition to above many studies have concluded that there are gap in agriculture and property income in Pakistan which otherwise are under-taxed hence misused.

    “Besides, there are distortions in collection of General Sales Tax on goods and services and full tax collection on this core is yet to be exploited,” it added.

    In addition to above, a host of tax exemption/concessions have already been withdrawn by way of Tax Laws (Second) Amendment Ordinance, 2021 which was believe will become part of budget proposals.

    It is however the country needs a lot more drastic measures to bring its tax to GDP ratio at desired level.

    The KTBA suggested that federal and provincial governments should harmonize their differences in order to remove the gaps and distortions and to improve tax collection from agricultural, property and GST.

    The tax bar said that the proposals were completed keeping in view following features and categories:

    — Salvaging the manufacturing sector

    — Proposal for salvaging the corporate sector

    — Taxation and withholding tax regime under Section 148 and 153 of Income Tax Ordinance, 2001.

    — Proposals regarding taxation of property income

    — Capital gains taxation on securities

    — Proposal for changes in taxation of salary income

    — Proposal for changes in taxation of non-residents

    — Proposal for change in Non-Profit Organizations

    — Withholding tax provisions

    — Proposal for Appellate proceeding

    — Proposal for departmental proceeding

    — Proposal for simplifying filing and other periodic compliance

    — Broadening the scope and equitable of the law.

  • Karachi Tax Bar suggests reduction in corporate tax rate

    Karachi Tax Bar suggests reduction in corporate tax rate

    KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday suggested reduction of corporate tax rate to 25 percent from existing 29 percent in order to promote documentation of economy and discouraging tax evasion.

    The KTBA in its recommendations for the budget 2021/2022, stated that currently corporate rate of tax in Pakistan is 29 percent which due to Workers Welfare Fund (WWF) and Worker Welfare Participation Fund (WWPF) goes up to 36 percent which is higher than the average tax rate in Asia i.e. 21.32 percent.

    The higher corporate rate is increasing cost of doing business and regionally uncompetitive position.

    The KTBA proposed that the corporate rate of tax should be decrease up to 25 percent by gradually decreasing 1 percent every year.

    The rate of tax on small companies should also gradually be reduced to 15 percent.

    Income of WPPF should be exempted from tax. The excess of WPPF as deposited in WWF fund should be also as a credit against WWF levy.

    The KTBA said that the high rate of tax is encouraging tax evasion and discouraging documentation of economy and corporatization.

    It is also disincentive for foreign and local investment, it added.

  • IR offices issuing incorrect audit notices to avoid time limitation: KTBA

    IR offices issuing incorrect audit notices to avoid time limitation: KTBA

    KARACHI: The offices of Inland Revenue are issuing incorrect audit notices in order to avoid restriction of time limit as defined in the Income Tax Ordinance, 2001, tax practitioners alleged the tax authorities on Friday.

    The Karachi Tax Bar Association (KTBA) in a letter sent to Inland Revenue offices of Federal Board of Revenue (FBR) located in the metropolis strongly criticized the issuance of faulty audit notices for tax year 2015 in order to avoid time restrictions.

    The KTBA wrote letters to chief commissioners highlighting the haste of tax offices in issuing notices under section 122(5) of Income Tax Ordinance, 2001 during past two weeks just to comply with the time limit of initiating audit for tax year 2015.

    The tax bar shared following ‘reasons and grounds’ advanced by the field formation officers to assume resource of ‘definite information’.

    — Not declared any capital hence income declared under Normal Tax Regime (NTR) and Final Tax Regime (FTR) is out of undisclosed sources of capital whereby closing stock is likely to be added as unexplained income.

    — Accretion in wealth is more than income declared/claimed under NTR/FTR and cash available in last year is insufficient either; hence difference is likely to be added as unexplained income.

    — Personal expenditure bears a difference between income claimed under FTR and NTR and cash available in last year is insufficient either; hence difference is likely to be added as unexplained income.

    — Bank deposits and debit entries are huge which do not commensurate to be declared income version and difference is likely to be added as income from other source.

    — Foreign remittance claimed in the return needs to be probed for the purpose of compliance of Section 111(4) of the Income Tax Ordinance, 2001.

    — Capital gain on sale of securities and immovable properties claimed in the returns needs to be probed in line with Section 37(3A) and 37A of Income Tax Ordinance, 2001.

    — Gift (cash or kind) claimed needs to be probed for the purpose of Section 39 (3) of the Income Tax Ordinance, 2001.

    — Total liability in wealth has decreased from previous year which since a liability was definitely paid-off from unexplained source of income and liable to be treated as unexplained expenditure in line with Section 111 of Income Tax Ordinance, 2001.

    — Interestingly a number of such notices have also been issued where audits for the tax year 2015 have already been concluded.

    The KTBA said that notices had wrongly been issued by the field formation without properly appreciating returns of income tax as well as statements of wealth and also without proper application of mind as host of such cases pertains to income from property, salary, dividend etc. and also because the grounds advanced in the notices do not constitute ‘definite information’ within the meaning of Section of 122(8) of Income Tax Ordinance, 2001.

     “As the time limitation prescribed for initiating proceedings for the tax year 2015 draws closer, bar members are afraid of encountering more such weird notices in days to come, which in no way tend to serve the purpose of the Ordinance and are likely to create chaotic situation,” the tax bar said.