KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday urged Federal Board of Revenue (FBR) to grant general adjournment for cases as taxpayers may not appear due to lockdown.
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KTBA highlights difficulties in claiming exemption
KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday highlighted issues faced by taxpayers in obtaining exemption against import of raw material and plant and machinery.
The KTBA in a letter to Member Inland Revenue (Operations), Federal Board of Revenue (FBR) highlighted the issues being faced by taxpayers while claiming exemption from income tax deduction on import of raw materials and plant and machinery.
The desired exemption certificate against tax deduction on import of raw material is though being auto generated by IRIS portal on the basis of annual quota allowed by the Commissioner Inland Revenue, the same however, for the past 6-7 days is not being uploaded on WeBOC portal. Consequently, the Custom authorities are unable to allow any exemption as the same is not being reflected on their WeBOC portal.
Secondly the IRIS portal has not been enabled to distinguish exemption application applied for raw material and the one applied for exemption on plant and machinery.
The KTBA said that consignment/LC wise exemption certificate is allowed against tax deduction on import of plant and machinery. However, while trying to apply for the said exemption certificate, following error message pops up on IRIS portal:
“You are not allowed any quota”Any quota related objection can only be relevant in case of import of raw material and not otherwise.
The issues highlighted above are not more than IT Glitches and can be brought to correction with minimum due attention on the details of the system requirements.
In view of the foregoing, the KTBA requested the Member to kindly issue directions for resolutions of these issues on urgent basis so as to facilitate taxpayers.
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KTBA suggests automatic stay against recovery on 10% tax payment
KARACHI: Karachi Tax Bar Association (KTBA) has suggested an automatic stay should be granted where a taxpayer paid 10 percent of the defaulted amount.
The stay should be granted till the decision by the Commissioner Inland Revenue (Appeals), the KTBA said in a letter sent to Member Inland Revenue (Policy) on Thursday.
The tax bar through the letter submitted its observations on the draft rules recently notified by the FBR related to third party recovery.
Through the draft rules, it is proposed that recovery may not be made where the taxpayer has voluntarily paid 10 percent of the tax demand until the decision of the appeal filed with the commission inland revenue (appeals).
“The condition to consider only voluntary payments, while issuing recovery notice, is contrary to the proviso to section 140(1) of Income Tax Ordinance, 2001 where the term ‘tax paid’ has been used which invariably includes any recoveries made by the department as well.”
It is therefore, suggested that where partial recovery up to 10 percent of the tax demand has already been made, the taxpayer should be entitled to automatic stay against any further recovery till the decision by the Commissioner Inland Revenue (Appeals), the KTBA said.
The KTBA observed that notice of recovery issued under Section 140 has to be complied with immediately. Meanwhile, Rule 210D proposes for dispute resolution relating to execution, discharge or satisfaction of a recovery notice.
A combined reading of the provisions suggests that the recovery could be affected before institution of any dispute with the Commissioner Inland Revenue.
“A minimum three working days time may be allowed for payment of the outstanding demand (after due date of service of recovery notice) to enable the defaulter to raise any genuine concerns arising from execution, discharge or satisfaction of such a notice.”
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Commercial importers, traders require filing annual returns, maintain complete record
KARACHI: Commercial importers and individual traders are required to file income tax return and maintain complete records of transactions, a tax analyst said.
Murtaza Qurban, Executive Manager, EY Ford Rhodes highlighted the application of minimum tax on commercial importers and individual traders in an event recently organized by Karachi Tax Bar Association (KTBA).
He said that commercial importers / traders are now required to prepare financial statements / accounts. Further filing of return of income is also mandatory instead of statement under section 115 of Income Tax Ordinance, 2001.
Maintenance of proper and complete records (earlier no expense was being claimed therefore there was no risk of disallowance of expenses), he said.
The tax authorities may raise questions regarding transfer pricing (earlier tax paid on assessed value of goods was final tax – largely applicable on multinationals). While, payment of advance tax under section 147 in respect will also applicable, he added.
H e said that the Finance Act, 2019, however, again introduced amendments through which tax collection at import stage is made minimum tax instead of final tax. As a result of this change, Commercial Importers are now required to compute their financial results for comparison of tax on profits with minimum tax.
He said that sale by commercial Importer would still not be subject to withholding tax in terms of section 153(5) where tax at import stage has already been collected.
Two regimes of minimum tax would be applicable:Under section 113
Under section 148
If minimum tax liability under 148 > minimum tax liability under 113 > tax liability under Normal Tax Regime. Carry forward of minimum tax under 113 would be available, he questioned.
Alternative Corporate Tax would also be applicable. Thereafter, carryforward under ACT will be available, if ACT under section 113C is > minimum tax under section 148, he further questioned?
Similar to the implications as discussed above, contractors and service providers would also be required to prepare financial statements / accounts and file return of income.
However, one major problem that is being faced is that since tax deductible under section 153(1)(b) and (c) is minimum tax, whether it would be computed on actual receipts or its accrual would also entail such income to be offered under MTR. Specially in case of companies, where accrual method of accounting is mandatorily followed, he said.
