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Tag: OICCI

  • Reduction in corporate rate for E&P companies recommended

    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.

  • FBR urged to reduce regulatory duty on lighting fittings

    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.

  • FED on locally manufactured vehicles proposed to be withdrawn

    FED on locally manufactured vehicles proposed to be withdrawn

    KARACHI: Local automobile manufacturers have urged the Federal Board of Revenue (FBR) to withdraw federal excise duty, which will help in rationalizing prices in domestic market.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that the Finance Act, 2019 revised FED on all categories of locally manufactured motor vehicle (Motor car & SUVs, 8703 category) as follows:

    VehiclesFED
    Up to 3 to 1000CC2.5 percent
    1001CC to 2000CC5 percent
    2000CC and above7.5 percent

    The OICCI said that this had resulted in significant increase of the sales price of the vehicles with consequential reduction in sales volume of the respective vehicle categories.

    The OICCI recommended that levy of FED on locally manufactured vehicles should be withdrawn by deleting the Serial No. 55B of Table I of First Schedule to the Federal Excise Act, 2005.

    The OICCI also suggested changes in advance income tax collected on various engine capacity.

    Currently, as per table under Division VII of Part IV of First Schedule, following advance tax under section 231 B is collected by manufacturers on the following categories of vehicles:

    Engine CapacityTax
    1001CC to 1300CCRs25,000
    1301CC to 1600CCRs50,000

    The OICCI said that presently most of the locally manufactured sedans passenger cars fall slightly above the 1300CC categories which includes Honda City (1339CC) etc. This slightly higher engine capacity size results in these vehicles falling in higher tax bracket making it more expensive with higher upfront cost to customers.

    The OICCI recommended that amendment should be made in the categories of vehicles mentioned in Division VII of Part IV of First Schedule as follows:

    Engine CapacityTax
    1001CC to 1350CCRs25,000
    1351CC to 1600CCRs50,000

    The OICCI highlighted levy of additional customs duty (ACD). It said that ACD was levied through SRO 1178(I)/2015 on various items, including raw materials at one percent which was enhanced to two percent through SRO 630(I)/2018. Through SRO 670(I)/2019, levy of ACD was further enhanced and slab wise ACD was introduced as follows:

    Tariff SlabAdditional Customs Duty
    Tariff Slab of 0%, 3% and 11%2%
    Tariff slab of 16%4%
    20% and higher7%

    The OICCI proposed to exempt imports under SRO 655(I)/2006 & SRO 656(I)/2006 from ACD.

  • Exemption on agriculture income should be withdrawn

    Exemption on agriculture income should be withdrawn

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested that exemption on agriculture income should be withdrawn and bring all income into tax net.

    The OICCI in its proposals for budget 2020/2021, recommended withdrawal of exemption of agriculture income and also proposed amending Section 41 of Income Tax Ordinance, 2001.

    The OICCI said that the GDP includes some sectors which are exempt from income tax. The biggest exempted sector is agriculture which does not make any contribution to the national exchequer, despite the fact that over 65 percent of Pakistan’s population is directly or indirectly linked with the agricultural sector.

    The original rationale of keeping agriculture out of tax net was to facilitate the small agriculturists.

    However due to non-implementation of land reforms the benefit of the tax exemption is being availed by big landowners earning huge incomes.

    Unscrupulous elements also transfer their income and wealth to businesses fronting as agriculture sector.
    The OICCI recommended:

    i. Exemption given to agriculture income should be withdrawn and agriculturists should file income tax returns and wealth statements.

    ii. Suitable provisions should be incorporated in Income Tax Ordinance 2001 to enable tax authorities to implement the requirement of filing of income tax returns and wealth statements, effectively.

    iii. All incomes should be taxed and as a general rule exemptions be given only for attracting FDI and for under privileged and poor sections of society or, in exceptional circumstances, as motivation to encourage the registration of individuals and all legal entities.

  • Bearer bonds, certificates should be stopped to prevent tax evasion

    Bearer bonds, certificates should be stopped to prevent tax evasion

    KARACHI: The government has been recommended to stop all kind of bearer certificates, bonds and other instruments in order to eliminate parking lots for untaxed funds.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 recommended measures to eliminate legally permissible parking lots for untaxed funds.

    The OICCI said that bearer certificates, bonds and other instruments lead to tax evasion.

    Therefore, sale of all kinds of bearer securities, prize bonds, and other such items should be stopped.

    The OICCI further said that despite the revision of real estate values there is still a lot of difference between actual market value and various ‘official’ values of real estate across the country.

    It is proposed that shortcomings in the mode and manner of valuation of immovable properties to be addressed. Registration of sale and purchase of real estate should be on fair market value at the time of the transaction. Necessary information on market value of real estate can be easily obtained.

    In order to broaden the tax base, the OICCI also suggested introduction of books of account and cash registers.

