KARACHI: Tax practitioners in Karachi have brought to light a concerning issue where banks are deducting withholding tax on proceeds from the exports of computer software and IT-enabled services, despite these being granted a 100% tax credit.
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Filing income tax return on July 01 impossible due to various reasons: KTBA
KARACHI: As the Federal Board of Revenue (FBR) has decided to open IRIS portal for income tax return filing for tax year 2021 but on the other hand a tax bar objected that making compliance of return filing on first day of July was impossible due to various reasons.
The Karachi Tax Bar Association (KTBA) on Friday responded to draft income tax return form issued by the FBR, which was issued through SRO 730(I)/2021 dated June 11, 2021.
The tax bar said that practically it was impossible for any taxpayer, be it individual, Association of Person (AOP) or a company to file return of income particularly on the first day of July or immediately thereafter owing to following factors:
Finally, we may add that practically it is impossible for any taxpayer, be it Individual, AOP or Company to file return of income particularly on the first day of July or immediately thereafter owing to following factors:
- Certificates for the purpose of Sec. 149 are issued by the employers broadly by the end of July so is the case of other Withholding Certificates by the Withholding Agents.
- Closing of books and completion of financial statements on thirtieth June is effectively impossible as Sales Tax Return for June is filed by the mid of July.
- Mainly the taxpayer starts compiling necessary information & documents to prepare and file the returns in the first week of July and normally it takes at least a month for this purpose. As such the pace of filing of return in July is almost nil and very slow.
The tax bar suggested that for the purpose of Section 118 of the Income Tax Ordinance, 2001, the FBR should fix the deadline to file return keeping in view the above as well.
The KTBA however appreciated the FBR for issuing draft Income Tax Return Forms in respect of Tax Year 2021 for this Year are relatively available earlier albeit the timelines are not in consistent with Rule 34A of Income Tax Rules 2002 nor approved Change Request Form (CRF) is evenly shared in order to let us track and trace the changes incorporated in the draft returns.
Secondly please appreciate that returns are not available in excel format to test the computations thus requirement of User Acceptance Test (UAT) of an amended return for testing environment is also not followed as required in Rule 34A(2)(e) read with sub-rule (3) ibid.
The tax bar said that any timeline for the purpose of Sec.237 of the Income Tax Ordinance, 2001, shall not take effect unless due diligence prescribed in sub-rule (3) and (4) ibid, is followed in letter and spirit.
It hoped the FBR will soon upload the amended return of income on IRIS portal for the purpose of UAT and time prescribed for suggestions/ objections in rules will be allowed accordingly.
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Finance Bill proposes blanket powers to tax machinery: KTBA
KARACHI: The federal government through Finance Bill, 2021 proposed certain amendments in tax law, which will give blanket powers to tax machinery, said Zeeshan Merchant, President, Karachi Tax Bar Association (KTBA).
Merchant was addressing at the post budget 2021/2022 seminar held on Thursday.
“We at KTBA feel that the FBR is actively pursuing the policy to create a friendly relationship between the taxpayers and the tax collectors,” he said, adding that we feel certain amendments proposed in the law have given blanket powers to the tax machinery.
Merchant said that the government had presented the budget, which had ingredients of both a sense of direction though based on certain assumption and some measures to increase the tax base.
KTBA president said that the bar was grateful to the government for timely action taken after the issues highlighted by the KTBA and now it is heard that certain proposed amendments would have now be drafted.
While discussing the budget, he said that senior citizens had not been taken care of and they were treated at par with normal taxpayers.
He said that the bill had proposed to omit section 114A of the Income Tax Ordinance, 2001. But it should be clarified by the tax authorities that nothing requires to be done in this regard.
He said that the discretionary power had been give to assistant commissioner to arrest a person for concealment of assets.
Zeeshan Merchant said that nothing has been done to bring retailers into the tax net like an effort has been made in SMEs sector.
He highlighted that the budget had some positive measures, included: increase in minimum tax threshold from Rs10 million to Rs100 million; reduction in minimum tax rate from 1.5 percent to 1.25 percent; minimum tax not to levy in case of losses; distributors brought in the fold of minimum tax; exemptions allowed for those availing tax credit; separate tax regime for SMEs.
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FBR urged to issue FTNs against withholding tax deduction
KARACHI: Tax practitioners have urged the Federal Board of Revenue (FBR) to issue Fee Tax Numbers (FTNs) to persons who are not liable for withholding tax.
In its proposals for budget 2021/2022, the Karachi Tax Bar Association (KTBA) said that Section 49(3) of the Income Tax Ordinance, 2001 has specified that any payment received by the Federal Government, a Provincial Government or a Local Government shall not be liable to any collection or deduction of advance tax.
No clarification or list of FTN entities to whom this subsection applies, the tax bar said.
In absence of any SRO or underlying Rules causes unease to the withholding agents to determine proper withholding tax treatment in such case.
FBR should issue a separate list of Fee Tax Numbers (FTNs), who are not liable to tax withholding as provided under section 49(3) of the Ordinance through a S.R.O.
The KTBA said that this will assist the withholding agents and save considerable time in deciding whether a respective FTN holder is required to produce exemption certificate or not.
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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.
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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.
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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.
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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.
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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.
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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.