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  • FBR proposed to exempt withholding tax on telecom services

    FBR proposed to exempt withholding tax on telecom services

    KARACHI: The Federal Board of Revenue (FBR) has been recommended to exempt withholding tax on telecom services to facilitate a large number of population of the country living below poverty line.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 urged the FBR to rationalize withholding tax on telecom services.

    “Rate of withholding tax on subscribers should be abolished completely as majority of the subscriber’s base falls below the taxable limit or the withholding tax reduction made through Finance Act, 2021 should be reinstated i.e. 8 per cent effective Fiscal Year 2023.”

    READ MORE: Zero rate tax demanded for pharmaceutical API imports

    Advance tax on telecom services was reduced via Finance Act, 2021 from 12.5 per cent to 10 per cent for FY 2021 and to 8 per cent for future years. However, through Finance (supplementary) Act, 2021 the rate of withholding tax increased from 10 per cent to 15 per cent.

    Increased tax hampers the affordability of mobile service which is a critical service for entire population and more than 70 per cent population of Pakistan lives below poverty line. Telecom service is also critical for economic growth of a country.

    In addition to that Pakistan has the widest gender gap in mobile ownership (34 per cent) and mobile internet use (43 per cent) as compared to its regional peers. Sector-specific taxes increased cost of mobile services which lays a strong impact on the poorest consumers especially women, lessening their ability to become mobile broadband subscribers.

    Since more than 70 per cent population lives below the poverty line and the percentage of return filers is also nominal so the implementation of withholding tax to entire subscriber’s base is not logical. Further, the reduction in withholding tax will also promote the affordability of internet and data services to the low-income group people.

    READ MORE: OICCI recommends tax amendment for FMCG

    The OICCI also pointed out that all four provinces and federal have introduced distinct sales/service tax laws in their respective jurisdictions, with some of the clauses in clear conflict with each other resulting in undue hardships coupled with harassment by the federal and provincial revenue collectors demanding tax on the same transactions tantamount to double taxation. This situation is highly undesirable and creates complexities for taxpayers leading to unnecessary litigations.

    Furthermore, there should be a single sales tax rate across all jurisdictions to remove the anomalies and undue hardships being faced by telecom sector in terms of compliances in different jurisdictions, thus, to provide ease of doing business. Telecom services should not be discriminated by being subjected to higher rates of tax, sales tax rates should be in line with other services.

    “There should be single sales tax rate across all jurisdictions to remove the anomalies and undue hardships being faced by telecom sector in terms of compliances in different jurisdictions, thus, to provide ease of doing business. Further, 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, for implementation in their respective jurisdiction,” it recommended.

    READ MORE: FBR urged to review minimum tax for OMCs, refineries

    The chamber highlighted advance tax on auction/renewal of licenses, and said this is tax is liable to be collected on “Sale by Auction” of property. Grant of spectrum is not a sale of property.

    Firstly, spectrum is not a property, it does not have any physical form as it cannot be seen or is not capable of being in physical possession.

    Secondly spectrum is not “sold” only a right to use spectrum for a specified term is granted to telecom operators and licenses are granted for a specific term only.

    Therefore, spectrum is never sold to telecom operators, they are only granted licenses for a specified term. While the term “sale” means that the absolute ownership is transferred permanently to the buyer with a right to transfer ownership to another person which is not the case.

    Therefore, this tax should be abolished being irrational. Further, Telecom sector has already paid huge amount of advance taxes much beyond its tax liability. Secondly, no such advance tax is collected on grant of other licenses like oil exploration.

    READ MORE: Mismatch identified in GST rates on supply, sales by IPPs

    “This tax should be removed being irrational and burdensome on CMOs,” it recommended.

    As large utility providers, Cellular Mobile Operators’ (CMO) are subject to deduction/collection of withholding of income tax on large number of transactions e.g. electricity bills of cell sites where are thousands in numbers, thus increased the cost and complexity of tax compliance and an additional administrative burden for the telecom sector and negatively impacts the overall business environment.

    Furthermore, it is also not possible Tax Authorities to verify the claim of advance tax paid on electricity bills being a very laborious task. Similar exemptions have already been granted to banking sector to curtail the administrative cost.

