Karachi Tax Bar Association (KTBA) is organizing a seminar on Zakat calculation on Friday, March 17, 2023.
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KTBA elects office bearers, EC members for 2023
Karachi: The Karachi Tax Bar Association (KTBA) held its 66th Annual General Meeting on March 16, 2023, during which it elected new office bearers and members of the executive committee for the term 2023.
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FBR directives to shopping malls for collecting advance tax on electricity unlawful: KTBA
Karachi Tax Bar Association (KTBA) on Tuesday termed the action of the tax authorities asking shopping malls to collect advance tax on electricity as unlawful.
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KTBA flays notices to taxpayers already audited
Karachi Tax Bar Association (KTBA) has flayed the issuance of audit notices by tax offices to taxpayers, who already selected once for audit in past four years.
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KTBA protests advance tax estimates by tax offices, issuance of recovery notices
KARACHI: Tax practitioners have protested making estimates of advance tax by the tax offices and issuing recovery notices to taxpayers in this regard.
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Further tax collection on pharmaceutical products unlawful: KTBA
Karachi Tax Bar Association (KTBA) on Thursday termed the collection of further tax on sales of pharmaceutical products to unregistered persons as unlawful.
In a letter sent to Asim Ahmad, Chairman of Federal Board of Revenue (FBR), the tax bar informed that substances registered as drugs under the Drugs Act, 1976 were earlier exempt from levy of sales tax under the Sales Tax Act, 1990, the Finance (Supplementary) Act, 2022, withdrawn, and the pharmaceutical products were made zero rated in terms of Serial No.19 to the Fifth Schedule of the Act.
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Later one, through the Finance Act 2022, Serial No.19 of the Fifth Schedule was omitted and a new Serial No.81 was introduced in Table-1 of the Eighth Schedule to the Act is as follow:
Serial No. Description Heading Nos. of the First Schedule to the Customs Act, 1969 (IV of 1969) Rate of Sales Tax Condition (1) (2) (3) (4) (5) 81. Manufacture or import of substances registered as drugs under the Drugs Act, 1976 (XXXI of 1976) Respective Heading 1% Subject to the conditions that: (i) Tax charged and deposited by the manufacturer or importer, as the case may be, shall be final discharge of tax in the supply chain. (ii) No input tax shall be adjusted by the manufacturer or importer. The tax bar stated that it becomes clear that Serial No.81 created the sales tax charge at the rate of 1 per cent on manufacturer/importer of drugs and that the tax so charged and deposited by a manufacturer would be treated as final discharge of sales tax liability for the entire supply chain.
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Therefore, once the manufacturer/importer has charged and deposited the sales tax at 1 per cent, the rest of the entire supply chain would be ousted from levy of sales tax.
KTBA invited the attention of the FBR chairman towards a clarification C.No. 3(16)ST&FE-Policy/2022/230285-R issued by the FBR on November 23, 2022, which has asked to pay further tax at 3 per cent on sale of drugs to unregistered persons.
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The tax bar said clarification and its directions are contradictory to the legal position. It is being re-iterated that Serial No.81 in Table-1 of the Eighth Schedule to the Act categorically states that tax collected and discharged by the manufacturer of drugs under the Drugs Act, 1976 is final discharge of tax for the entire supply chain.
Therefore, if further tax is asked to be levied on sale by the manufacturer/importer, it stands exactly opposite to the substantive law for declaring collection and discharge of tax by manufacturer/importer as final tax.
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“Needless to mention that the term ‘final tax’ in itself implies that no further collection of tax would be made under the Act irrespective of the nature/class/category/registration status of a person,” the tax bar added.
The FBR chairman has been urged that above clarification may be re-clarified in the light of decisions given by higher courts and Appellate Tribunal.
The position taken by the FBR yet for the second time and too knowingly, on the same issue, does not signify anything and is uncalled for on the part of Regulator. It is apprehended that the matter will yet again land in High Courts and will not yield anything but unnecessary and avoidable litigation.
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KTBA demands date extension for filing return, statement Tax Year 2022
Karachi Tax Bar Association (KTBA) on Tuesday demanded an extension to file annual return and statement of income for tax year 2022.
The tax bar in a letter sent to the chairman of Federal Board of Revenue (FBR) on November 29, 2022 informed that neither taxpayers nor the consultants would able to complete return filing task by November 30, 2022.
READ MORE: Another tax return filing date extension on the cards?
It is pertinent to mention that the last date for filing income tax return for the tax year 2022 was September 30, .2022. However, the FBR allowed two extensions in return filing since the expiry of first deadline.
However, through Circular No. 16 of 2022 and Circular No. 17 of 2022, the FBR granted date extension twice due to current flood situation in the country and request from various trade bodies and tax bar associations.
KTBA President Syed Rehan Hasan Jafri stated that during recent Karachi visit of the FBR chairman bottlenecks in return filing were discussed. The issue of filing the newly introduced 7E Form was also discussed at length.
“Our meeting remained very conducive wherein it was ensured that all the issues and concerns and the glitches would be removed at priority basis to ease and expedite preparation and the filing work both for taxpayers and the tax advisors,” the KTBA president said.