    It said that the Federal Board of Revenue (FBR) does not have any proper shop-wise record of approximately 35 million SMEs, which are mostly sole proprietorship or partnerships, despite the fact that jurisdictions within the tax offices are location centric, especially for small and medium sized businesses.

    The OICCI recommended:

    i. It should be made mandatory for all businesses to maintain books of account and taxes should be levied on ‘net income’ basis only.

    ii. Registration of all retail outlets and electronic cash registers should be made mandatory without any turnover thresholds, which gives rise to tax evasion. The

    iii. installation of these registers should be inspected regularly by tax inspectors.

    iv. FBR should engage with representatives of small manufacturers, wholesalers and retailers and ensure their buy-in for introduction of these documentation measures so that the previous back-tracking on these actions is not repeated.

    v. The book keeping requirements/ outline be regularly upgraded considering the best practices learnt from other neighboring countries in the region with similar business infrastructure.

  • Return, wealth statement be made mandatory for Rs2 million turnover in banking system

    Return, wealth statement be made mandatory for Rs2 million turnover in banking system

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested that persons having annual turnover of Rs2 million through bank accounts should require filing annual returns and wealth statement.

    The OICCI in its proposals for budget 2020/2020, said that Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) should devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of Rs2 million or more during the year, have filed a tax return and wealth statement.

    “This could be done by the financial institutions simply notifying names/ CNIC numbers of such customers to FBR without giving access to bank accounts,” the OICCI added.

    The OICCI recommended the following for broadening of tax base:

    FBR should urgently implement the recommendations of the Tax Reforms Commission (TRC) and also hold regular round table conferences with leading tax and legal experts to review existing laws for increasing the number of tax payers and taxable entities.

    Tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of NADRA database and other documented sources to ensure that all income earners are NTN holders and “Filers”, with submission of annual income tax/ wealth returns and wealth reconciliation statements.

    Art exhibition halls, hospitals where doctors practice, hotels and other public places holding large receptions for fashion houses & designers, sale of branded/designer dresses, airlines, travel agencies, etc should provide names and addresses of the respective persons involved in these business activities to the FBR on a quarterly basis.

    Once the FBR receives the above information, it should be pro-active and pursue potential tax payers by sending them income tax return forms requiring them to file tax returns – rather than waiting for the tax returns to be filed.

    ‘The Protection of Economic Reforms Act, 1992” which has been amended in 2018, should be further reviewed to curb the practice of remitting undeclared income through unofficial channels outside Pakistan and the same being brought into Pakistan through banking channels in Foreign Exchange, thereby “whitening” the unexplained money at a minimal cost.

    Section 111(4) of ITO 2001, which has also been amended in 2018, should be further reviewed to restrict tax free inward foreign remittances to immediate family members only.

    Eliminate culture of Amnesty Schemes as it discourages the honest tax payers. viii. Severe, and visible, penalties should be levied to punish tax evaders, starting with evasions of over Rs 1 million.

    As Pakistan is a signatory to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which became operational from September 2018, regular coordination should be done with relevant authorities of countries, considered as tax heavens for stashing away illegal wealth, for information sharing.

    Appropriate laws should be made to enable the government to seize local assets, in equivalent value, or levy appropriate taxes, if any person holds any kind of assets outside the country for which source of income could not be established.

  • Independent appellate recommended to boost taxpayers’ confidence

    Independent appellate recommended to boost taxpayers’ confidence

    KARACHI: Business community has recommended to establish an independent tax appellate system in the country to boost taxpayers’ confidence and discourage irrational assessments.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its budget proposals for fiscal year 2020/2021 recommended to establish the independent tax appellate system to boost taxpayer’s confidence and discourage irrational assessments by the tax authority driven by revenue collection targets.

    Due to immense delays in conclusion of disputes by the appellate authorities and fear of financial exposure arising from recovery proceedings by FBR, taxpayers have to resort to the High court to cover their financial exposure.

    The first appellate authority Commissioner Appeals come under the direct administrative control of FBR whereas the second appellate authority Appellate Tribunal Inland Revenue comes under the administrative control of the Ministry of Law.

    There is a need of major reforms in the tax appellate process to expedite resolution and ensure fairness in the process.

    The OICCI recommended:

    i. Tax appellate forums should come under the direct supervision of High courts and should be independent of FBR.

    ii. Professional Tax adjudicators should be appointed in the process with clear tasks of rapid disposal of cases.

    iii. Recovery proceedings should not be initiated until tax assessments have passed at least one independent forum.

    iv. Decision should be made within 60 days of the filing of the response.

  • Integration of federal, provincial sales tax returns suggested

    Integration of federal, provincial sales tax returns suggested

    KARACHI: Businesses have suggested the tax authorities for integration of tax laws for filing unified tax returns for sales tax in order to facilitate taxpayers, who are operating more than one jurisdiction.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that presently tax collection/ administration has been split between various authorities at Federal/Provincial level and even small size taxpayers have to deal with more than one tax collecting authority.

