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Tag: Karachi Tax Bar Association

  • Further tax collection on pharmaceutical products unlawful: KTBA

    Further tax collection on pharmaceutical products unlawful: KTBA

    Karachi Tax Bar Association (KTBA) on Thursday termed the collection of further tax on sales of pharmaceutical products to unregistered persons as unlawful.

    In a letter sent to Asim Ahmad, Chairman of Federal Board of Revenue (FBR), the tax bar informed that substances registered as drugs under the Drugs Act, 1976 were earlier exempt from levy of sales tax under the Sales Tax Act, 1990, the Finance (Supplementary) Act, 2022, withdrawn, and the pharmaceutical products were made zero rated in terms of Serial No.19 to the Fifth Schedule of the Act.

    READ MORE: Non-filers will not be included in ATL 2022

    Later one, through the Finance Act 2022, Serial No.19 of the Fifth Schedule was omitted and a new Serial No.81 was introduced in Table-1 of the Eighth Schedule to the Act is as follow:

    Serial No.DescriptionHeading Nos. of the First Schedule to the Customs Act, 1969 (IV of 1969)Rate of Sales TaxCondition
    (1)(2)(3)(4)(5)
    81.Manufacture or import of substances registered as drugs under the Drugs Act, 1976 (XXXI of 1976)Respective Heading1%Subject to the conditions that:   (i) Tax charged and deposited by the manufacturer or importer, as the case may be, shall be final discharge of tax in the supply chain.   (ii) No input tax shall be adjusted by the manufacturer or importer.

    The tax bar stated that it becomes clear that Serial No.81 created the sales tax charge at the rate of 1 per cent on manufacturer/importer of drugs and that the tax so charged and deposited by a manufacturer would be treated as final discharge of sales tax liability for the entire supply chain.

    READ MORE: FBR directs BS-21 officers to submit declaration of assets

    Therefore, once the manufacturer/importer has charged and deposited the sales tax at 1 per cent, the rest of the entire supply chain would be ousted from levy of sales tax.

    KTBA invited the attention of the FBR chairman towards a clarification C.No. 3(16)ST&FE-Policy/2022/230285-R issued by the FBR on November 23, 2022, which has asked to pay further tax at 3 per cent on sale of drugs to unregistered persons.

    READ MORE: Customs Intelligence Gwadar auctions motor vehicles on December 12

    The tax bar said clarification and its directions are contradictory to the legal position. It is being re-iterated that Serial No.81 in Table-1 of the Eighth Schedule to the Act categorically states that tax collected and discharged by the manufacturer of drugs under the Drugs Act, 1976 is final discharge of tax for the entire supply chain.

    Therefore, if further tax is asked to be levied on sale by the manufacturer/importer, it stands exactly opposite to the substantive law for declaring collection and discharge of tax by manufacturer/importer as final tax.

    READ MORE: Separate property declaration under Section 7E only for returns already filed

    “Needless to mention that the term ‘final tax’ in itself implies that no further collection of tax would be made under the Act irrespective of the nature/class/category/registration status of a person,” the tax bar added.

    The FBR chairman has been urged that above clarification may be re-clarified in the light of decisions given by higher courts and Appellate Tribunal.

    The position taken by the FBR yet for the second time and too knowingly, on the same issue, does not signify anything and is uncalled for on the part of Regulator. It is apprehended that the matter will yet again land in High Courts and will not yield anything but unnecessary and avoidable litigation.

  • KTBA demands date extension for filing return, statement Tax Year 2022

    KTBA demands date extension for filing return, statement Tax Year 2022

    Karachi Tax Bar Association (KTBA) on Tuesday demanded an extension to file annual return and statement of income for tax year 2022.

    The tax bar in a letter sent to the chairman of Federal Board of Revenue (FBR) on November 29, 2022 informed that neither taxpayers nor the consultants would able to complete return filing task by November 30, 2022.

    READ MORE: Another tax return filing date extension on the cards?

    It is pertinent to mention that the last date for filing income tax return for the tax year 2022 was September 30, .2022. However, the FBR allowed two extensions in return filing since the expiry of first deadline.