If tax under MTR is worked out on accrual basis, actual receipts would also be subjected to withholding of tax, which would not be refundable being minimum tax. In other words, such tax may be lapsed if income in subsequent year is less than the prior year, he added.
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KTBA members asked to report privately hired persons by tax officials
Karachi: The Karachi Tax Bar Association (KTBA) has issued an urgent call to its members to report any instances of tax officials hiring privately employed individuals for assistance. This move follows a strict condemnation from the Federal Board of Revenue (FBR) against the practice, warning that it could result in disciplinary action for the officers involved.
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FBR urged to withdraw date extension notification for audit completion
KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday urged the Federal Board of Revenue (FBR) to withdraw a notification issued allowing tax offices to complete audit related to past year.
In a letter to FBR Chairperson, the KTBA pointed out selection of audit through Section 214C of Income Tax Ordinance, 2001 and said that courts had ordered the tax authorities to complete audit of selected cases within the year for which year a case was selected.
The tax bar said that tax offices had intimated taxpayers that the audit wing of the FBR condoned the time limit for completing audit in 459 cases related to tax year 2014 up to June 30, 2020.
The tax bar pointed out that as per Audit Policy 2015 which governed audit cases selected for tax year 2014 had clearly mentioned: “the cases selected during a financial year would be disposed of during the same year.”
It is further stated that the audit policy 2015 was challenged in the Lahore High Court in 2017 and the court allowed the completion of audit time limit up to June 30, 2019. An intra court appeal was filed against the judgment, where a division bench extended the cut-off date to December 31, 2019.
The KTBA further highlighted a reported judgment Supreme Court of Pakistan in which the apex court observed: “… while an extension could be granted by the FBR for conducting and audit, the same should be supported by application of mind, appropriate reasoning and could not be granted casually, repeatedly or as a matter of routine.”
The tax bar said: “FBR has allowed the time period for completing the audit, all by itself, till June 30, 2020, through its latest circular … The extension, which has been issued completely on its own motion by the FBR, has been give to all the pending 459 cases audits of tax offices in Karachi.”
It said that the extension is in total contravention of the findings and directions of the Supreme Court, which laid down the principles.
It further said that extension granted in the 459 cases will open the floodgate of litigations against the State.
The KTBA said that the tax bar associations in the country should be taken into the folds before any decision of the sort are taken, which are prone to become contentious and consequently subject of litigation.
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KTBA highlights anomalies in claiming input tax adjustment
KARACHI: Karachi Tax Bar Association (KTBA) has highlighted impediments face by taxpayers in claiming input sales tax adjustment.
The KTBA in a letter to Federal Board of Revenue (FBR) on Wednesday said that after introduction of STRIVe, there have arisen certain practical impediments at the time of filing sales tax returns to avail the exclusion from Section 8B of the Act read with SRO 1190 of 2019 dated 02/10/2019.
The option of exclusion as provided under SRO 1190(I)/2019 dated 02/10/2019 has been allowed only to certain taxpayers who are enlisted in the list of exclusion as provided thereunder while, earlier it was provided under SRO 647(I)/2007 in general.
Consequently, the taxpayers who are engaged in multiple businesses or have not updated their tax profiles are not allowed to avail the benefit of the aforesaid exclusion despite the fact that their activity is excluded from Section 8B of the Act.
In addition to the above a clarification was also issued through STM (IR) letter C.No.1(211)STM/2019/272646-12 dated 14/11/2019, whereby the taxpayers have been required to update their tax profiles to avail the benefits of SRO 1190(I)/2019 dated 02/10/2019.
The situation on the other hand is further deteriorated as there is no option in the Tax Asaan application for “change in particular”, due to which complications have cropped up for taxpayers to update their tax profiles as required. Presently, the taxpayers are left with no other option but to file an application for change in particulars on the line of previous prescribed procedure whereby a ‘No Objection Certification (NOC)’ was required to be issued by the concerned Commissioner to the ‘Local Registration Office’.
This consumes considerable time. What has been observed that even after updating the tax profile, certain taxpayers, mostly importer, are not getting exclusions from Section 8B.
It is also essential to highlight that taxpayers do not have clear understanding about the business classification available on IRIS portal.
While updating the tax profile, taxpayers are unable to select their applicable business category from the IRIS portal as FBR has not provided any guideline about the correct classification of business category of respective businesses.
The taxpayers are also not getting any support from the FBR Helpline as the Support Officer at the Helpline are themselves not clear and often provide different suggestions through telephone, email etc.
Consequent to above lack of training or knowledge, the taxpayers are unable to avail the above benefit even after updating their tax profile.
On a slightly different note, it also must be allowed for all the categories to whom it is applicable, especially in the following situations:
(i) Persons who have paid minimum value addition tax at import stage are excluded from Section 8B, however, if the goods are not imported in any tax period but supplies are made from opening stock of such imports, the system does not allow the exclusions from Section 8B. In this case, the exclusion is only allowed in the tax period in which imports are made but not available in the subsequent periods when the stock of such imported goods are sold.
