Muhammad Zeeshan Merchant, President, KTBA said that the condition is remarkably in contradiction with other modes of payment through banking channels, which is historically remained in practice and is widely accepted under the provisions of the Income Tax Ordinance, 2001.
“We feel that this provision of law is antibusiness; sans due diligence and is incorporated without taking the stakeholders into confidence,” he said.
Additionally, it is not practical for many business houses, he added.
A summary explaining certain situations (and by no means a complete synopsis) is given below:
(a) You will appreciate that it is normal business practice that in lieu of advance delivery of goods, the buyer tenders its payment by way of post-dated cheques, which is normally accepted by the other party and is inherently a secured way of making the payment. We are afraid that this law of “digital mode of payment” is surely going to hamper the business activities, as it does not cater the situation and solution of such transactions.
(b) Normally, it is a practice that, the port terminal charges, wharfage charges, charges for clearance of delivery orders etc., are paid in advance through crossed cheques or pay-orders. We understand that presently, the businesses, including but not limited to Port Terminal Operators and Shipping Lines, are unaware and are not ready for implantation of this “digital mode of payment”. In our view, it needs a rigorous awareness campaign for them.
(c) Furthermore, we feel that the similar issues are likely to arise and are to be faced by the Companies for making payments to the growers of various agricultural crops such as sugar cane, rice, cotton, wheat etc. We feel that a rigorous campaign is also required for the recipients of such payments.
(d) Moreover, in our view this “digital mode of payment” is also impractical and is likely to affect the business transactions in the cases where petty cash payments, in aggregate exceed millions of rupees, which cannot be made digitally.
(e) Furthermore, we understand that various banks have fixed their own limitation on the quantity of making digital/online payments in a day and have also fixed the threshold of the amount and they do not allow to exceed the threshold limit fixed by them. In our view, this also needs a proper campaign without which the implementation of the law is not possible.
The KTBA said that the tax authorities would come across with the other impediments on the subject in times to come.
We strongly believe that, unless there is a wide off the mark in conventional banking transaction, this move is likely to create lots of trouble for the Corporate Sector.
It is, therefore, suggested that the mandatory condition of “digital mode of payment” for Companies as envisaged U/s. 21 (la) of the Income Tax Ordinance, 2001, be allowed to run simultaneously with other conventional modes of payments for at least a year so that their business is not affected and is smoothly run till they are aware of this change in the mode of payment.
The Federal Board of Revenue (FBR) has stirred controversy with its recent decision to suspend credit notes against supplies made to unregistered persons, a move that has drawn strong protests from the Karachi Tax Bar Association (KTBA).
The FBR through Circular No. 08 extended the last date for filing income tax return for tax year 2021 up to October 15, 2021 from September 30, 2021. The FBR extended the date after admitting serious technical problems on the IRIS – the online return filing portal.
The KTBA wrote a letter to FBR Chairman Dr. Muhammad Ashfaq Ahmed apprising him about computational errors and technical issues in filing of income tax return for the tax year 2021.
In his letter KTBA President Muhammad Zeeshan Merchant said that technical issues were not rectified yet and taxpayers were facing difficulties in filing their returns.
“The 90 days time prescribed under section 118 of the Income Tax Ordinance, 2001, will only begin once the due diligence prescribed in law and rules is following in pitch and substance and a complete and flawless return of income is notified in terms of Section 237 of the Income Tax Ordinance, 2001,” Merchant said.
The tax bar said the issues were previously highlighted related to erroneous tax computation on the IRIS portal with respect to income expressed as ‘minimum tax’, where owing to pre-fixed attributes/formulas taxpayer are forced to pay additional tax or file mix-up return.
This issue despite being pitted to judicial wrangling before the Lahore High Court in writ jurisdiction dated September 24, 2021, has not been resolved as yet, Merchant added
Furthermore, the return of income at the IRIS still suffers technical issues and anomalies that were already highlighted through the KTBA letter dated September 21, 2021. The issues are included: loss on disposal of securities; incorrect working of tax on foreign incomes; discrepancies in tax computation of commercial importers; tax on fee for technical services/royalty of a non-resident person etc.
The KTBA pointed out that simplified return of income for SMEs was unceremoniously uploaded on IRIS portal without prescribing a draft return.
KTBA President Muhammad Zeeshan Merchant said that the ongoing enforcement for the installation of POS would result in resistance as retailers were not aware whether they were liable to integrate or not under the law.
The KTBA President highlighted the problems of lack of information regarding POS installation at a meeting with a team of officers from the Large Taxpayers Office (LTO) Karachi.