    However, through Circular No. 16 of 2022 and Circular No. 17 of 2022, the FBR granted date extension twice due to current flood situation in the country and request from various trade bodies and tax bar associations.

    KTBA President Syed Rehan Hasan Jafri stated that during recent Karachi visit of the FBR chairman bottlenecks in return filing were discussed. The issue of filing the newly introduced 7E Form was also discussed at length.

    “Our meeting remained very conducive wherein it was ensured that all the issues and concerns and the glitches would be removed at priority basis to ease and expedite preparation and the filing work both for taxpayers and the tax advisors,” the KTBA president said.

    Our meeting was followed by another very successful meeting at your directions, with the following members and the Chief Commissioner, Corporate Tax Office, Inland Revenue, Karachi on November 07, 2022 for the purpose of facilitation and resolution of the issues.

    The FBR chairman has been apprised that all the concerns which were shared, either these were related to return filing in general or filing of 7E form in particular are still pending unsolved.

    The taxpayers and their counsellors both are faced with the stigma of Status Quo. Subsequently a notification has been issued vide SRO 2052 on Nov 22nd, 2022 whereby the date for filing 7E annexure has been extended for those who already had filed their return before the form of 7E Annexure was introduced on October 13, 2022.

    READ MORE: Tax on deemed income from immovable property under Section 7E

    This is another task assigned to the Taxpayers / Tax Advisors to complete it as per the stipulated times mentioned therein per SRO cited above and yet the Form to be submitted is still pending issued till today i.e. the 29th November, 2022 which need to be issued as soon as possible in order to facilitate the Taxpayers within the stipulated time given to Taxpayers.

    “We at the KTBA understands that nor the taxpayers neither the tax consultants will be able to complete the task of filing of Tax Returns 2022 on the 30th November, 2022.”

    Therefore, the KTBA urged the FBR chairman to extend the date for all the taxpayers at par instead, along with the resolution of these errors and mistakes pointed out by the bar as discussed with FBR Chairman, Member (Inland Revenue – Policy) and Member (Information Technology).

  • Sales tax return lacuna traps taxpayers: FBR offices issue show cause notices

    Sales tax return lacuna traps taxpayers: FBR offices issue show cause notices

    KARACHI: Taxpayers have not been provided to declare exempt purchases in sales tax return form at IRIS, which resulted in issuance of huge number of show cause notices regarding apportionment of input tax in relation to taxable and exempt sales in the return.

    Karachi Tax Bar Association (KTBA) on Thursday highlighted this important issue by sending a letter to the chairman of Federal Board of Revenue (FBR).

    READ MORE: Baggage rules amended for lowering cash limit for outbound passengers

    KTBA President Syed Rehan Hasan Jafri through this communication apprised the FBR chairman that a large number of show cause notices had been issued by field offices in Karachi in respect with apportionment of input tax in relation to taxable and exempt sales in the return.

    Bar members have complained that the notices were issued without any application of mind or any desk audit of the cases.

    Jafri said that as per Sales Tax Rules, 2006 only common input tax is required to be apportioned between taxable and exempt sales. Therefore, before issuance of a show-cause notice it is mandatory to have a basic understanding of the business about its taxability or exemption of the goods being supplied by taxpayer. “The current notices are directly being confronted to the taxpayers through a show-cause notice that they have not apportioned their input tax.”

    READ MORE: FBR halts POS prize scheme

    These show-cause notices contain a table wherein, on the basis ratio of exempt sales to total amount of sales, an amount of disallowance of input is computed.

    This entire action is being done without appreciating the law that as per Rule 25(1) input tax directly attributable to taxable sales is completely allowable and only common input tax is required to be apportioned.

    Even otherwise, the application of apportionment has to be within strict parameters defined under Rule 25(3) of the ST Rules, which allows apportionment of residual input tax only.

    The definition of ‘residual input tax’ envisages the concept of apportionment of input tax suffered on ‘raw material, ‘component’ and ‘capital goods’.

    The FBR chairman has been urged to directed field offices to ascertain the nature of business of the taxpayers first and then conduct desk audit and only thereafter, if there remains a need for it, before issuance of a show-cause notice, the information may be requested from the concerned taxpayers. “A show cause should be issued only once after any discrepancy is identified,” according to the letter.

