KARACHI: Sindh Revenue Board (SRB) has been advised that reverse charge should be restricted to such cases where service providers are located outside Pakistan.
(more…)Tag: OICCI
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Sindh urged to bring down sales tax rate at 10 percent
KARACHI: Sindh Revenue Board (SRB) has been suggested to bring down sales tax on services rate to 10 percent from existing 13 percent to encourage registration of more taxpayers.
Overseas Investors Chambers of Commerce and Industry (OICCI) in its budget proposals 2020/2021 submitted to the SRB, said that the expectations of the investors that the SRB will continue the reduction of Sales Tax rate on services to 13 percent, as done in fiscal year 2016-17, remained unrealized.
“Although, investors appreciate that the Sales Tax rate in Sindh province at 13 percent is the lowest in the country, it remains higher than comparative regional tax rates.”
The OICCI suggested that to keep in-line with the regional developing countries, reduction in sales tax on services should be made by 1 percent in the Sindh Finance Act 2020-2021 and gradually reduced to 10 percent over the next three years for registered entities, whilst the current rate should be maintained for unregistered entities.
This will encourage registration to avail the benefits of input adjustment.
The OICCI also suggested that the option to opt for the basic rate or normal regime should be given to all the service providers who fall under the reduced/fixed rate regime.
This option will reduce the cost of doing business for recipient of services as lower tax is not available for input tax adjustment, the OICCI added.
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Federal, provincial tax conflict hampers FDI
KARACHI: Foreign investors have said that duplication of taxes due to lack of coordination between federal and provincial tax authorities are hampering foreign direct investment (FDI) into Pakistan.
The Overseas Investors Chamber of Commerce and Industry (OICCI), the representative body of foreign investors in Pakistan, said that duplicate taxation is causing hardships to taxpayers and has given rise to unnecessary litigations and is one of the deterrents in attracting FDI in Pakistan.
The OICCI in its budget proposals for 2020/2021 submitted to Sindh Revenue Board (SRB) said that all the four provinces and the federal government have introduced distinct sales/service tax laws for their respective jurisdictions, with some of the clauses in clear conflict with each other resulting in foreign investors being pursued and harassed by the federal and provincial revenue collectors (FBR, PRA, SRB, KPRA and BRA) demanding tax on the same transactions creating undue hardship and double taxation claims for taxpayers.
“This situation is highly undesirable and creates complexities for investors,” the OICCI said.
Giving an example, the OICCI said that a service provider registered in Sindh providing taxable services to recipient in Punjab is liable to pay sales tax in Sindh whereas the withholding agent (recipient of service) is registered in Punjab and is liable to withhold sales tax and pay the same to Government of Punjab.
Although, some improvements have been noted in the coordination between the revenue authorities, investors’ concerns continue, for e.g. the issue of levy of sales tax at ‘origination’ and ‘termination’ of service in both the provincial legislations on services has still not been resolved.
Section 60A and 60B of the Income Tax Ordinance, 2001 has not been amended to allow contribution to Provinces in respect of WWF and WPPF.
The OICCI recommended:
In line with International and Regional practices a uniform service tax law may be drafted and agreed upon by the tax authorities of the Provinces and Federal Government, for implementation in their respective jurisdiction. Furthermore, a uniform tax return may also be introduced for the taxpayers.
The above points can be addressed by taking the following steps which will lead to effective management and expansion of the tax base:
i. A policy board comprising of the Chairmen of the Federal and Provincial revenue authorities (FBR, PRA, KPRA, BRA and SRB) should be formed to ensure synchronization of the policies, standard tax rates, basis of apportionment of revenues and removal of all anomalies/ conflicts between the laws of the different revenue boards (for example issues of jurisdiction, sales tax on toll manufacturing, clarity on jurisdiction and deductibility of WPPF/WWF expenses paid to the provinces).
ii. Revenue authorities should decide the basis of levy of indirect tax, which can be origination or termination, to establish jurisdiction of taxation of services;
iii. To promote transparency and uniform interpretation, a ‘Standard schedule’ should be introduced covering all services along with standard Tariff Headings and Standard definitions. The standard schedule should be adopted by all provinces and Islamabad Capital Territory while levying sales tax on services in their respective jurisdictions
iv. One return may be filed with identification of provincial head of account and direct deposit of share of tax of each province.
v. SRB to resolve with FBR for appropriate amendment in IT Ordinance, 2001 to ensure that payments made to the provincial tax authorities on account of WWF and WPPF are allowed as tax deductible expense.
vi. SRB should take up the matter with FBR for the proper mechanism for adjustment of input tax on franchise service payable in reverse charge mode.