Zeeshan Merchant reiterated that the KTBA fully supports the FBRs stance on POS, being a noble cause for the documentation of the economy and further explained the problems faced by the businessmen in the implementation of POS.
Merchant said that the STGOs of Tier-1 Retailers issued by the FBR in the case of small traders is unjustified wherein even small shop holders are also included and the FBR has only fixed the criteria of turnover to implementing the POS.
FBR needs to launch a large-scale campaign for educating Tier-1 Retailers and the general masses regarding the usefulness of bringing Tier-1 Retailers on POS. In this regard, the president of KTBA has given the following suggestions:
— A unified comittee to the extent of all field offices within Karachi must be constituted to discuss POS issues and solutions at one forum. Discussion on weekly basis must be encouraged and business representatives may also be invited in this forum.
— Joint seminars having officers from FBR, members of KTBA and representatives of various business organizations must be arranged to address the issues and fears of the business committee being faced in the implementation of POS. This would vanish the resistance and pave a long way for POS. ADCR must be kept active to resolve issues like POS. This would be a harbinger of success, provided there is a positive approach all around.
— FBR should take penal actions only to the extent of clear cases falling in the definition of Tier-1 Retailers.
— Retailers are the affected ones for the reason that manufacturers hesitate giving invoices for their purchases, whereas wholesalers and distributors are found nowhere in this chain of POS. If there is no input tax available to them then how would they pay the output tax.
— To implement POS, media campaign in the form of electronic media, social media, affixing of flyers at common places must be ensured to create awareness among the masses.
— Reasonable time of four months must be given for implementation of POS to the business committee.
— One of the fears of the POS liable retailers is that their sale will reach climax due to the implementation of POS and the department would take action against them for the previous five years as well. FBR has to take a policy decisions in this regard to address their genuine fear as to implement POS, the government has to look forward and not backward to move on in the right direction.
— Service sector needs to be addressed as SRB is also pursuing integration on POS. The retailers, restaurants are therefore in confusion about whom to report in this regard.
— SRO 779(1)/2020 dated 26.08.2020 needs a Tier-1 Retailer to be a registered person with Sales Tax meaning thereby a taxpayer has to get itself registered in Sales Tax first to implement SRO 779(1)/2020.
— POS-related expenses are one of the concerns of the small traders.
— Companies providing POS machines licensed by the Board are creating issues for the retailers. Government / FBR run POS machines must be provided to avoid such issues.
— It was also suggested that those who are integrated POS should automatically be excluded from the purview of section 8B of the Sales Tax Act, 1990 as prescribed vide SRO 344(I)/2020 dated 29.04.2020.
— Taxpayers using debit / credit card machines in the past were encouraged to use to bring the economy under documentation and now the same channel is being used to bring them under Tier-1 Retailers by bringing them in the definition of Tier-1 Retailer. This creates agony among the already documented sector and businessmen are now trying to stop using this important tool of documentation anymore.
— Department must show grace in granting extension in the filing of Sales Tax Return of those taxpayers who have been integrated with POS and are now facing problem in their filing of ST return.
— In order to achieve success in the POS implementation exercise, sector-wise profiling is recommended including plastic, paper and steel sectors by virtue of which big distributors and wholesalers would come under control thereby reducing the burden on other tiers of the economy.
— In the last, the success of POS exercise depends upon efficient control on manufacturers and importers.
The meeting was conducted at LTO, Karachi and attended by: Nisar Ahmed Burki, Additional Commissioner Inland Revenue; Mukhtiar Ahmed Shar, Additional Commissioner Inland Revenue; Anees Ahmed Memon, Deputy Commissioner Inland Revenue; Khush Ahmed Din, Senior Auditor.
Besides KTBA President Muhammad Zeeshan Merchant, the other members were also at the meeting, who are included: SyedFaiq Raza, General Secretary; Mehmood Bikiya, Vice President; HarisTufail, Joint Secretary; Shiraz Khan, Librarian; and Irfan Ghafoor, Member Admin.
As the clock ticks down on the last day for filing income tax returns in Pakistan, taxpayers are encountering significant challenges with the country’s online return filing portal, IRIS.
KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday apprised Prime Minister Imran Khan about difficulties in the return filing and requested for date extension up to December 31, 2021.
It is commendable that the FBR issued the return form for tax year 2021 on July 01, 2021. “It is however, return filers and tax consultants alike are not satisfied with the classification of income set in IRIS, and otherwise are experiencing various computational errors, glitches etc.,” Muhammad Zeeshan Merchant, President, KTBA said in the letter.