    READ MORE: Tax on persons receiving dividends in Pakistan

    Since the field officers have already issued the notices and asking for apportioning the input tax on exempt sales vis-à-vis total value of sales, but they are not inclined to accept that exempt sales are made from exempt purchases from the unregistered persons, even in the presence of substantiating evidence.

    It may be assumed that the officers had taken the position because such purchases are not reported in the sales tax returns while on the contrary the sales tax returns on IRIS do not any have option to report exempt purchases made from unregistered persons. “Therefore, it is practically not possible for a taxpayer to report exempt purchases from the unregistered persons.”

    READ MORE: Direct tax collection up 41% in four months of current fiscal year: FBR

    The KTBA requested the FBR chairman to direct the field offices to: consider exempt purchases made by taxpayers from unregistered persons and not to apportion input tax in respect of such exempt sales; and sales tax return may be updated to provide for reporting of exempt purchases from unregistered persons.

  • Calculating property valuation uphill task in completing tax return: Rehan Jafri

    Calculating property valuation uphill task in completing tax return: Rehan Jafri

    Calculating valuation of immovable property for deemed income under Section 7E of the Income Tax Ordinance, 2001 is remained an uphill task in completing income tax return for tax year 2022.

    Syed Rehan Hasan Jafri, President, Karachi Tax Bar Association (KTBA) expressed these views while talking to PkRevenue.com. He said that only couple of days are left for the last date for filing income tax return for tax year 2022 yet this issue is remained unaddressed besides many other issues highlighted by the tax bar.

    Jafri said the bar had stressed the need for incorporating the values given under the forty-two (42) notification (SROs) issued by the FBR in the month of March 2022 for property valuations under Section 68 of the Ordinance in the IRIS.

    READ MORE: FBR extends return filing date up to October 31, 2022

    “It was recommended that those valuation tables were to be incorporated in the back end working of the income tax return in the IRIS after which the calculation of tax under Section 7E could be calculated automatically by the system, based on the description of property incorporated by the taxpayer in its wealth statement,” he added.

    If it had done, it would ensure swift and correct computation of 20 per cent tax on 5 per cent value under Section 7E of the Ordinance and would avoid any standard deviation therefrom.

    Jafri said a new 7E annexure has been introduced with a set of requirement, which has been ventured in the IRIS and what now has become a bigger concern in context of Section 7E i.e. the new 7E Annexure.

    “This annexure has lately been introduced in IRIS on October 13, 2022.”

    The KTBA holds a considered view that it is unnecessarily a detailed format for a taxpayer or his advisor to fill and that too in these last days of tax returns filing.

    READ MORE: FBR allows refund adjustment to facilitate return filing

    The new annexure contains all the possible and imaginable categories of properties one could have. A basic list included: i. Agricultural Property; ii. Commercial Property; iii. Industrial Property; iv. Residential Property; v. Educational Property; vi. Health Property; vii. Natural Property; viii. Public Property; ix. Religious Property; and x. Mixed Use Property.

    Apart from the first four (04) categories, the rest of the six (06) are not only unheard of in the domestic culture or tax laws of the country but these are not even owned by an individual in the first place. “What is worrisome is that there are duplications and triplications to be filled in for the same property, which will surely give rise to issuance of uncalled for show cause notices by the department. The rational, therefore, needs to be thrashed out,” he demanded.

    The Annexure incorporated vide SRO 1892 of 2022 dated October 13, 2022, with its fine details may have either been designed bespoke or borrowed from external source but only suitable to be made applicable where there is plenty of days and man-hours left.

    READ MORE: FPCCI seeks statutory time for return filing after error removals

    The details of properties which have been required to be filled in, are details consisting of the following, which, your office would acknowledge, are completely irrelevant for purpose of valuation of property under Section 68 of the Ordinance.

    i. Town Area of property

    ii. Tehsil of Property

    iii. Age of property

    These are superfluous fields which have been required to be filled without any impact but have been made mandatory fields as without filling which one cannot move forward in IRIS and cannot proceed to file return. “This is a serious deterrence,” Jafri added.

