Tag: KTBA

KTBA advises FBR to suspend notices amid alarming rise in COVID cases

KARACHI: Karachi Tax Bar Association (KTBA) has advised Federal Board of Revenue (FBR) to suspend notices for various tax matters with immediate effect considering the alarming increase in cases of COVID-19 in the country.

The KTBA in a letter to FBR chairperson sent on Friday, informed that the bar members were receiving notices issued by the tax officials right in the month of June when the COVID-19 pandemic was in its worst phase in the country, and the city of Karachi is passing through its hardest times.

The grim situation at hand, in terms of helplessness and number of deaths of both taxpayers and the tax officers, cannot possibly be remained devoid of any mindful sight.

It is rather what today has the fullest attention of everyone concerned and the FBR as the tax regulator cannot simply be an exception. It cannot keep shooting notices mindlessly to the taxpayers for tax compliance when the taxpayers or their counselors cannot even reach their offices these days. The Bar equally feels compassionately about officers. “You must be aware of the deaths of tax officials posted at LTU, Karachi and at Regional Tax Office, Karachi due to Coronavirus.”

Around 160,000 coronavirus positive cases have been registered in the country out of which, almost 55,000 are in Sindh. Among the cities of Sindh, Karachi is at the top with 45,000 plus cases.

Keeping the above in view, the number of notices being issued these days is beyond ones comprehension. The members, like other service providers (shops, markets and manufacturing units are an exception), are largely not operating from their offices and are working from home, which has its own limitations. As such, in these testing times, it is not humanly possible for our members to respond to the notices issued for various proceedings discuss below.

Even otherwise responding to these notices is not possible without provision of details/ information by clients/ taxpayers who are also suffering from the short comings discussed above. On the other hand, IRIS still has its own limitations.

Any assignment created especially in ‘completed tasks’ cannot be replied via IRIS. Even if a notice can be responded to via IRIS, attachments containing details beyond a specific size are not acceptable by IRIS i.e. not every notice can be responded to via IRIS.

This would mean that bar members have to come to the tax office for making the compliance. Under the present scenario of infections (tax offices are not immune from this), this poses a great threat for the visitors.

What has been observed that as a matter of fact, the notices, which are being issued can broadly been categorized under the following categories:

(i) Audit notices for the Tax Years 2015 to 2019

(ii) Audit notices for the TY 2014 including notices for making amendment under section 122(5) of the Income Tax Ordinance, 2001

(iii) Monitoring of withholding tax

(iv) Set-aside proceedings

(v) Appeal effect proceedings

For Audit notices relating to the Tax Years 2015 to 2019, the bar is of the view that there should not arise any issue of getting barred due to any time limitation. As such, these proceedings can well be taken up at a later stage as well, say after two to three months when gravity of the spread of Coronavirus will be subsided.

The notices for monitoring of withholding tax are again not poised with any time limitation issue.

As for the notices related to the set aside and appeal effect proceedings, it would be advisable to seek an advice from the Ministry of Law as to any possible waiver from the application of calculation of limitation period under the Income Tax Ordinance, 2001 read with Section 4 of the Limitation Act, 1908 for these extra ordinary days; alternatively, some moratorium should be asked for. This will be in utter necessity for saving precious lives from any jeopardy due to any insensitivity.

The tax bar urged the FBR to suspend the notices at least till the end of July 2020. Further that no adverse action would be taken on the notices already issued.

This is acutely necessary to defuse the tension in the atmosphere and for instilling the much-needed confidence in the taxpayers of the country towards the single most pivotal federal tax regulator of the country.

June 20, 2020
FBR urged to extend date for tax amnesty payment

KARACHI: Karachi Tax Bar Association (KTBA) has urged Federal Board of Revenue (FBR) to extend the date for making payment for amnesty scheme declarants.

The KTBA in a letter to FBR chairperson on Thursday pointed out that the due date of payment of tax under section 6 of the Assets Declaration Ordinance, 2019 (“ADO, 2019”), which in terms of section 6 of the ADO was June 30, 2019.

A declarant was also provided with an option to pay the tax on deferred payment basis in installment till the date of June 2020.

This late payment, however, had to be made along with default surcharge at the rates given in Clause (2) of the Schedule to the ADO, 2019.

The KTBA said that the maximum rate of default surcharge is 40 percent which would apply if the tax payment is made by 30 June 2020.

The ongoing circumstances in the wake of current pandemic of COVID-19 which, undisputedly, has affected the life and business of every individual, adversely and taxpayers are no exception.

The fall out of the cessation of business activities in the last three (03) months due to intermittent lockdown orders has effected every ones’ taxpaying capacity as well.

“It has become quite difficult for the taxpayers to make the payment of tax as per the proviso discussed above, by 30 June 2020,” the KTBA said.

In this connection, on behalf of our members, we would suggest that the following may be considered:

1. the due date of payment of tax may be extended up to 31 December 2020 without increasing the rate of default surcharge further

AND

2. allow adjustment from tax refund, if any, available to the taxpayer, against the aforesaid payment.

The measures will not only repose confidence to the taxpayers but will also show the resolve of the FBR to address a genuine issue.

June 19, 2020
Tax authorities consider reducing minimum tax rate: Zeeshan Merchant

KARACHI: Tax authorities have agreed to consider reducing minimum tax rate for corporate sector and individuals in the upcoming budget, especially in the wake of financial losses due to coronavirus pandemic, a senior tax consultant said.

“In different meetings with Dr. Abdul Hafeez Shaikh, Finance Advisor to Prime Minister, Razak Dawood, Commerce Advisor to PM and senior officers of Federal Board of Revenue (FBR) have agreed to reduce minimum tax rate for providing relief to mitigate adverse impact of coronavirus,” Zeeshan Merchant, former vice president of Karachi Tax Bar Association (KTBA) said this while talking to PkRevenue.com.

