Pkrevenue.com

Tag: OICCI

  • Adjustable advance income tax recommended on sale of agri produce

    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.

  • OICCI lauds SECP for improving regulatory environment

    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.

  • FBR should shun multiple tax audits

    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.

  • FBR proposed to reduce import duty on smartphones

    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.

  • FBR urged to abolish withholding tax on telecom services

    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.

  • 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.