    Needless to mention that the size of the property and size of the built up or covered area with the name of City and location in the city are the only necessary data for valuation of property under the Ordinance as that is what is precisely needed not the town and tehsil, which is other as well is a cumbersome detail to be extracted.

    It also merits a mention that cumbersome details have been required to be punched in even in cases where there would not arise any liability on account of Section 7E or where the properties of the taxpayer are exempted from the purview of the provision. “We understand that submission of details of the following exempted properties should also be exempted, which will actually be a facilitation in filing of return at least for those who do not have to pay this 1 per cent tax.”

    As for the valuation tables and the valuation SROs, it is critical for us to apprise your office that picking up the value from the SROs is not as easy as has recently been spelt out by the FBR. There are altogether forty-two (42) notifications (SROs) for the purpose, which were issued in the month of March 2022.

    Out of these forty-two (42) SROs, twenty-eight (28) have been amended to date. Upon finding the applicable SRO for any city the portal provides you with the latest one. One consequently would need to search and recheck for the older SRO once again on the website. This is certainly time taking and painstaking exercise.

    Secondly if a certain SRO has been amended, there is no amended SRO available in the cache, consequent to which the propensity to commit an error by taking the valuation from the older SRO gets certain.

    In order to avoid such an impending consequence, the FBR should provide the final amended SRO of valuation failing to which the taxpayer will have to keep switching from older SRO to amended SRO or will commit the suspected error. This goes without saying as how much time consuming this exercise can become besides being tedious and painstaking.

    READ MORE: FBR advised to extend tax return filing date for three months

    Rehan Jafri pointed out the size of notifications related to valuations.

    It should not loose the sight of the regulator that apart from the amended Notifications, there are few SROs, which are unusually lengthy and detailed. This makes the job of the taxpayers even more arduous to keep sifting the pages to find for the precise location of his property therein. It would be worthwhile to enlist hereunder few of these:

    i. Bahawalnagar is of 191 pages

    ii. Bahawalpur is of 51 pages

    iii. Multan is of 4,593 pages

    iv. Faisalabad is of 4,712 pages

    v. DG Khan is of 4,722 pages

    vi. Quetta is of 28 pages

    vii. Lahore is of 31 pages

    These are few instances as to the ordeal taxpayer will have to go through for filing requirements, which is by any stretch of rational thinking is unwarranted.

    And all of this has fallen due merely in the last fifteen days of October. The timing of introduction of the 7E Annexure requires reconsideration. The tax Return and their other Annexure were though introduced within the legal time frame on June 30, however, the 7E Annexure was introduced on September 3, 2022, vide SRO 1829 of 2022 in draft form and finalized and uploaded on IRIS just after 10 days on September 13, 2022 vide SRO 1891 of 2022. This is not less than three and a Half (3.5) months late.

    Jafri said that the FBR should direct either the field formation or the relevant IT team to prepare at least a tutorial or to say a demo presentation for the basic level assistance of the taxpayers. The same can be placed on the website.

  • KTBA demands perfect tax return form before setting filing deadline

    KTBA demands perfect tax return form before setting filing deadline

    The Karachi Tax Bar Association (KTBA) has strongly criticized tax authorities for their handling of unresolved issues surrounding the filing of income tax returns for the tax year 2022.

    (more…)
  • FBR directs IR offices to avoid recovery in pending appeals

    FBR directs IR offices to avoid recovery in pending appeals

    KARACHI: Federal Board of Revenue (FBR) has directed the offices of Inland Revenue (IR) to avoid undue recovery proceedings until a case has passed the test of appeal at first appellate.

    In an official note circulated to all chief commissioners of Large Taxpayers Offices, Corporate Tax Offices, Medium Taxpayers’ Office and Regional Tax Offices regarding undue recover proceedings under Section 138 at first appellate.

    READ MORE: FBR directs 85 big retailers to integrate businesses

    The revenue body previously on October 12, 2021 issued directives to field formations and instructed to avoid coercive measures until case has passed the test of appeal at the level of Commissioner (Appeals).