The KTBA highlighted following technical issues:
1) COMPUTATION OF CAPITAL GAINS TAX ON DISPOSAL OF IMMOVABLE PROPERTY U/S. 37
The provisions of Section 37(1A) of the Income Tax Ordinance, 2001 (Ordinance) prescribes mode of taxation of gain on disposal of an immovable property on the basis of holding period of the property and the amount of taxable gain; whereas the amount of taxable gain is effectively reduced by 25% with each additional year of holding and finally taxable value is reduced to ‘0’ if the holding period exceeds four years. Correspondingly a variable tax rates are prescribed in Division VIII of Part I of the First Schedule.
Although, law prescribes taxation of gain of immovable property on net amount (refer sub-section (3A) Section 3A) but conversely the return works out the tax liability on gross amount of gain.
2) LOSS ON DISPOSAL OF SECURITIES U/S. 37A
Similarly, in line with Section 37A, unadjusted loss on disposal of securities during the Tax Year 2019 and onwards shall be carried forward to subsequent three tax year or is adjustable only against the gain of the person’s gain on disposal of securities in succeeding three years. Conversely, the web portal does not have any enabling/dedicated field / tab to declare the amount of loss sustained on disposal of securities and carried forward to future tax periods. Moreover, if such a loss on capital gain of securities is reported under the existing tab the same is resulting in a negative amount of tax that ultimately results in incorrect tax computation.
3) INCORRECT WORKING OF TAX DEPRECATION U/S. 22
In order to restrict claim of depreciation upto 50% to first time return filers a proviso to Section 22(2) is inserted via Finance Act 2020 which to the exclusion of Special Tax Year 2021 is expressly applicable w.e.f. July 2020; however, IRIS portal is applying this restriction in cases of Special Tax Year.
4) INITIAL ALLOWANCE ON PLANT & MACHINERY U/S. 23
Subject to certain restrictions initial allowance @ 25% is allowed against plant and machinery on the strength of proviso to Section 23 (read with Part II of the Third Schedule). The IRIS web portal is presently not catering this scenario in line with law resulting in an incorrect computation of tax depreciation.
5) TAX ON FEE FOR TECHNICAL SERVICES / ROYALTY OF A NON-RESIDENT PERSON
Under the provisions of Section 152(1) read with Sections 6 and 8 of the Ordinance, the tax deducted on payment of Pakistan-sourced Royalty and Fee for Technical Services of a non-resident person is a Final Tax. The online return form is presently classifying it under ‘minimum tax tab’ resulting in a incorrect higher tax liability.
6) DISCREPANCIES IN DETAILS AVAILABLE ON FBR ONLINE PLATFORMS
For past few years, the FBR has started sharing information regarding WH/advance taxes through “FBR Maloomat” and recently via “MIS”. It is, however, as of today the information at times is patchy and is not complete and correct either. Given that, it is suggested that unless the scheme is fully operational, tax deduction certificates will continue to be acceptable and no adverse inference should be taken for discrepancies on this score.
7) SIMPLIFIED RETURN FOR SMEs
A simplified scheme for manufacturing SMEs (having turnover upto 250 m) is introduced by adding Section 110E read with Fourteenth Schedule through Finance Act, 2021. It is however, in patent disregard for Section 237, no draft return for this purpose was notified and a return is uploaded on the portal without any notification as well as without following the conditions of Rule 34A putting validity of the return in jeopardy. A few anomalies in this return (though still not notified) are also experienced by us and is shared below for your appreciation:
The return is accepting turnover in excess of Rs. 250(M) in revenue tab which ought to be restricted to Rs. 250(M).
It is not applying correct rate of tax in case a person who opts not to avail FTR and creating incorrect tax liability. Screen shots from return is shared below for your understanding.
It has also been observed that an assignment for re-filing of SME return afresh is available to a person who already had filed its return; without any recourse for a revised return.
Although law requires dedicated registration SME at IRIS portal however, the portal sans this feature as yet; needless to add that selection from “attribute tab” is not an apt option for this purpose.
8) DISCLOSURE OF TAX COLLECTED UNDER SECTION 236D
Through the Finance Act, 2020, the advance tax on function and gatherings has been withdrawn which is practically applicable from July 1, 2020, it is however persons following Special Tax Year are yet to claim this collection/deduction whereas this filed has been removed from the return. It is therefore, suggested that field should be reinstated to claim tax deduction who are entitled for that.