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Adjustable advance income tax recommended on sale of agri produce
KARACHI: The tax authorities have been recommended to collect adjustable advance income tax on sale of agriculture produce in order to broaden tax base.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for provincial budget 2020/2021 submitted to Sindh government, recommended that adjustable withholding tax should be introduced on sale of agricultural produce, such as sugar cane, wheat, cotton and others.
The OICCI said that as per the constitution of Pakistan, right of taxing income lies with the federal government except income from agriculture which is taxable under the respective provincial laws.
Agriculture related activities contribute approximately 20 percent of the overall national production. However, the collection of agricultural income tax is estimated to be even less than 1 percent of total collection of Federal and Provincial taxes.
The disparities in tax levies between different incomes segments need to be addressed.
“Therefore Sindh government/revenue authorities should take appropriate measures to increase revenue collection from the agriculture sector.”
The original rationale of keeping agriculture out of tax net to facilitate small agriculturists is not applicable, due to non-implementation of land reforms, and the benefit of the tax exemption is being availed, as per common perception, by big landowners earning huge incomes and unscrupulous elements by transfer of income and wealth to businesses fronting as agriculture sector.
Some of the key issues related to agriculture income are identified as follows:
Principle of Non-Discrimination: In principle, income from all sources, including agriculture, if exceeding the minimum threshold applicable for other sources of income should be taxed without any discrimination.
Determination Basis: A transparent, easily understandable and applicable manner of determining such income should be designed.
Flexible Income Based System: The current agricultural income tax has effectively become a land tax, based on land holding, that leads to the perception that there is no tax on agricultural activities.
Identification and Linkage with National Tax Number: There is no identification of even the small number of agricultural income taxpayers as they are not on the national tax number (NTN) system.
The OICCI recommended:
Income Based System: At present, tax is payable on ‘land holding’ or ‘net income’ whichever is higher. However, the manner of determination of net income is complicated and therefore in almost 100 percent of the cases tax is received on land holding basis. Therefore taxability of income on land holding should be abolished and taxes collected on ‘net income basis’.
There are only around 10 to 15 agencies and enterprises which acquire such crops. The advance tax should be adjustable against income tax payable on net income basis. Rates of withholding and the threshold for the same should be aligned with other products – for example any payment exceeding Rs 25,000 should be subject to advance tax at the rate of 1 to 3 percent as the case may be. Federal taxation system may be used for such collection on behalf of the provincial government in the same manner as is being done in other cases by the provincial government.
Link and Interface with the National Tax Number: All persons holding land should be required to obtain a Provincial Tax Number (PTN), like the NTM maintained by FBR, modified by adding one or two digits so as to identify that source of income is agriculture.
Definition of Agricultural Activity: Definition of agricultural income should be amended to include all agricultural activities like non-corporate dairy farming, poultry etc.
Rent for the Use of Agricultural Land: Under the specific provision, the rent for use of agricultural land, which is general practice, especially for large landowners, is an agriculture income. There is effectively no mechanism to ensure completeness of recovery of taxes from such receipts. Such rent income should be subject to same rate of tax as is currently in vogue on property income under the FBR system.
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OICCI lauds SECP for improving regulatory environment
KARACHI: The Overseas Investors Chamber of Commerce and Industry (OICCI) has praised Securities and Exchange Commission of Pakistan (SECP) for improving regulatory environment for registered entities.
In a statement on Monday the OICCI felicitated the SECP on the Companies (Amendment) Ordinance, 2020 promulgated on April 30th.