    “Coercive measures, until case has passed the test of appeal at the level of Commissioner IR (Appeals), may avoided. Moreover, in order to utilize collective wisdom, a committee comprising of senior commissioner IR headed by Chief Commissioner IR may be constituted at formation level to deliberate on the cases before according approval for coercive measures.”

    READ MORE: FBR issues one million tax notices to enforce compliance

    The FBR said it had come to its knowledge that the instructions contained in the FBR’s letter were not being followed.

    “In this regard, it is clarified that the instructions/directions issued by FBR aforementioned letter have not been withdrawn and to be followed in letter and spirit,” the FBR added.

    The FBR issued these directives on the issue raised by Karachi Tax Bar Association (KTBA) regarding undue recovery proceedings.

    READ MORE: FBR unveils plan to achieve Rs7.47 trillion revenue collection target

    The tax bar in its letter dated September 29, 2022 to the FBR chairman stated that it had received queries from bar members and taxpayers that different officers of FBR issuing notices of alleged recovery under section 138(1) of the Income Tax Ordinance, 2001 irrespective of the fact that the, appeal is pending before the first appellate authority and yet to be finalized.

    KTBA President Syed Rehan Hasan Jafri informed the FBR that there was already a circular sent to all chief commissioners IR that ‘coercive measures until case has passed the test of appeal at the level of commissioner IR (Appeals) may be avoided’ in respect of measures to avoid unnecessary litigation.

    READ MORE: Customs officer awarded major penalty of rank demotion

    The KTBA urged the FBR chairman to issue directives to all the officers of the IR to follow the instructions which were binding on the officers of the FBR to avoid unnecessary harassment to the taxpayers.

  • FBR fails to remove return filing glitches; KTBA seeks legal time

    FBR fails to remove return filing glitches; KTBA seeks legal time

    A leading tax bar on Friday pointed out failure of the Federal Board of Revenue (FBR) in removing errors/glitches in the return filing as only a week left for the last date.

    Karachi Tax Bar Association (KTBA) in its letter to FBR chairman and other higher authorities to resolve issues in online return filing for tax year 2022. “A proper legal time for compliance should be allowed as per the statute after resolving these problems,” KTBA President Syed Rehan Hasan Jafri said in the letter.

    READ MORE: FBR advised to fix glitches for smooth filing of income tax returns

    It is pertinent to mention that the last date for return filing for tax year 2022 is September 30, 2022. About two days ago the Pakistan Tax Bar Association (PTBA) also pointed out similar issues but the problems are remained unresolved.

    Rehah Jafri said that none of the issues had been addressed as yet and, therefore, the pace of compliance of filing the Tax Returns is very slow. The KTBA previously sent communication to the FBR on September 6, 2022.

    Through instant letter the KTBA highlighted some issues further, which have been raised and discovered by our Members after our first letter of 06 September, 2022.

    READ MORE: Dental practitioners directed to get sales tax registration

    Column for Adjustment of Brought Forward Capital Losses

    Column for adjustment of brought forward capital losses under the head of capital gains is not available in Income tax return form due to which tax on capital gain cannot be calculated correctly.

    Column of Tax Credit for Specified Industrial Undertakings U/S 65G Inadvertently Available in Salaried Individual Return

    The Column of tax credit for specified industrial undertakings u/s 65G of the Income Tax Ordinance, 2001 is inadvertently available in the Tax Credits Annexure of income tax return for salaried individuals, which has no correlation with such tax credit.

    Non-Availability of Reduced Tax Rate on Contract Receipts

    Although the rate of tax on contract receipts under section 153 was reduced from 7.5% to 7% for Tax Year 2022, however, there is no column for such reduced rate in the return for the TY 2022 available on IRIS.

    Insufficient Time for Taxpayer Filing Manual Return Forms

    The draft of manual return forms for the Individuals and AOPs for the Tax Year 2022 was issued belatedly on August 26, 2022, whereas the final SRO. 1733(1)/2022 was issued on September 13, 2022 meaning thereby only 17 days of time has been allowed to file the manual returns, which is insufficient as provided under the law.

