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  • Commercial importers, traders require filing annual returns, maintain complete record

    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.

  • KTBA members asked to report privately hired persons by tax officials

    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.

    (more…)
  • FBR urged to withdraw date extension notification for audit completion

    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.

  • KTBA highlights anomalies in claiming input tax adjustment

    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.

  • FBR advised to allow sales tax refunds on local supplies

    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.

  • FTO takes Suo moto notice in pending 11,000 tax amnesty cases

    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.

  • KTBA seeks FBR clarification on tax ordinance

    KTBA seeks FBR clarification on tax ordinance

    KARACHI: Karachi Tax Bar Association (KTBA) on Monday urged Federal Board of Revenue (FBR) to issue necessary clarification related to issues in recently promulgated tax ordinance.

    The KTBA sent a letter to Syed Shabbar Zaidi, Chairman, FBR and pointed out anomalies in the Tax Laws (Second Amendment) Ordinance, 2019 for clarification.

    The KTBA highlighted that Sub-section 4 has been added to section 73 of Sales Tax Act, 1990, under which sales to an unregistered person by a registered manufacture cannot be made for more than Rs10 million in a month and Rs100 million in a year, failing which input tax will be disallowed proportionately.

    Considering the implication of the phrase of unregistered person [i.e. singular term] used in drafting of the law, instead of the phrase unregistered persons [plural term], it implies that the restriction is applicable on sales to a single unregistered person instead of cumulative sales to all unregistered person(s).

    In order to ensure that intent of law is not suffered by any legal infirmity due to any unintended or inadvertent drafting, the clarification must be issued in this respect on urgent note, it added.

    It further pointed out that in addition to the above, it should also be clarified as to whether the all unregistered person will be effected or only those unregistered person who actually were required to be registered in Sale Tax but didn’t ?

    In the event, the law is intended to cover all unregistered persons, without any discrimination, certain serious ramification would follow because of the fact that Manufacturers won’t be able to make sale to various Government/other authorities, armed forces hospitals, Universities, Charities & EPZ entities, which by law, are not required to be registered at all, in the first place.

    The KTBA said that it is important to define the category of unregistered person who should not suffer due to any adverse implication of the law. Hence, a clarification is necessitated in this context.

    The tax bar further highlighted the amendments introduced related to business license.
    Through the Tax Laws (Second Amendment) Ordinance, 2019, various penalties have been prescribed for person who has not obtained business license, while the procedure to obtain business license has not been prescribed as yet.

    It is not possible to get a Business License either for any person or for any tax commissioner to issue one.

    An unnumbered and undated draft SRO was issued by the FBR in July 2019, whereby Draft rules 83A to 83E were proposed in the Income Tax Rules, 2002 for the purpose, which were not finalized yet.

  • FBR urged to resolve return filing issue of shopkeepers, paid taxes under amnesty

    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.”

  • FBR urged to resolve input adjustment on payment made through BOAD

    FBR urged to resolve input adjustment on payment made through BOAD

    KARACHI: Karachi Tax Bar Association (KTBA) on Thursday urged Federal Board of Revenue (FBR) to resolve the input adjustment issue on payment made through Bill of Additional Duty (BOAD).

    The KTBA in a letter informed the FBR that it had highlighted the matter through communications dated November 27, 2013 and June 23, 2014, respectively whereby the issue of non-adjustment of input tax, paid through challan of BOAD was highlighted that a registered person remained unable to claim its input sales tax against the output sales tax.

    The KTBA informed through the instant letter that the these paid challans of BOAD were still not available in the uploadable format in the system due to which the issue was still persist.

    The tax bar pointed out that the issue had been duly addressed at the WeBOC system already and the PRAL through its communication on December 05, 2013 intimated that the provision for the requested adjustment had been made available for payment made through WeBOC system in the online sales tax return portal.

    A similar mechanism should be devised and put in place for the adjustment of sales tax paid through BOAD for challans paid through One Customs as well, which has been held pending for a considerable time period for the last five years.

    The issue needs to be addressed and resolved, the KTBA said.

  • KTBA proposes steps for exports growth without revenue loss

    KTBA proposes steps for exports growth without revenue loss

    KARACHI: Karachi Tax Bar Association (KTBA) on Monday proposed steps to the Federal Board of Revenue (FBR) for the exports growth without any negative implications to the tax revenue.

    The KTBA submitted following proposals to FBR Chairman Syed Shabbar Zaidi:

    1- Section 8B (Bottleneck for potential / existing exports)

    Section 8B restricts Input tax adjustment to the extent of 90 percent of the Output tax (i.e. ratio of Input / Output ≤ 90percent). Since exports do not contribute towards Output tax (denominator) while the input tax relating to exports is included in numerator, therefore, such input tax relating to exports should not be considered for the purposes of comparison of ratio of Input / Output under Section 8B.

    For fair comparison, 90 percent restriction should be made applicable only for local sales where both input tax and output tax are subject to the levy of standard rate of sales tax.

    As per serial no.4 of SRO 1190(I)/2019 dated October 02, 2019, section 8B is not applicable to persons whose zero rated supplies during a month is more than 50 percent of the total taxable supplies.

    Suggestion: Either of the following options may be considered to be implemented by the FBR:

    i. Since exports do not contribute towards Output tax, therefore, condition of 50 percent should be amended to 10 percent [in serial no. 4 of the said SRO 1190] on monthly basis for all exports irrespective of any sector otherwise it would not be possible for registered person to absorb the amount of input tax paid for the purposes of manufacturing of items for local and export sales and consequently, the same would discourage export of goods; OR

    ii. Abolish sales tax on conversion cost (like electricity / gas bills) for manufacturers whose export sales during the preceding tax year is more than 40 percent of the total sales. Sales Tax liability, if any, on local sales, will be discharged by the registered person at the time of filing of monthly sales tax return.

