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.
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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.
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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.
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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:
Vehicles FED Up to 3 to 1000CC 2.5 percent 1001CC to 2000CC 5 percent 2000CC and above 7.5 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 Capacity Tax 1001CC to 1300CC Rs25,000 1301CC to 1600CC Rs50,000 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 Capacity Tax 1001CC to 1350CC Rs25,000 1351CC to 1600CC Rs50,000 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 Slab Additional Customs Duty Tariff Slab of 0%, 3% and 11% 2% Tariff slab of 16% 4% 20% and higher 7% The OICCI proposed to exempt imports under SRO 655(I)/2006 & SRO 656(I)/2006 from ACD.