    Exemption should be given to the telecom sector from deduction or collection of all types of withholding taxes, like banking and oil sector. There will be no loss of revenue to the exchequer as the tax collection mechanism will be simplified in terms of real time payment of advance tax Under Section 147 of Income Tax Ordinance, 2001 on quarterly basis.

    Furthermore, this measure will also make the tax claims and its verification mechanism more transparent with minimum operational hassles as maintaining the thousands of records especially for advance tax on utility bills and imports is itself a very cumbersome procedure.

    The OICCI pointed out custom duty on import of batteries and said reduce the custom duty rates for batteries (8507.6000 & 8507.2000) from 11 per cent and 20 per cent to 5 per cent and abolish Additional Custom duty (2 per cent & 6 per cent) and regulatory duty (5 per cent), as these batteries are used with solar and power systems and are core asset for telecom infrastructure services provider. Reduction in duties will further encourage alternate energy resources for Telecom sector e.g. Solar etc.

    READ MORE: Tax rate rationalization proposed for exploration, production companies

    “Reduce the custom duty rates for batteries (8507.6000) to 5 per cent and abolish Additional Custom duty and Regulatory duty, as these batteries are used with solar and power systems and are core asset for telecom infrastructure services provider,” it recommended. Reduction in duties will further encourage alternate energy resources for Telecom sector e.g. Solar etc., it added

    The chamber said the Finance Act, 2018 inserted a new clause in sub-section (3) of section 101 of the ITO’2001, under which Pakistan source income from business derived by a non-resident person, would include income on account of import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether or not the goods are imported in the name of the person, associate of the person or any other person.

    Keeping in view the amendment in section 101(3), corresponding amendments have also been made in sub-section (7) of section 152, whereby a taxpayer would invariably now be required to obtain an order of the Commissioner Inland Revenue u/s 152(5A) of the ITO’2001 for making payment on account of such transaction without deduction of tax or at lower rate.

    READ MORE: FBR urged to restore sales tax exemption on LED lights

    “Since the title of goods passes outside Pakistan, hence deduction of withholding tax at much higher rate i.e. 20 per cent will increase the cost of the equipment as the supplier will jack up the prices by including the withholding tax factor, resultantly, telecom operators will have to bear the extra cost which will halt the expansion of the telecom services, especially in far flung areas where the cost of doing business is already on much higher side,” it recommended.

    The telecom equipment constitutes depreciable assets under the Income Tax Ordinance, 2001 which are used by the telecom operators for provision of telecom services which are taxed as an income from business under the national tax regime. Currently, the telecom equipment is not properly classified in Twelfth schedule which is a cause of discrimination between telecom sector and others.

    It recommended that telecom equipment should be classified under Part I of Twelfth Schedule of ITO, 2001 to equate the telecom sector with other industries as the telecom equipment is not imported for resale purposes.

  • Zero rate tax demanded for pharmaceutical API imports

    Zero rate tax demanded for pharmaceutical API imports

    KARACHI: The Federal Board of Revenue (FBR) has been urged to zero rate sales tax on import of pharmaceutical API and simplification of sales tax refunds.

    The Overseas Investors Chamber of Commerce and Industry (OICCI) in proposals for budget 2022/2023, informed the tax authorities that the above sales tax amendment enforced through the Finance (Supplementary) Bill, 2022 in January 2022 will result in huge sales tax refunds which will impact cashflows of pharmaceutical players due to delays in refunds processing by the government authorities.

    READ MORE: OICCI recommends tax amendment for FMCG

    The OICCI recommended:

    i. Pharma API imports should also be ‘zero rated’, to avoid generation of huge Sales tax refunds

    ii. Sales Tax refund adjustment should also be allowed against Income Tax liability – Section 10 read with Rule 26 & 28.

    iii. The submission of Annexure H as part of the Sales Tax Return should be discontinued since these details are redundant and are utilized as a tool to delay refund processing – Rule 28. Tax Authorities should simplify the documentation requirement for verification of Input Sales Tax payment by limiting it to Goods Declaration, Invoice and Bank Statement as adequate supports.