    READ MORE: Tax rates on profit from bank deposits during year 2022/2023

    Erroneous Tax Calculation on Gain of Immovable Property

    The IRIS portal is calculating incorrect tax liability on gain on sale of immovable properties in violation of section 37(1A) of the Income Tax Ordinance, 2001 which needs to be taken care off as soon as possible.

    Incorrect Tax Calculation on Profit on Debt

    The IRIS portal is calculating incorrect tax on profit/yield on Bahbood Certificates/ Pensioner’s Benefit Account/ Shuhada Family Welfare Account in violation of clause (6) of Part-III, 2nd Schedule of the Income Tax Ordinance, 2001, which provides that tax shall not exceed 10 percent of such Profit/ Yield.

    Error in Statement of Foreign Income & Assets u/s. 116A of the Ordinance for Non-Resident Individuals

    There lies no option list in drop downs country and currency under Code “7006” having description “Investment (Non-Business) (Account / Annuity / Bond / Certificate / Debenture / Deposit / Fund / Instrument / Policy / Share / Stock / Unit, etc.)” due to which a taxpayer remains unable to file the Foreign Income & Assets Statement under section 116A(1) of the Ordinance.

    READ MORE: Up to 70% income tax imposed on dividends for year 2022-2023

    Opening Wealth appearing in Wealth Statement

    Opening wealth is being shown in “Reconciliation of Net Assets” Value of opening net assets is being shown under code ‘703002’ despite the fact that the taxpayer’s residency status is selected as “non-resident” for Tax Year 2022 after which, he should not be required to file the wealth statement including reconciliation of net assets.

    Column Code 64330052 (Dividend u/s 150 @25%) is missing in Salary Return Form

    The withholding rates on payment of Dividend @ 7.5%, 15% and 25%, (under section 150 of the Ordinance) are appearing in the Income Tax Return Form of “Income for a person deriving income only from salary and other sources and the Column Code 64330052 (Dividend u/s 150 @25%) is missing.

    Erroneous Calculation of Written Down Value

    Proviso was inserted under section 22(2) of the Tax Ordinance by Finance Act, 2020 whereby depreciation on additions to fixed assets made after 01-Jul-2020 would be reduced by 50% However, when entries related to written down values are entered in in depreciation schedule as opening values, the IRIS is calculating depreciation at 50% on total values.

    READ MORE: FBR updates salary tax card for year 2022-2023

    No column for refund adjustment

    In addition to above, what lately has been done by FBR is that it has deleted the column of “Adjustment of Refunds”, which is certainly an afterthought while the Manual Tax Returns, which were issued vide SRO 1612(I)/2022 dated 26 August, 2022 do retain the “Column of Tax Return Refund”. There is no explanation or justification for this glaring disparity, which is to be taken care off the clarification of Taxpayers.

    Online Refund Adjustment Column is still not available on Return loaded on IRIS irrespective of the fact that it is available in the SRO issued by Board.

    Income attribution with respect to minimum taxation u/s. 153

    Profit on debt/interest income on government securities is subject to FTR

    Initial depreciation allowance on plant & machinery u/s. 23  

    Revised Wealth Statement u/s 116(3) is not imported

    Simplified Return for SMEs

  • KTBA highlights pharmaceutical industry’s reporting issues

    KTBA highlights pharmaceutical industry’s reporting issues

    Karachi Tax Bar Association (KTBA) on Friday highlighted difficulties faced by pharmaceutical industry in reporting of sales after implementation of Finance Act, 2022.

    KTBA President Syed Rehan Hasan Jafri in a letter to Asim Ahmad, Chairman of Federal Board of Revenue (FBR) apprised about the implications faced by the bar members after amendments introduced in the Sales Tax Act, 1990 through Finance Act, 2022, in respect with pharmaceutical industry.

    READ MORE: FBR directs speedy clearance of flood relief goods

    The KTBA pointed that through the Finance Act, 2022 the Serial No.19 of the Fifth Schedule to the Act containing “substances registered as drugs” was omitted and new serial Nos. 81 and 82 were introduced in Table-1 of the Eighth Schedule to the Act.