    In case a person utilizing 80 percent of total capacity for local sales gets an opportunity to export remaining unutilized capacity of 20 percent, he will not be interested to avail that export opportunity as input tax paid on goods used for exports will form part of the total input tax and consequently, he will be required to pay 10 percent minimum value addition tax under section 8B, which will be refunded after around a year.

    Considering the impact of finance cost of delayed refund, he will not be interested to avail that export opportunity.

    2- Section 8B (Discriminatory Treatment with Manufacturers as compared to Commercial importers)

    Sales tax is now being collected from manufacturers on almost all value additions (like conversion cost, contractors, transporters etc.) and then they are required to pay 10 percent minimum value addition tax over and above all these inputs under section 8B of the Sales Tax Act, 1990 whereas on the other hand, commercial importers paying 3 percent minimum value addition tax at import stage have been excluded from the ambit of section 8B.

    In order to provide level playing field to manufacturers, the FBR is requested to consider any of the following options:

    i. Exclude manufacturers of 100 percent taxable goods from the ambit of section 8B of the Sales Tax Act, 1990

    ii. If complete exemption is not possible, increase the threshold of restriction of input tax adjustment to 95 percent from present 90 percent; OR

    iii. Abolish sales tax on conversion cost (gas / electricity bills) incurred by manufacturers of 100 percent taxable goods. This will not have any negative impact on Government’s revenue as sales tax liability, will be discharged by manufacturers along with filing of the monthly sales tax return.

    3- MINIMUM VALUE ADDITION (MVAT) SALES TAX AT 3 percent ON IMPORT OF PLANT & MACHINERY

    On the basis of powers under subsection 2 of section 7A, 12th Schedule has been inserted in to the Sales Tax Act, 1990 wherein it has been stated that MVAT will be applicable on

    “All imported goods subject to exclusions as in conditions and procedure given after the Table”.

    Moreover, among few other exclusions under clause 2 of the 12th Schedule, raw materials and intermediary goods meant for use in an industrial process which are subject to customs duty of less than 16 percent have also been excluded from the ambit of applicability of MVAT. You will appreciate that said exclusion is applicable only on raw materials and intermediary products of less than 16 percent Custom duty whereas similar exemption is nowhere specified for Plant and Machinery / spare parts and therefore, custom authorities are charging MVAT on import of Plant & Machinery / spare parts by manufacturers.

    It is needless to mention that exclusion from MVAT is already available to service sector importing goods for their in-house business. Clause 2(iii) of the Twelfth Schedule is reproduce as under:

    (iii) Registered service providers importing goods for their in-house business use for furtherance of their taxable activity and not intended for further supply.

    3.3- Based on the above submissions and considering the fact that goods including plant and machinery imported by service sector is already exempt from MVAT, the Plant & Machinery imported by manufacturers for its own use should not be subject to the levy of MVAT under Twelfth Schedule read with subsection 2 of section 7A.

    Therefore, it is requested to kindly issue necessary notification for inserting following clause in Twelfth Schedule.

    (ix) Plant, machinery and spare parts imported by manufacturers for their in-house business use for furtherance of their taxable activity and not intended for further supply.

    3.4- It is worth mentioning that earlier as per Chapter X of the repealed Sales Tax Special Procedures Rules, 2007 both the goods as imported by a manufacturer of goods for in-house consumption as well as goods imported by registered service providers for in-house business use, were exempt from levy of MVAT, however, in the 12th schedule of the Sales Tax Act, 1990, exemption from MVAT in case of imports of Plant & Machinery/spare parts by manufacturers of goods, has not been retained.

    4. SALES TAX REFUND – ISSUE BEING FACED BY EXPORTERS

    As per the amendments made in Sales Tax Rules, 2006 vide SRO no. 918(I)/2019 dated August 7, 2019, mechanism for expeditious processing of refund claim has been devised only for manufacturers-cumexporters.

    As per the Rules, refund will be treated as having been filed only after filing of Annexure H of the Sales Tax return, for which deadline of 120 days has been prescribed in the Rules and the same can be extended for a period of 60 days on the basis of approval from the Commissioner.

    However, the rules are silent about the mechanism for processing of Sales Tax refunds incase Annexure H has not been filed by manufacturer-cum-exporter for any reason. Considering the legal and legitimate right of the taxpayer to claim adjustment / refund of the input tax, either of the following two option be considered by the FBR for facilitation of exporters:

    i. Allow filing of Annexure H without any time limit [present time limit of 4 months be abolished and taxpayer be allowed to claim refund as and when required]

    ii. Incase present limit of 4 months cannot be abolished, registered persons be allowed at least to alternatively file refund on annual basis after the end of the tax year.

    Apart from the above, Annexure H is only being allowed to be filed to taxpayers who have filed the said Annexure from sales tax returns of July 2019 and onwards. Instead of claiming refund,
    some taxpayers have reported sales tax carried forward balance in their sales tax returns from July 2019 onwards.

    In case they now intend to file Annexure H from the current month, FBR’s online portal does not allow such taxpayers to enter opening balance of inventory / raw materials as the said field in blocked for editing. This limitation should be removed and taxpayers should be allowed to file Annexure H for any specific month, for which they intend to claim refund.

    From apparent mechanism being followed by the system, it appears that those taxpayers who have not filed Annexure H for the month of July 2019 will never be allowed to file Annexure H for any subsequent month.

    This apparent anomaly should be resolved at earliest.

    These suggestions will have no revenue loss to the government as sales tax collected is otherwise adjustable, however, through industrialization, government will be able to generate more tax revenue as well as employment opportunities.