9) WEALTH STATEMENT FOR NON-RESIDENT INDIVIDUALS
It has been observed that statement of wealth for tax year 2021 is pre-populated with opening balance of last year’s closing balance without considering the tax residency of a person.Consequently, non-resident individuals who otherwise is not required to file a wealth statement cannot proceed to file a return of income in the presence of such unnecessary disclosure.
10) DISCREPANCIES IN TAX COMPUTATION OF A COMMERCIAL IMPORTER
Through Finance Act, 2019, the facility of FTR for commercial importers has been abolished. In order to cater the transition period, the FBR has made appropriate changes in the computation of tax liability of commercial importer like impact of closing and opening stocks. However, IRIS web portal is not catering the impact of closing / opening stock which is resulting in an incorrect tax computation.
11) INCOME ATTRIBUTION WITH RESPECT TO MINIMUM TAXATION U/S. 153 AND U/S. 234A
It has been observed that IRIS web portal is presently computing and attributing income of persons associated to Section 153 and Section 234A on certain predefined and programmed formula.
It is suggested that such persons should be allowed to compute and attribute their incomes based on facts instead of predefined or programmed formula and relevant field should be relaxed.
12) COMPUTATION OF FOREIGN INCOMES
Though tabs for various classification of incomes has now been catered in the return of income it has however, been observed that portal is computing tax for all streams of income on the basis of business income.
For the purpose of better appreciation of all issues in correct and true spirit and to create a harmonized approach, we suggest you that a joint meeting (physical or online) between the representatives of KTBA and FBR’s Policy, Legal, IT/PRAL Divisions should be fixed (preferably in current week) at mutual convenience. The KTBA will be glad to assist the FBR’s technical team and join hand for the earliest resolution of the issues.
KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday demanded the tax authorities to implement printing of barcodes on all communication under the sales tax regime.
In this regard, the KTBA has sent a letter to the chairman of the Federal Board of Revenue (FBR). The tax bar demanded the chairman of ensuring the implementation of barcode printing on all notices of sales tax.
The KTBA and its members are consistently receiving unauthorized and designed notices/ communications from the field formations.
In the year 2015, the FBR introduced a scheme of using barcodes on notices/communications under the income tax regime, which eliminated unauthorized notices.
As of today, declarations under the sales tax regime are broadly regulated through old e.fbr portal; on the other hand, the field formations have started issuing notices for audit and late filing via IRIS. However, in addition to the above, notices on various counts are issues manually which subsequently are withdrawn for obvious reasons, the tax bar said.
The KTBA recommended that the practice of communicating all notices and correspondence in the sales tax regime in manual should be replaced with a barcode methodology with an option to reply online as in the case of the income tax regime.
Karachi Tax Bar Association (KTBA) has pointed out unauthorized access to information of taxpayers by retired tax officials and privately hired persons.
The KTBA in a letter to the Chairman of Federal Board of Revenue (FBR) pointed out recent perturbing news of hacking of taxpayers’ data which is archived, held and managed by the FBR/PRAL for automation and integration of Federal and Provincial Taxes.
The tax bar recalled that only a couple of months ago, system-based notices were issued mechanically U/s. 122(5) of the Income Tax Ordinance, 2001, to the taxpayers in bulk but were yielded in a compromising manner when the same was highlighted by the KTBA.
Surely, this manifests the vulnerability of external tinkering in the system. The silence as to denial or acceptance of the news by FBR/PRAL is bizarre either.
It goes without saying that the data contains sensitive information comprising personal and business information including but not limited to IBANs, CNIC, Date of Birth, Passport which in many ways are associated with taxpayers’ banks (both individual and business accounts) and other development financial institutions (DFIs) both domestically and internationally.
Given the practice that data is hoisted and archived at Cloud system resource hence any casual approach in its protection may not only compromise the sovereignty of Pakistan but is likely to end up in grave consequences for taxpayers domestically and internationally.
The KTBA time and again had objected to the involvement of retired FBR employees and other private persons in the official work across field formations; who are hired by the officers and supervisory staff and are allowed the access to private information/data of taxpayers in soft as well as in hard contents that also make the data vulnerable.
The tax bar urged the FBR chairman to ensure that all the steps will be brokered (in association with other regulators) to avoid the data breach recurrences in future.
Taxpayers across Karachi are facing undue stress as they continue to receive auto-generated notices for filing income tax returns of previous years, despite the Federal Board of Revenue (FBR) assuring that such notices would only be issued after scrutiny by the Commissioner Inland Revenue.