This is totally bizarre and is against the scheme of the Section 8B. It is, therefore, suggested to allow the exclusion throughout the year for 12 tax periods if the taxpayer is a “commercial importer”.
(ii) Sales tax paid on Fixed assets is also not subject to the restrictions provided under Section 8B, however, the return has not allowed the said exclusion in cases where such sales tax of fixed assets, being excess of the output tax, is carried forward to the next month.
The same is treated as part and parcel of the normal carry forward balance. It is, therefore, suggested that the sales tax on Fixed Asset must require to be separately treated as compared to the normal input tax adjustment with respect to the provision of Section 8B and in case, where input tax of fixed asset is in excess of the output tax in a tax period, it must have a separate row of carry forward balance in the returns, likewise the sales tax return provided by SRB.
The aforesaid anomalies are not more than technicalities of the system but are prone to give rise to the unnecessary litigation due to infringement of the vested right of the input tax adjustment of the taxpayers.
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FBR advised to allow sales tax refunds on local supplies
KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday advised Federal Board of Revenue (FBR) to allow sales tax refund to manufacturers making local supplies.
The tax bar in a letter to FBR suggested in order to promote diversification of exports instead of relying solely on 5 export oriented sectors, you are requested to kindly issue necessary clarification/make necessary amendment to the effect that exporter-cum-manufacturers include all manufactures engaged in local as well export sales.
The tax bar said that apart from five export oriented sectors, conditional facility for expeditious processing of sales tax refunds through FASTER system has been given to exporter-cum-manufacturers, however, as per Income Tax Circular no. 10 of 2008 dated August 27, 2008, the term exporter-cum-manufacturers means those manufacturers whose exports during the preceding year are more than 80 percent.
The KTBA pointed out that input tax on fixed assets is adjusted against the minimum sales tax liability under section 8B of the Act only incase where other normal input tax [on goods / services] is less than 90 percent of the Output Tax, however, in case any unadjusted / unutilized input tax relating to fixed assets is carried forward to subsequent months than the same is treated at par with normal input tax and not being treated as input tax on fixed assets.
Therefore it suggested that in order to allow fair treatment of input tax on fixed assets and in order to promote capital intensive investment, kindly direct concerned person to make necessary amendments in online sales tax return portal to treat input tax on fixed assets as part of the input tax on fixed assets even if the same is carried forward to subsequent months.
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FTO takes Suo moto notice in pending 11,000 tax amnesty cases
KARACHI: Federal Tax Ombudsman (FTO) has taken suo moto notice in 11,000 cases related to tax amnesty scheme for tax year 2018, a tax bar said on Thursday.
The Karachi Tax Bar Association (KTBA) in a notification circulated to its members stated that the office of the FTO had taken a Suo Moto Notice on the inordinate pendency in submission of 11,000 cases of Amnesties for the Tax Year 2018.
The Motion Number is reported as No. 11/2020.
The Suo Moto Notice has been taken on the representation made by the Pakistan Tax Bar Association (PTBA).
A one paged complaint form has been shared to the members in this regard.
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FBR urged to resolve return filing issue of shopkeepers, paid taxes under amnesty
KARACHI: Karachi Tax Bar Association (KTBA) has urged Federal Board of Revenue (FBR) to resolve return filing by shopkeepers and persons paid duty and taxes under amnesty scheme.
The KTBA in a letter on Monday, urged the FBR to resolve the issues of retailers and small traders in filing their returns. Further, those persons are also in difficult state who had paid taxes under amnesty scheme but failed to file their returns.
The KTBA previously submitted it observations on the issues through letters dated September 20 and October 02 and October 30, 2019 with reference to woes of Amnesty Filers and Shopkeepers/Traders in context of Return filing.
The KTBA reiterated that their issues are still unresolved owing to which they cannot file their Tax Returns for TY 2019 despite repeated extensions.
The same are being narrated hereunder briefly to invite your necessary attention yet once again.
The KTBA said that it is critical to decide the fate of filers of the Assets Declaration Scheme of 2019 who could not submit their declarations due to untimely closure of the option on IRIS on July 03, 2019.Consequent to which, they could not revise their wealth statements for the Tax Year 2018, which you would appreciate is a necessary component for filing the return of income and wealth for the next year i.e. Tax Year 2019.
It is apprehended that if they are not allowed to submit their declarations, which they have not been so far, in the last six (06) months, their right to timely file their returns of income for the Tax Year 2019 is systematically been jeopardized and mere extending date of filing wont resolve their problem.
The group of taxpayers consisting of Shopkeepers and Traders of the country who still have to be given, inter alia, a final format of Return for their tax filing, which the FBR introduced vide its notification under Sections 99B and 9C of the Ordinance and committed that the same would be applicable right from the very Tax Year of 2019.
The final notification, however, has not yet been issued by FBR either to confirm or to dispel their confusion owing to which, this large group of taxpayers have not yet been able to file their tax return.
The KTBA said that the instant request should not be treated for further extension in return filing date.
“It is, therefore, all befitting that the System for submitting Amnesty should be opened for those who paid their taxes on July 3rd and the final Notification for Shopkeepers/Traders is issued to enable them file their Tax returns.”