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Tag: OICCI

  • 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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  • OICCI suggests harmonization of sales tax on goods, services

    OICCI suggests harmonization of sales tax on goods, services

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended harmonization of sales tax on goods and services and should be set at 13 percent as applicable in Sindh province.

    The OICCI in proposals for budget 2020/2021, said that the sales tax rate in Pakistan, at 17 percent, is the highest in Asia. Our analysis shows an average of less than 12 percent in Asia, with a range of 6 percent to 17 percent.

    Moreover different rates of sales tax on goods and services i.e. standard, reduced, specified etc. prevailing in the country lead to a number of issues for business organizations operating all over the country.

    Sales tax rates (federal and provincial), both on goods and services, should be harmonized throughout the country and be aligned to 13 percent charged in Sindh.

    Moreover only one Tax return should be filed with FBR.

    The OICCI highlighted the issue of admissibility of Input sales tax on civil work and other equipment and materials.

    Adjustability of input sales tax restricted under section 8(1)(h) & (i) of Sales Tax Act, 1990 and SRO 490(I)/2004 on building material, office equipment, furniture & fixtures, vehicles & their parts used for taxable activity purposes has increased the cost of doing business for all documented sectors, and encourages procurement from un-registered sector whereby 17 percent sales tax cost is mitigated with only 5 percent sales tax withholding.

    The OICCI recommended that Sub-Section (1)(h) and (i) of section 8 of STA 1990 should be deleted.

    SRO 490(I)/2004 which is in contradiction with section 8 should also be rescinded.

    The overseas chamber pointed out the issue of sales tax be applied at the time of delivery, instead of Earlier of Receipt of Payment or Delivery of Goods.

    It said that prior to amendment made in section 2(44) of Sales Tax Act, 1990, vide Finance Act, 2013, sales tax was levied at the time of actual delivery of goods regardless of time of payment.

    Application of sales tax on advances causes serious operational issues and also leads to unnecessary reconciliations resulting in hardships to taxpayers.

    The OICCI recommended that sales tax be applied at the time of actual delivery for ease of doing business, rather than earlier of receipt or delivery.

    The OICCI said that as per serial no. 1 and 2 of Eleventh Schedule of Sales Tax Act, 1990, Government departments/ bodies/ authorities and Companies as defined in ITO 2001 are required to withhold sales tax against supplies made by registered and active sales taxpayers. This is only creating hardship for registered sales tax persons as Government departments are not making withholding sales tax payments through FBR web-portal system and deductions made by Companies like leasing companies, Modarabas, etc who are not registered in STA 1990 and FBR does not allow any manual entry of such withholding sales tax.

    After implementation ‘STRIVe’ from July 2016 onwards, no mismatch arises between input and output tax for transactions with registered sales tax persons.

    Therefore, withholding sales tax on purchases made by Government departments/ bodies/ authorities or unregistered taxpayers, etc. from registered sales tax persons being active taxpayer is only creating hassles and unnecessary documentation for tax payers.

    It is recommended to abolish serial no. 1 and 2 of Eleventh schedule of STA 1990.

    Sales tax SRO’s are issued so frequently that it is very difficult to keep oneself updated with respect of different SRO’s and it’s also difficult to identify the current applicable SRO.s

    All active SRO’s should be made part of the Act. Subsequently in every budget, SRO’s issued during the previous year, should also be made part of the Act.

    Joint and several liability of registered persons in supply chain where tax remains unpaid.

    As per section 8A of Sales Tax Act, 1990 a registered person purchasing goods is jointly and severally liable if the sales tax is not paid by the seller of the goods. It is quite unjustified to punish a genuine buyer for an offense committed by corresponding supplier. This section is also inequitable as payments are made after verifying the seller status on the FBR portal at the time of purchase.

    It is recommended that Section 8A of the Sales Tax Act, 1990 should be abolished.

    As per section 8B a registered person is not allowed to adjust input tax in excess of 90 percent of the output tax for that period in STA 1990.

    It is recommended that section 8B of the STA 1990 should be abolished for registered taxpayers. Most industries have long term import contracts with international suppliers. Due to current COVID pandemic situation, sales of companies have reduced significantly and resultantly, input tax is getting accumulated as full adjustment of input taxes against output tax is not possible.

  • Reviewing withholding tax on profit on debt suggested

    Reviewing withholding tax on profit on debt suggested

    KARACHI: The tax authorities have been suggested to review withholding tax rates on profit on debt in forthcoming budget.

    Overseas Investors Chamber of Commerce and Industry (OICC) in proposals for budget 2020/2021 said that through Finance Act, 2019, multiple withholding tax rates of profit on debt were introduced which are based on the profit threshold and active /in-active status of taxpayer (i.e. Profit less than Rs0.5 million is subject to tax at the rates 10 percent and 20 percent for active and in-active respectively.

    Whereas, profit greater than Rs 0.5 million is subject to tax at the rates 15 percent and 30 percent for active and in-active filer respectively).

    It has been provided that minimum tax rate on profit on debt is 15 percent as prescribed under section 7B of Income Tax Ordinance, 2001.

    So, there is no need to tax the profit at reduced rate (i.e. 10 percent), if the person has to discharge his final tax liability on such higher rate i.e. 15 percent.

    The OICCI suggested that prescribed threshold of withholding tax on profit should be deleted and there should be only two rates, for active and inactive taxpayers respectively.

  • FBR proposed revamping withholding tax regime, reducing to five rates

    FBR proposed revamping withholding tax regime, reducing to five rates

    KARACHI: Federal Board of Revenue (FBR) has been proposed to revamped withholding tax regime and reduced the number of withholding tax rates to maximum five.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for fiscal year 2020/2021 highlighted withholding tax as one of the key irritant for compliant tax payer.