The Chamber, along with other leading business association, has in the past challenged some of the over-regulatory conditions introduced in the Companies Act 2017 without due engagement of the key stakeholders.
The amendments to the Companies Act 2017, according to OICCI members, will further improve the regulatory environment in line with regional practices.
Abdul Aleem, CE/Secretary General of the OICCI commenting on the amendments said: “foreign investors have always supported regulatory environment which are predictable, consistent and transparent.
“The recent April 30th 2020 amendments to Companies Act 2017 had been under discussion between the SECP and other stakeholders, including OICCI during a series of “Consultative session and feedback” meetings held in 2018 and 2019 and acceptance of several recommendation should be a matter of satisfaction for business entities.”
He further said ‘a few recommendations are still not part of the proposed amendments and we shall request SECP to also review these so as to attract sizeable FDI in these challenging, post COVID 19, global investment environment’.
Pakistan’s FDI for past several years has been less than one percent of the GDP against the regional norm of 3 percent and above.
Some of the key amendments in the Act which were challenged by the chamber, which have now been addressed in the amendments include; limiting the scope of the definition of “officer”, allowing a non-listed company to buy back its shares in line with the right already given to listed companies, doing away with the requirement for a ‘foreign national’ to hold National Tax Number as per the provisions of IT Ordinance, 2001, deletion of the clause where a director could be disqualified for a period up to five years if the affairs of the company have purportedly been conducted in a manner which has deprived the shareholders a reasonable return, deletion of the complete section whereby, inter-alia an independent director and a non-executive director were held liable in respect of some acts of omission or commission by a listed or a public sector company, deleting the personal liability of the Directors whereby they were required to make payments under certain circumstances including a situation where the return on the investments was not according to certain criteria, doing away with the impractical provision to deposit any unclaimed or unpaid amount to the credit of the Federal Government, introduction of a ten percent shareholding threshold in the much debated section on Companies’ Global Register of Beneficial Ownership and deletion of the section requiring security clearance before appointment of Directors.
A key matter recommended by OICCI, and other stakeholders, to delete the reference to ‘lineal ascendants and descendants’ from the ambit of related parties has not been addressed and OICCI has again requested SECP to review this important matter.
“Negative perception of Pakistan among potential foreign investors has been a key impediment in attracting sizeable FDI in the country. Pakistan’s rating in the World Bank Ease of Doing Business has only recently improved to 108 from being 147 in 2018 and needs much more business friendly measures to attract its due share of the global/regional FDI, ”Aleem concluded.
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FBR should shun multiple tax audits
KARACHI: Business community has advised Federal Board of Revenue (FBR) to shun conducting multiple audits of a taxpayer in a year in order to ensure ease of doing business.
In its proposals for budget 2020/2021 submitted to the FBR, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that registered Tax payers receive notices of multiple audits in a year such as Income Tax audit under Section 177 of the Income Tax Ordinance 2001, Withholding Tax audit under Section 161 of the Income Tax Ordinance 2001; Sales Tax audit under Section 25 of the Sales Tax Act 1990.
Moreover, the taxpayers also receive multiple notices of amendments in assessments under Section 122 of the Income Tax Ordinance 2001 and under Section 111 of the Income Tax Ordinance 2001 to explain sources.
The multiplicity of audit of a single taxpayer in a single year is against the concept of ease of doing business and creating unnecessary problems for tax payers.
The FPCCI recommended that multiplicity of audits in a single year be done away with and replaced with the concept of composite audit of registered taxpayers.
Further, it is suggested that new audit parameters should be enforced after consultation with all stakeholders.
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FBR proposed to reduce import duty on smartphones
KARACHI: Federal Board of Revenue (FBR) has been urged to reduce customs duty on import of smartphones for the growth of economy.
In its proposals for budget 2020/2021 submitted to FBR, the Overseas Investors Chamber of Commerce and Industry (OICCI) said that after the implementation of DIRBS and accompanying tax increase, the smartphone penetration in the country has dropped by 6 percent in the current fiscal year.
“This is primarily due to the reason that for smartphone, we primarily rely on imports,” the OICCI said.