Our meeting was followed by another very successful meeting at your directions, with the following members and the Chief Commissioner, Corporate Tax Office, Inland Revenue, Karachi on November 07, 2022 for the purpose of facilitation and resolution of the issues.
The FBR chairman has been apprised that all the concerns which were shared, either these were related to return filing in general or filing of 7E form in particular are still pending unsolved.
The taxpayers and their counsellors both are faced with the stigma of Status Quo. Subsequently a notification has been issued vide SRO 2052 on Nov 22nd, 2022 whereby the date for filing 7E annexure has been extended for those who already had filed their return before the form of 7E Annexure was introduced on October 13, 2022.
READ MORE: Tax on deemed income from immovable property under Section 7E
This is another task assigned to the Taxpayers / Tax Advisors to complete it as per the stipulated times mentioned therein per SRO cited above and yet the Form to be submitted is still pending issued till today i.e. the 29th November, 2022 which need to be issued as soon as possible in order to facilitate the Taxpayers within the stipulated time given to Taxpayers.
“We at the KTBA understands that nor the taxpayers neither the tax consultants will be able to complete the task of filing of Tax Returns 2022 on the 30th November, 2022.”
Therefore, the KTBA urged the FBR chairman to extend the date for all the taxpayers at par instead, along with the resolution of these errors and mistakes pointed out by the bar as discussed with FBR Chairman, Member (Inland Revenue – Policy) and Member (Information Technology).
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Sales tax return lacuna traps taxpayers: FBR offices issue show cause notices
KARACHI: Taxpayers have not been provided to declare exempt purchases in sales tax return form at IRIS, which resulted in issuance of huge number of show cause notices regarding apportionment of input tax in relation to taxable and exempt sales in the return.
Karachi Tax Bar Association (KTBA) on Thursday highlighted this important issue by sending a letter to the chairman of Federal Board of Revenue (FBR).
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KTBA President Syed Rehan Hasan Jafri through this communication apprised the FBR chairman that a large number of show cause notices had been issued by field offices in Karachi in respect with apportionment of input tax in relation to taxable and exempt sales in the return.
Bar members have complained that the notices were issued without any application of mind or any desk audit of the cases.
Jafri said that as per Sales Tax Rules, 2006 only common input tax is required to be apportioned between taxable and exempt sales. Therefore, before issuance of a show-cause notice it is mandatory to have a basic understanding of the business about its taxability or exemption of the goods being supplied by taxpayer. “The current notices are directly being confronted to the taxpayers through a show-cause notice that they have not apportioned their input tax.”
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These show-cause notices contain a table wherein, on the basis ratio of exempt sales to total amount of sales, an amount of disallowance of input is computed.
This entire action is being done without appreciating the law that as per Rule 25(1) input tax directly attributable to taxable sales is completely allowable and only common input tax is required to be apportioned.
Even otherwise, the application of apportionment has to be within strict parameters defined under Rule 25(3) of the ST Rules, which allows apportionment of residual input tax only.
The definition of ‘residual input tax’ envisages the concept of apportionment of input tax suffered on ‘raw material, ‘component’ and ‘capital goods’.
The FBR chairman has been urged to directed field offices to ascertain the nature of business of the taxpayers first and then conduct desk audit and only thereafter, if there remains a need for it, before issuance of a show-cause notice, the information may be requested from the concerned taxpayers. “A show cause should be issued only once after any discrepancy is identified,” according to the letter.
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Since the field officers have already issued the notices and asking for apportioning the input tax on exempt sales vis-à-vis total value of sales, but they are not inclined to accept that exempt sales are made from exempt purchases from the unregistered persons, even in the presence of substantiating evidence.
It may be assumed that the officers had taken the position because such purchases are not reported in the sales tax returns while on the contrary the sales tax returns on IRIS do not any have option to report exempt purchases made from unregistered persons. “Therefore, it is practically not possible for a taxpayer to report exempt purchases from the unregistered persons.”
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The KTBA requested the FBR chairman to direct the field offices to: consider exempt purchases made by taxpayers from unregistered persons and not to apportion input tax in respect of such exempt sales; and sales tax return may be updated to provide for reporting of exempt purchases from unregistered persons.
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Calculating property valuation uphill task in completing tax return: Rehan Jafri
Calculating valuation of immovable property for deemed income under Section 7E of the Income Tax Ordinance, 2001 is remained an uphill task in completing income tax return for tax year 2022.
Syed Rehan Hasan Jafri, President, Karachi Tax Bar Association (KTBA) expressed these views while talking to PkRevenue.com. He said that only couple of days are left for the last date for filing income tax return for tax year 2022 yet this issue is remained unaddressed besides many other issues highlighted by the tax bar.
Jafri said the bar had stressed the need for incorporating the values given under the forty-two (42) notification (SROs) issued by the FBR in the month of March 2022 for property valuations under Section 68 of the Ordinance in the IRIS.
READ MORE: FBR extends return filing date up to October 31, 2022
“It was recommended that those valuation tables were to be incorporated in the back end working of the income tax return in the IRIS after which the calculation of tax under Section 7E could be calculated automatically by the system, based on the description of property incorporated by the taxpayer in its wealth statement,” he added.