    It said that the fact that the ‘collection and deduction of income tax at source (Withholding Agents Perspective) (Taxpayer’s Facilitation Guide)’ on the FBR website is of 51 pages highlights the complexity of the withholding tax regime which has more than 30 tax provisions that need to be followed and 50 different tax rates, applicable on nearly all heads of receipts/payments.

    The rate of withholding/advance tax also varies depending upon the nature of transaction, legal/tax status of the parties i.e. company or individual and active or in-active filer.

    Moreover, FBR system does not auto populate taxes withheld in the portal to the credit of the beneficiary.

    Furthermore, at present FBR has prescribed following categories of withholding tax (WHT) rates under the ITO 2001, for various types of payments and it has become extremely difficult for the person processing payments to be precise and accurate in applying WHT rates and ensure compliance.

    The, complexity for the withholding agent has been further compounded after the introduction of active taxpayers list and different rates for an active and non-active filers, the OICCI said.

    It recommended that withholding tax regime should be revamped by reducing it to a maximum of five rates for all withholding taxes and the differentiation should be on the basis of active and inactive taxpayers only.

    FBR system should be upgraded and all taxes withheld should be auto populated in the portal to the credit of the beneficiary.

    Final Taxation Regime should be done away with and all withholding taxes should be available for adjustment and the operations wing of FBR should ensure that all persons whose taxes have been deducted file their tax returns.

    Withholding agents should be given incentive in the form of 2 percent tax credit of the amount collected for facilitating the Government.

    In addition to the above administrative/streamlining issues, withholding/ advance tax rates on below transactions should be reconsidered.

    Withholding tax rate be reduced to 1 percent for all FMCG distributors in line with the withholding taxes applicable on the distributors of cigarette and pharmaceutical products.

    Withholding tax rates applicable on services is 8 percent minimum tax regardless of the actual taxable income of the service provider.

    The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.

    Withholding taxes deducted from payments should be deposited in the Govt. treasury on monthly rather than current requirement of weekly basis.

    In case of payments to non-residents, the law requires to deposit corresponding withholding tax amount, seven days before the actual remittance to the non-resident person. The deposit of withholding tax should be aligned to the payment to non-resident due to exchange rate implications.

    Withholding tax deduction u/s 153 (1)(a) which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list

    i. Withholding tax under section 153 (1b) be reduced to 3% for all the taxpayers providing

    ii. services in line with 18 service sectors as mentioned in sub-clause 2 clause 1 of Division III of Part III of Schedule I. not clear

    iii. Withholding agent should be given authority to adjust from subsequent payments, in case of reversal of excess deduction of withholding or where underlying transactions are cancelled, reversed or cases where tax status is updated subject to filing of proper adjustment form/return.

  • General rate of minimum tax proposed at 0.5 percent

    General rate of minimum tax proposed at 0.5 percent

    KARACHI: Federal Board of Revenue (FBR) has been proposed to reduce the general rate of minimum tax to 0.5 percent in the upcoming budget 2020/2021.

    In its proposals for budget 2020/2021, the Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended to review minimum tax regime.

    It said that standard rate of minimum tax under section 113 of Income Tax Ordinance, 2001 (ITO 2001) was enhanced from 1.25 percent to 1.50 percent through Finance Act 2019, whereas, reduced rate of minimum tax also prevails for specified sectors.

    The application of MTR is resulting in an effective tax rate which is even higher than the standard rate for nearly all companies of specialized sectors with high turnover and low margins or regulated prices.

    Further, Alternate Corporate Tax is a discriminatory regime, which hurts industries with major capital investment.

    The OICCI recommended the following:

    i. The general rate of Minimum Tax under section 113 of ITO 2001 should be reduced to 0.5 percent.

    ii. Minimum Tax rate should be reduced to 0.2 percent for Oil Marketing/ Refineries/ LNG Terminal Operators, large chemical companies, authorized dealers of local vehicle manufacturers and traders, including large trading houses, dealing in sectors with high turnover and low margins.

    Minimum tax should be adjustable against future tax liabilities for next 6 years.

    iii. Minimum tax liability should be computed in comparison with normal tax liability without taking into account any initial depreciation allowance.

    iv. Alternate Corporate Tax under section 113C should be abolished in presence of Minimum Tax under section 113.

  • Reducing corporate tax to 25 percent recommended

    Reducing corporate tax to 25 percent recommended

    KARACHI: Federal Board of Revenue (FBR) has been urged to gradually reduce the corporate tax rate to 25 percent by tax year 2023.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2020/2021 recommended consolidation of all federal taxes in one lump sum.

    The government previously announced a policy for gradual decrease in corporate tax rate to bring it down to 25 percent by Tax Year 2023. However in the 2019 Finance Act the rate was frozen at 29 percent.

    The tax system has become cumbersome and inefficient due to a number of parallel taxes. In addition to direct corporate taxes, companies also pay other levies like the Workers Profit Participation Fund (WPPF) at 5 percent, Workers Welfare Fund (WWF) at 2 percent on their profits, thus the effective tax rate goes up significantly.

    If other taxes like the provincial infrastructure taxes in Sindh and Punjab, stamp duty on Purchase Orders and contracts, together with many other local levies are added, overall tax burden goes up to about 40 percent of profits, which is a significant tax burden with consequential increase in cost of doing business.

    The OICCI recommended to consolidate all federal taxes – Income Tax, and levies like WWF, WPPF in one lump sum so as to make the system more efficient and business friendly.

    Further, continue the previously announced policy to annually revise the tax rate to eventually align with the average Regional Corporate rate of 25 percent by FY 2023.