Smartphones are not only used for communications but are predominantly used as an enabling tool for internet in almost all segments of the economy including finance, education, health, agriculture, social development etc.
In the digital ecosystem, availability and affordability of these phones plays a major role in the growth of economy.
All imported mobile phones including smartphones are now heavily taxed, rendering them unaffordable for vast segment of the population.
This lack of affordability has become major impediment in proliferation of broadband in the country.
The OICCI recommended:
i. Retaining the current tax structure on low-end 2G handsets/feature phones (i.e. Rs. 500 as tax per device)
ii. Reducing taxes on 3G/4G handsets (smartphones) below Rs. 10,000 and cap it to a max of Rs. 1,000/- per device
iii. Reducing taxes on smartphones in the higher price brackets and cap it to a max of Rs. 5,000/- per device.
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FBR urged to abolish withholding tax on telecom services
KARACHI: Federal Board of Revenue (FBR) has been recommended to abolish withholding tax on telecom services considering the rate is too high and a large segment of people living below poverty line.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that currently, telecommunication services in Pakistan are subject to withholding tax at 12.5 percent, which is much higher as compared to other sectors.
Since approximately 30 percent of the population lives below the poverty line and the percentage of return filers is also nominal, imposition of withholding tax on the entire subscriber base is neither fair nor based on sound principle of proportionate taxation.
The OICCI recommended the FBR to abolish withholding tax to promote the accessibility of internet/data services to the low-income groups.
The OICCI also highlighted the issue of sales tax on services applicable in provinces.
In Punjab, KPK, Baluchistan and Sindh, GST on telecom sector is charged from all consumers at 19.5 percent. In the federal capital, this rate is 17 percent.
It is pertinent to mention that the provinces are levying a much lower rate of GST on other services – i.e. 13 percent – 16 percent.).
The OICCI recommended:
i. Reduce and harmonize GST across the country – i.e. a single rate for all services across all jurisdictions.
ii. Since GST is a consumption tax on usage, the decrease in GST/FED rate will result in increase in usage of telecom services and consequently drive tax collection upwards.
iii. A recent GSMA study1 concluded that harmonization of GST on mobile services to 17 percent would yield have an estimated PKR 62 billion positive impact on the GDP and exchequer. Additionally, we can expect 4.5 million more subscribers primarily on mobile broadband, which will be further stimulate GDP growth.
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Reduction in corporate rate for E&P companies recommended
KARACHI: Federal Board of Revenue (FBR) has been recommended to reduce the income tax rate for exploration and production (E&P) companies especially in wake of massive reduction in international oil prices.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021, said that higher corporate tax rate on exploration and production (E&P) sector should be reduced and aligned to the rate of other corporate sector.
The applicable tax rate for the Oil and Gas Exploration and Production sector is 40 percent. Before the promulgation of Income Tax Ordinance, 2001, the tax rate was 50 percent to 55 percent, however, the royalty payment to the government was adjusted against the tax liability, resulting in effective tax rate of approximately 35 percent or less.
Applicability of effective 40% tax rate has in fact increased the tax expense of the Oil and Gas Exploration and Production Companies, as against the incentives given to other sectors of the economy, whereby the tax rate will be gradually reduced to 30 percent.
The OICCI recommended:
i. To incentivize oil and gas exploration in the country especially after the massive reduction in the international oil prices, the corporate tax rate on E&P sector should be reduced from the current 40 percent to the rate applicable to other corporate sector by making necessary amendments in the Income Tax Ordinance, 2001 and Regulation of Mines and Oilfield and Mineral Development (Government Control) Act, 1948.
The OICCI further said that the rate of tax applicable on E&P companies on their Oil & Gas profits are given in their respective PCAs signed with Government.
Under Rule 4AA of Part I of the Fifth Schedule to ITO 2001, Super tax has been imposed at 3 percent for E&P companies earning Rs 500 million (equivalent to US$ 5million).