    The whole text of the new entries is being reproduced hereunder to facilitate a quick reference:

    81. Manufacture or import of substances registered as drugs under the Drugs Act, 1976 shall charge one per cent sales tax subject to the conditions that:

    (i) Tax charged and deposited by the manufacturer or importer, as the case may be, shall be final discharge of tax in the supply chain.

    READ MORE: FBR directs 81 retailers to integrate with POS system

    (ii) No input tax shall be adjusted by the manufacturer or importer.

    82. Active Pharmaceutical ingredients, excluding excipients, for manufacture of drugs registered under the Drugs Act, 1976 or raw materials for the basic manufacture of pharmaceutical active ingredients. The sales tax shall be charged at one per cent subject to the conditions that:

    (i) DRAP shall certify item-wise requirement of manufacturers of drugs and APIs and in case of import shall furnish all relevant information to Pakistan Customs Computerized System; and

    (ii) No input tax shall be adjusted by the manufacturer or importer.

    The KTBA interpreted the amendments as the manufacturer/importer of drugs shall charge and pay 1 per cent sales tax, which would be final discharge of their sales tax liability in the entire supply chain of pharma products.

    “This clearly implies that if a manufacturer or an importer has paid the above 1 per cent sales tax on supply or import of finished goods (drugs), respectively, then no sales tax would be applicable on the subsequent supply of such pharma goods,” it added.

    READ MORE: KTBA recommends changes in IRIS for calculating deemed income on properties

    The tax bar highlighted the issue, which are being faced by the pharmaceutical industry due to the recent amendments.

    Reference of serial No.19 of Fifth Schedule to the Act is not being appeared at the time of declaring sales returns/cancellation through credit/debit notes at Annexure-C (uploaded through invoice management system). Consequently, sales returns pertaining to January 2022 to June 2022 made at zero per cent, are not being declared in the tax periods of July 2022 and August 2022.

    Option for reporting exempt sales made by pharmaceutical distributors is not available at Annexure-C (uploaded through invoice management system) for the tax period of July 2022 due to which, pharmaceutical distributors are unable to file their monthly sales tax return.

    The tax bar also complained that multiple queries have already been raised vide emails at FBR helpline by the bar members but till to date no solution or a guideline has been provided or explained.

    READ MORE: KTBA demands suspending further tax due to practical issues

    In view of the above, the FBR chairman has been requested to make necessary amendments in IRIS so that the pharmaceutical distributors are enabled to file their monthly sales tax returns in timely manner.

    Meanwhile, till the issue highlighted above remains unresolved, your office is requested to intervene and condone the due date for filing monthly sales returns for the industry.

    The KTBA urged the FBR chairman to provide redressal to the taxpayers connected with Pharma Industry and their distributors as these taxpayers are contributing their due share into the government exchequer as their moral and legal obligation.

  • KTBA recommends changes in IRIS for calculating deemed income on properties

    KTBA recommends changes in IRIS for calculating deemed income on properties

    KARACHI: Karachi Tax Bar Association (KTBA) has recommended the tax authorities to make changes in IRIS – return filing portal – to determine the fair market value of immovable properties to pay tax on deemed income.

    (more…)
  • KTBA demands suspending further tax due to practical issues

    KTBA demands suspending further tax due to practical issues

    Karachi Tax Bar Association (KTBA) on Tuesday demanded the tax authorities to immediately suspend the application of further sales tax due to implementation of amendments brought through Finance Act, 2022.

    KTBA President Syed Rehan Hasan Jafri in a letter to Asim Ahmad, chairman of Federal Board of Revenue (FBR), stated that before the changes brought about by the Finance Act, 2022, further tax at 3 per cent under section 3(1)(A) of the Sales Tax Act, 1990, was only required to be charged and paid on taxable supplies made to a person, who is liable to be registered under the Sales Tax Act, 1990 but had not obtained a Sales Tax Registration Number.

    READ MORE: FBR gets 3.38 million active taxpayers by August 28, 2022

    The Finance Act, 2022 has broadened the scope of applicability of further tax on supplies made to registered persons who are not active taxpayers. The above change in law has brought about various practical issues and hindrances in its implementation which are being discussed below in the ensuing paras.