    READ MORE: FBR urged to review minimum tax for OMCs, refineries

    The chamber highlighted input sales tax on opening stock of pharmaceutical products and recommended that pharmaceutical products have been zero rated since January 16, 2022. As per FBR release, refunds against input sales tax will be allowed on consumption basis. However, there are no rules promulgated till to date for claiming the input sales tax on opening stock of pharmaceutical goods.

    The OICCI pointed out Section 148 of Income Tax Ordinance, 2001 – Withdrawal of withholding income tax for import of drugs pertaining to Rare & Chronic diseases including Multiple Sclerosis, Oncology, Hematology, Eye Blindness, Diabetes, Hypertension and Heart Failure.

    READ MORE: Mismatch identified in GST rates on supply, sales by IPPs

    It said oncology medicines worth more than tens of millions are being given to deserving patients every year by selected pharmaceutical companies under Patient Assistance Programs (PAP). Advance income tax at 5.5 per cent is currently being charged on import of such medicines whereas no revenue is generated from such free of cost issuance.

    The OICCI recommended:

    i. Provide exemption from the operation of section 148 to the ITO 2001 on import of pharmaceutical medicines for above mentioned disease areas, through addition of a new clause in the Second Schedule to the ITO 2001.

    ii. Allow tax exemptions/ tax credits where companies are offering free benefits to the society through Patient Access programs.

    READ MORE: Tax rate rationalization proposed for exploration, production companies

    It further highlighted Section 236G and 236H of Income Tax Ordinance 2001 – Collection of Advance Income Tax on sale of pharmaceutical products to distributors, dealers, wholesalers and retailers.

    The chamber said it is not clear whether advance tax should be collected on gross sales value or sales value net of discount. A few clarifications issued by regional tax offices require collection of advance tax on sale to doctors and hospital pharmacies. On the other hand, doctors claim exemption being final consumers and state-owned hospitals claim exemption under section 236O of ITO 2001.

    Therefore it recommended the FBR should issue clarification in terms of taxable value and specific exemptions from operation of section 236G & 236H to the above extent.

    The OICCI also sought clarification in definition under Section 21(O) of Income Tax Ordinance, 2001. It said the current law restricts the admissibility of sales promotion expenditure incurred by pharmaceutical companies up to 10 per cent of their turnover. However, the tax authorities tend to treat the entire marketing expenditure as advertisement, sales promotion and publicity expenditure. Similarly, it is also not clear whether the turnover means “gross sales” or “net sales”.

    READ MORE: FBR urged to restore sales tax exemption on LED lights

    Therefore, it recommended a new circular explaining the definition of advertisement, sales promotion & publicity as well as turnover should be issued.

    It said reduced rate of advance tax on import of pharmaceutical products not manufactured in Pakistan. The facility of reduced rate of advance tax on import is conditional on obtaining certificate from DRAP which adds complexity to the process.

    The OICCI recommended one time list of registered drugs not manufactured in Pakistan should be obtained by FBR from DRAP directly and the requirement for companies to obtain certificate from DRAP be waived off by FBR.

    The chamber sought exemption of medical equipment imported and supplied and said the said exemption has been deleted vide Finance Supplementary Act 2022, should be re-inserted.

  • OICCI recommends tax amendment for FMCG

    OICCI recommends tax amendment for FMCG

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended amendments in tax laws related to taxpayers engaged in business of fast moving consumer goods (FMCG).

    The OICCI in its proposals for budget 2022/2023 presented to Federal Board of Revenue (FBR) recommended certain changes for taxpayers engaged in business of FMCG.

    READ MORE: FBR urged to review minimum tax for OMCs, refineries

    The chamber highlighted issue of imported items in Third schedule of Sales Tax Act, 1990.

    It recommended: The words “in retail packing” to be mentioned with tea (serial no. 14) in order to clarify that sales tax at retail price is only applicable in case of imported finished tea in retail packing.

    It further highlighted high withholding taxes on milk commission agents and recommended to exempt ‘milk’ from withholding tax whether it is purchased directly from the farmer or through commission agent.