Merchant, who is also honorary consultant to Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said that the actual proposal for the budget 2020/2021 is to reduce minimum tax rate for corporate sector to 0.5 percent and abolish this tax for two years in case of individuals and Association of Persons (AOPs).

He said that in meetings Dr. Abdul Hafeez Shaikh and Abdul Razak Dawood appreciated the proposals and promised to consider in the budget for providing maximum relief to businesses.

Merchant further said that the FBR chairperson also pledged to move this proposals after consideration for incorporation in the Finance Bill 2020.

He said that due to coronavirus and subsequent lockdown many corporate entities would not able to post significant profits or declare substantial losses for the year.

Merchant further said that the minimum tax applied on turnover when a taxpayer declare lower profit or declare gross losses to the year.

The FPCCI in its proposals for fiscal year 2020/2021 said that the existing rate of 1.5 percent minimum tax is very high and results in financial hardships to the taxpayers.

Due to the current economic conditions and its negative impact on productivity, the businesses are not operating at optimum level.

According to changes vide Finance Act, 2016 threshold of turnover for individual and AOP for turnover tax at the rate of 1.25 percent decreased from Rs50 million to Rs10 million. This had adversely affected the true declaration of turnover and has created hardship for the taxpayers.

After changes made in Section 113(1) of Income Tax Ordinance, 2001, now companies have to pay turnover tax even in case of gross loss before charging of depreciation. This has adversely affected the industry.

Under section 113(2) (C) where Minimum Tax paid under sub section (1) exceeds the actual tax payable under Part I, Clause (1) of Division I, or Division II of the first Schedule, the excess amount is carried forward for adjustment against tax liability of the subsequent tax year(s).

The FPCCI also proposed to reduce the minimum tax rate and enhance the limit of turnover to Rs50 million.

May 16, 2020
KTBA asks FBR to grant general adjournment for cases during lockdown

KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday urged Federal Board of Revenue (FBR) to grant general adjournment for cases as taxpayers may not appear due to lockdown.
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March 24, 2020
KTBA highlights difficulties in claiming exemption

KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday highlighted issues faced by taxpayers in obtaining exemption against import of raw material and plant and machinery.

The KTBA in a letter to Member Inland Revenue (Operations), Federal Board of Revenue (FBR) highlighted the issues being faced by taxpayers while claiming exemption from income tax deduction on import of raw materials and plant and machinery.

The desired exemption certificate against tax deduction on import of raw material is though being auto generated by IRIS portal on the basis of annual quota allowed by the Commissioner Inland Revenue, the same however, for the past 6-7 days is not being uploaded on WeBOC portal. Consequently, the Custom authorities are unable to allow any exemption as the same is not being reflected on their WeBOC portal.

Secondly the IRIS portal has not been enabled to distinguish exemption application applied for raw material and the one applied for exemption on plant and machinery.

The KTBA said that consignment/LC wise exemption certificate is allowed against tax deduction on import of plant and machinery. However, while trying to apply for the said exemption certificate, following error message pops up on IRIS portal:
“You are not allowed any quota”

Any quota related objection can only be relevant in case of import of raw material and not otherwise.

The issues highlighted above are not more than IT Glitches and can be brought to correction with minimum due attention on the details of the system requirements.

In view of the foregoing, the KTBA requested the Member to kindly issue directions for resolutions of these issues on urgent basis so as to facilitate taxpayers.

March 10, 2020
KTBA suggests automatic stay against recovery on 10% tax payment

KARACHI: Karachi Tax Bar Association (KTBA) has suggested an automatic stay should be granted where a taxpayer paid 10 percent of the defaulted amount.

The stay should be granted till the decision by the Commissioner Inland Revenue (Appeals), the KTBA said in a letter sent to Member Inland Revenue (Policy) on Thursday.

The tax bar through the letter submitted its observations on the draft rules recently notified by the FBR related to third party recovery.

Through the draft rules, it is proposed that recovery may not be made where the taxpayer has voluntarily paid 10 percent of the tax demand until the decision of the appeal filed with the commission inland revenue (appeals).

“The condition to consider only voluntary payments, while issuing recovery notice, is contrary to the proviso to section 140(1) of Income Tax Ordinance, 2001 where the term ‘tax paid’ has been used which invariably includes any recoveries made by the department as well.”

It is therefore, suggested that where partial recovery up to 10 percent of the tax demand has already been made, the taxpayer should be entitled to automatic stay against any further recovery till the decision by the Commissioner Inland Revenue (Appeals), the KTBA said.

The KTBA observed that notice of recovery issued under Section 140 has to be complied with immediately. Meanwhile, Rule 210D proposes for dispute resolution relating to execution, discharge or satisfaction of a recovery notice.

A combined reading of the provisions suggests that the recovery could be affected before institution of any dispute with the Commissioner Inland Revenue.

“A minimum three working days time may be allowed for payment of the outstanding demand (after due date of service of recovery notice) to enable the defaulter to raise any genuine concerns arising from execution, discharge or satisfaction of such a notice.”

February 28, 2020
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.

February 23, 2020
KTBA members asked to report privately hired persons by tax officials

Karachi: The Karachi Tax Bar Association (KTBA) has issued an urgent call to its members to report any instances of tax officials hiring privately employed individuals for assistance. This move follows a strict condemnation from the Federal Board of Revenue (FBR) against the practice, warning that it could result in disciplinary action for the officers involved.
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February 5, 2020
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.

February 5, 2020
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.

January 30, 2020