If it had done, it would ensure swift and correct computation of 20 per cent tax on 5 per cent value under Section 7E of the Ordinance and would avoid any standard deviation therefrom.
Jafri said a new 7E annexure has been introduced with a set of requirement, which has been ventured in the IRIS and what now has become a bigger concern in context of Section 7E i.e. the new 7E Annexure.
“This annexure has lately been introduced in IRIS on October 13, 2022.”
The KTBA holds a considered view that it is unnecessarily a detailed format for a taxpayer or his advisor to fill and that too in these last days of tax returns filing.
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The new annexure contains all the possible and imaginable categories of properties one could have. A basic list included: i. Agricultural Property; ii. Commercial Property; iii. Industrial Property; iv. Residential Property; v. Educational Property; vi. Health Property; vii. Natural Property; viii. Public Property; ix. Religious Property; and x. Mixed Use Property.
Apart from the first four (04) categories, the rest of the six (06) are not only unheard of in the domestic culture or tax laws of the country but these are not even owned by an individual in the first place. “What is worrisome is that there are duplications and triplications to be filled in for the same property, which will surely give rise to issuance of uncalled for show cause notices by the department. The rational, therefore, needs to be thrashed out,” he demanded.
The Annexure incorporated vide SRO 1892 of 2022 dated October 13, 2022, with its fine details may have either been designed bespoke or borrowed from external source but only suitable to be made applicable where there is plenty of days and man-hours left.
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The details of properties which have been required to be filled in, are details consisting of the following, which, your office would acknowledge, are completely irrelevant for purpose of valuation of property under Section 68 of the Ordinance.
i. Town Area of property
ii. Tehsil of Property
iii. Age of property
These are superfluous fields which have been required to be filled without any impact but have been made mandatory fields as without filling which one cannot move forward in IRIS and cannot proceed to file return. “This is a serious deterrence,” Jafri added.
Needless to mention that the size of the property and size of the built up or covered area with the name of City and location in the city are the only necessary data for valuation of property under the Ordinance as that is what is precisely needed not the town and tehsil, which is other as well is a cumbersome detail to be extracted.
It also merits a mention that cumbersome details have been required to be punched in even in cases where there would not arise any liability on account of Section 7E or where the properties of the taxpayer are exempted from the purview of the provision. “We understand that submission of details of the following exempted properties should also be exempted, which will actually be a facilitation in filing of return at least for those who do not have to pay this 1 per cent tax.”
As for the valuation tables and the valuation SROs, it is critical for us to apprise your office that picking up the value from the SROs is not as easy as has recently been spelt out by the FBR. There are altogether forty-two (42) notifications (SROs) for the purpose, which were issued in the month of March 2022.
Out of these forty-two (42) SROs, twenty-eight (28) have been amended to date. Upon finding the applicable SRO for any city the portal provides you with the latest one. One consequently would need to search and recheck for the older SRO once again on the website. This is certainly time taking and painstaking exercise.
Secondly if a certain SRO has been amended, there is no amended SRO available in the cache, consequent to which the propensity to commit an error by taking the valuation from the older SRO gets certain.
In order to avoid such an impending consequence, the FBR should provide the final amended SRO of valuation failing to which the taxpayer will have to keep switching from older SRO to amended SRO or will commit the suspected error. This goes without saying as how much time consuming this exercise can become besides being tedious and painstaking.
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Rehan Jafri pointed out the size of notifications related to valuations.
It should not loose the sight of the regulator that apart from the amended Notifications, there are few SROs, which are unusually lengthy and detailed. This makes the job of the taxpayers even more arduous to keep sifting the pages to find for the precise location of his property therein. It would be worthwhile to enlist hereunder few of these:
i. Bahawalnagar is of 191 pages
ii. Bahawalpur is of 51 pages
iii. Multan is of 4,593 pages
iv. Faisalabad is of 4,712 pages
v. DG Khan is of 4,722 pages
vi. Quetta is of 28 pages
vii. Lahore is of 31 pages
These are few instances as to the ordeal taxpayer will have to go through for filing requirements, which is by any stretch of rational thinking is unwarranted.
And all of this has fallen due merely in the last fifteen days of October. The timing of introduction of the 7E Annexure requires reconsideration. The tax Return and their other Annexure were though introduced within the legal time frame on June 30, however, the 7E Annexure was introduced on September 3, 2022, vide SRO 1829 of 2022 in draft form and finalized and uploaded on IRIS just after 10 days on September 13, 2022 vide SRO 1891 of 2022. This is not less than three and a Half (3.5) months late.
Jafri said that the FBR should direct either the field formation or the relevant IT team to prepare at least a tutorial or to say a demo presentation for the basic level assistance of the taxpayers. The same can be placed on the website.
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KTBA demands perfect tax return form before setting filing deadline
The Karachi Tax Bar Association (KTBA) has strongly criticized tax authorities for their handling of unresolved issues surrounding the filing of income tax returns for the tax year 2022.
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