    In pursuance of the above change, a registered person making taxable supplies is required to check active taxpayer status of a person at the time of issuance of invoice.

    This condition has created quite a hassle for them to check and verify the particulars of each customer at the time of filing of sales tax return.

    It may be noted that in various cases, there are hundreds of customers to whom thousands of invoices are issued.

    Previously, the FBR had its own mechanism to identify the registered person, if the person is active or not.

    “Therefore, it is requested that similar feature may be enabled by the FBR for the ease of taxpayers or alternatively kindly device an amicable way through which the above condition can be eased for the registered person,” KTBA president said.

    READ MORE: Tax rates on mobile phone, internet users during 2022-2023

    The term “active taxpayer” as defined in Clause (1) of section (2) of the Act which inter-alia provides that following persons would not be termed as active taxpayers –

    — who fails to file the return of income under section 114 of the Income Tax Ordinance, 2001 by the due date; and

    — who fails to file quarterly or annual withholding tax statement under section 165 of the Income Tax Ordinance, 2001.

    The KTBA said that the above conditions are quite harsh, and it is practically impossible for a RP to be aware of the fact that whether its customer has filed (i) return of income by the due date, and (ii) quarterly/annual withholding tax statements under section 165 the Ordinance.

    It may be noted that active taxpayer status of a person is updated in March each year based on the status of filing of return of income for the latest completed tax year. Even if the return of income is not filed by the due date, the person would appear in active taxpayer list (“ATL”) for income tax purposes by way of paying a penalty.

    READ MORE: FBR launches campaign to ensure return filing by due date

    However, the condition to become an active taxpayer for sales tax purposes stipulates that only the person who have filed return of income by the due date would be an active taxpayer.

    Therefore, even in cases where a person is appearing in the ATL for income tax purposes, may not be an active taxpayer for sales tax. Consequently, you would agree that it is practically impossible for a RP to confirm the status of its customer whether he is an active taxpayer or not.

    In addition to the above, for a RP to achieve active taxpayer status for sales tax, he needs to file quarterly/annual withholding tax statements under section 165 of the Ordinance. Interestingly, there is no option on the IRIS portal which may reflect filing status of the quarterly/annual withholding tax statements under section 165 of the Ordinance of a RP. Accordingly, again it is major impediment based on which a person could not determine active taxpayer status of its customers. 

    In view of the above, it is humbly requested that rather than stipulating these conditions, the above definition may be linked with the active taxpayer status under the Ordinance.

    The active taxpayer status reflection on online verification portal for sales return is based on filing of monthly sales tax returns irrespective of the fact that these are filed by the due dates or not. “This does not align with the condition provided in the definition of active taxpayer in the Act,” Jafri added.

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    Moreover, online portal does not have any option to check the status of the person on any given specific date rather it reflects the status on the given time. Therefore, if a person wants to verify the status of its customer on any given date, he is unable to check the same from the online portal. It may be noted that for income tax purposes, active taxpayer status of a person could be checked on any given specific date.

    Further, the active taxpayer status is updated on the FBR Portal on a real time basis, and therefore, it is difficult to track the status of any customer from the date of issuance of the invoice to the declaration of such invoice.

    “You would recollect that for income tax purposes, when a payment is reported in the quarterly withholding tax statement under section 165 of the Ordinance, the portal automatically identifies the person as an active taxpayer or otherwise and simultaneously calculates the amount of applicable withholding tax.

    “Likewise, it is requested that Annexure – C of the sales tax return may also be automatically linked with the active taxpayer status under the Act and if a person is not an active taxpayer, the portal may automatically calculate further tax on such sales. This would enable effective monitoring of the above change in law and its application. Alongside, this would also cater to the situations where further tax could not be charged due to a mistake or an inadvertent error,” according to the letter.

    Even otherwise, until such an option is optimized in sales tax return, the option to manually levy and charge further tax may be enabled in the sales tax return to discharge further tax liability.

    The KTBA urged the FBR chairman that the application of further tax onto persons other than active taxpayers may be kept in abeyance till the issues identified above are resolved in an amicable manner.