    Tax compliances for businesses has increased after 18th amendment which has also deteriorated Pakistan’s rating in terms of paying taxes over the years.

    While the tax policies will be developed at provincial and Federal level separately, steps should be taken to ensure tax administration and collection through one authority.

    This will provide a holistic view to the tax authority on the tax matters whereas simplify the compliance process for taxpayers as well.

    The OICCI recommended:

    i. Integration of tax data should be ensured at all levels through one return including Federal and Provincial, STRIVE should be implemented at provincial level also and FBR should allow integration with Federal return.

    ii. Departure from VAT mode of taxation should be discouraged at all levels. Give examples of ‘not VAT taxation’

    iii. FBR IT/Data integration system should be upgraded and all taxes withheld should be auto populated in the portal to the credit of the beneficiary. This will simplify;

    a) The reconciliations carried out at the taxpayer’s / FBR’s level,

    b) Simplify the tax return submission process.

    c) Enhance system based auditing capability of FBR while providing opportunity of self-verification to the beneficiaries and quick tracking of the in-actives.

    The data is already available with FBR and it just needs to be available to taxpayers with an up gradation of the system.

    The OICCI also suggested following for coordination between federal and provincial legislations:

    i. Synchronization of Sales tax rates and policies need to be harmonized across all jurisdiction and sectors and should be closely aligned with the regional benchmark of 12 percent sales tax rate.

    ii. The Federal WWF & WPPF law should be updated based on the recent apex court’s judgments, provincial enactments and current minimum wage levels. Currently neither the FBR nor the provincial revenue authorities, like PRA, SRB, are receiving the complete revenue stream under these heads.

    a. Sections 60A and 60B should appropriately be amended to allow deduction against provincial laws of WWF and WPPF.

    b. Clarity should be inserted in respective laws regarding the basis of allocation of WWF/WPPF charge where the taxpayer is having industrial establishment in more than one province.

    iii. One authority to collect all types of federal and provincial taxes for onward transmission to respective revenue authorities within the country without burdening the business entities. Single sales tax return should be filed with FBR instead of separate sales tax returns for each Province.

    iv. The provincial taxes should be consolidated specially the labor levies e.g. EOBI/SESSI/WPPF/WWF as mentioned above.

    v. Controversies arising as to jurisdiction of authority to charge and collect tax on certain services should be resolved.

    vi. Special attention be given to tax implication arising on emerging e-business models and asset-free web service providers who act as coordinator between supplier and buyer. Mechanism for sales tax and income tax application for such models should be in place to promote the industry.

  • Tax refunds should be adjustable against liability recommended

    Tax refunds should be adjustable against liability recommended

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended inter adjustment of income tax and sales tax refunds should be made part of the law.

    In its recommendations for budget 2020/2021, the representative body of foreign investors and multinational companies working in Pakistan, highlighted the issue of delay and procedural hassle in processing of outstanding refunds.

    It said that protracted delays in settlement of tax refunds is one of the biggest contributors in distorting the commercial image of Pakistan in all the perception and ease of doing business surveys and a major factor negatively impacting inflow of Foreign Direct Investment (FDI) in the country.

    This has been regularly pointed out at the relevant forums, including to the Prime Minister and Minister of Finance, the OICCI added.

    Moreover, through Finance Act, 2019, government has introduced refund bonds for the settlement of long outstanding income tax refunds.

    These refunds bonds have maturity of three years with 10 percent simple interest per annum payable at maturity.

    “As of February 2020, tax refunds pending of OICCI members aggregated to Rs86 billion, which remained unsettled for a very long time, some of which are pending prior to 2005.”

    However the refunds process is still long drawn and refunds of many companies have not been processed for many years although Federal Board of Revenue (FBR) already has information readily available on the system.

    Furthermore, despite specific directions in the Income Tax Ordinance, 2001, fair mechanism of issuance of government bonds in lieu of income tax refunds is not provided yet and where issued, these bonds are neither being traded freely in the market nor being discounted by the banks mainly due to low interest versus current prevailing discount rate.

    The OICCI recommended following:

    All pending tax refund be cleared within next six months in an orderly/ prearranged manner.

    Verification process for refunds should start automatically as soon as an application for refund is filed by the taxpayer and tax refunds be cleared within 45 days.

    A timely settlement of the determined refunds should be made, and if there is a liquidity issue then issuing marketable Government bonds/securities be considered.

    Amend current fixed interest rate of 10 percent to floating interest rate linked with KIBOR.

  • Foreign investors urge controlling Afghan transit trade

    Foreign investors urge controlling Afghan transit trade

    KARACHI: Foreign investors have urged the authorities to control Afghan Transit Trade to avoid incidence of smuggling and protect local industry.

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