The OICCI recommended:
i. It is critical for E&P sector and recommended that the tax applicable should be calculated strictly in accordance with the provisions of the respective PCAs signed between Government and each E&P company & are legally binding, without changes throughout the full Lease period.
Tax credits under section 65A and 65B are not currently being allowed to E&P companies by the tax authorities despite the fact that appellate Tribunal decided the matter in favor of E&P companies.
Therefore, the FBR should issue necessary clarification.
The OICCI highlighted issue of depletion allowance – under Rule 3 of part 1 of the Fifth Schedule of Income Tax Ordinance, 2001.
Clarity over definition of well head value for computation of Depletion allowance is required.
As per clause 3 of Fifth Schedule, depletion is calculated at the rate of 15 percent of the gross receipts representing well-head value of production, but not exceeding 50 percent of taxable income.
E&P industry interprets above by calculating depletion at 15 percent of Gross Revenue before royalty deduction. Tax authorities calculate depletion at 15 percent of Gross Revenue after deduction of royalty.
Therefore, it is recommended:
Amendment should be introduced in the relevant clause in favor of E&P companies for depletion to be calculated at the rate of 15 percent of revenues before royalty deduction.
Under the sales law the rate of sales tax is 17 percent. In case of Independent Power Producers (IPP’s), they are required to pay Output sales tax (GST-Output) at 17 percent on the value of sale of electricity after adjusting the Input sales tax (GST-Input) on Residual Fuel Oil (RFO) paid by them to PSO. Currently the GST-Input rate is 20%. This is resulting in significant adverse cash flow for IPPs as well as is increasing the refund due from FBR.
Therefore, it is recommended that the rate on electricity should be raised from 17 percent to 20 percent as has been done in the case of diesel based IPPs, so that input and output GST rates are same.
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FBR urged to reduce regulatory duty on lighting fittings
KARACHI: Federal Board of Revenue (FBR) has been urged to reduce regulatory duty on lighting fittings in alignment with LED bulbs and LED tubes.
The Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 submitted to the FBR, stated that current regulatory duty on lighting fittings with fixed / fitted LED under HS code 9405.1030 and 9405.4020 is 30% whereas on LED bulbs (HS code 8539.5010) and LED tubes (HS code 8539.5020) the same is 2 percent.
Therefore, it is recommended that regulatory duty should be reduced on Lighting fittings with fixed / fitted LED under HS code 9405.1030 and 9405.4020 in alignment with LED bulbs and LED tubes.
Consequent to amendments in law relating to IOCO arrangements, sales tax (including duties) is exempt under fifth schedule of Customs Act under serial no 23 on all type of housing i.e. ‘’Housing/Shell, shell cover and base cap for all kinds of LED Lights and Bulbs under respective headings.
Accordingly, sales tax should have been exempt on said product under sixth schedule of STA 1990. However, this is not the case as related amendment in sixth schedule of STA 1990 was not made.
To align with amendment in fifth schedule of Customs Act under serial no 23, consequent amendment be made in serial no. 15A of sixth Schedule of STA 1990 for description of goods for HS code 9405.1090 be changed from Aluminum Housing /shell for LED (LED Light Fixture) to Housing/Shell, shell cover and base cap for all kinds of LED Lights and Bulbs as.
The OICCI said that through Finance Supplementary (Amendment) Act October 2018, Energy Saving Tubes under HS code 8539.3120 are exempted from sales tax (including duties) under serial no. 22 (xiii) of fifth Schedule of Customs Act 1969. However, related amendments are not made in table 3, serial no. 15 of sixth Schedule of STA 1990.
To align with amendment in fifth schedule of Customs Act under serial no 22 (xiii), consequent amendment be made in serial no. 15 in table 3 of sixth Schedule of STA 1990 by addition of HS code 8539.3120.
Taxation of Export of Services and Execution of Contracts outside Pakistan: As per Clause (3) of Part II of second schedule of ITO, the rate of tax has been increased from 1 percent to 3.5 percent and 4 percent on account of execution of contract outside Pakistan and export of services respectively. This significant increase in Finance Act 2016 has adversely affected the export business of companies.
The rate of tax needs to be reverted back to 1 percent.