    The OICCI pointed out duty on essential diary and juice raw material and recommended:

    READ MORE: Mismatch identified in GST rates on supply, sales by IPPs

    i. Duties should be withdrawn, or its rate should be minimized on import of raw/packing material for dairy and Juice sector which are not produced locally in sufficient quantity.

    ii. Alternatively, duties can be minimized by introduction of quota system by placement of these items under Part III, Fifth schedule of the Customs Act, 1969. Quota can be restricted for registered manufacturers of dairy products only and can be allowed as a proportion of fresh milk purchases of those manufacturers.

    The chamber highlighted First Schedule of Federal Excise Duty 2005 and Third Schedule of Sales Tax Act, 1990.

    It recommended:

    i. Serial No. 1 and 3 of Third Schedule of the Sales Tax Act, 1990 should be deleted.

    READ MORE: Tax rate rationalization proposed for exploration, production companies

    ii. Whereas Serial no. 4, 5 & 6 of First Schedule of Federal Excise Act, 2005 should be reduced from 13% to 10%, to provide level playing field to the Beverage Industry as given to other food industries.

    The OICCI further recommended that the Federal Ministry of Health has been proposing health surcharge on sugary drinks. However, the Health Levy already exists in the form of FED. Hence no additional Health Levy should be considered. If a Health Levy is to be considered then FED can be abolished and a Health Levy in the form of a FED can be re-imposed, in consultation with the aerated waters industry.

    READ MORE: FBR urged to restore sales tax exemption on LED lights

  • FBR urged to review minimum tax for OMCs, refineries

    FBR urged to review minimum tax for OMCs, refineries

    ISLAMABAD: Federal Board of Revenue (FBR) has been urged to review minimum tax regime under Section 113 of Income Tax Ordinance, 2001 of oil refineries and oil marketing companies (OMCs).

    The Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 recommended the FBR that the rate of minimum tax under section 113 of Income Tax Ordinance, 2001 should be reduced by 0.25 per cent each year from current rate of 0.75 per cent. Further, this rate should be applicable on gross profits instead of turnover.

    READ MORE: Mismatch identified in GST rates on supply, sales by IPPs

    The OICC further recommended that zero rating sales tax on Exports -Section 4(b) of Sales Tax Act, 1990: Clarity is required with respect to the definition of stores and provisions. Amendment suggested is as follows: “Supplies of stores and provisions including fuel for consumption aboard a conveyance proceeding to a destination outside Pakistan as specified in section 24 of the Customs Act, 1969 (IV of 1969)”.

    READ MORE: Tax rate rationalization proposed for exploration, production companies

    The OICCI highlighted issuance of Debit/ Credit Note and pointed out Section 7 read with Section 9 of Sales tax Act, 1990 states:  “Where a registered person did not deduct input tax within the relevant periods, he may claim such tax in the return for any of the six-succeeding period.”

    In the E&P Sector, provisional invoicing mechanism is adopted till the issuance of notification of Gas prices & execution of Oil & Gas Sales Purchase agreements. Normally this process takes more than a year and requires issuance of debit/ credit note on finalization. This results in complication when tax authorities are requested to allow condonation from six months period, and they take years to grant the said approvals.

    READ MORE: FBR urged to restore sales tax exemption on LED lights

    “Legislation be introduced in Sales tax Act specifically for E&P Sector allowing issue of Debit/ Credit notes after finalization of agreements with GOP. Also, issues of claiming input in six succeeding periods may be relaxed to six months from the date of notification by OGRA,” it recommended.

    Regarding, disallowance of input tax on sales to unregistered customer-Sub section (4) of section 73 of the Sales Tax Act, 1990, it recommended to exclude OMC’s and Electric Power and Gas Distribution Companies from the ambit of Sub section (4) of section 73 of the Sales Tax Act, 1990 as per power of FBR to exclude persons or class of persons.

    READ MORE: Minimum tax 0.2% suggested for listed chemical companies

  • Mismatch identified in GST rates on supply, sales by IPPs

    Mismatch identified in GST rates on supply, sales by IPPs

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has identified mismatch in General Sales Tax (GST) rates between supply and sales resulting in excessive sales tax refundable build up.

    The OICCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), said that Independent Power Producers (IPPs) revenue mainly comprises of two components “Capacity Price Payment” (CPP) and “Energy Price Payment” (EPP).

    READ MORE: Tax rate rationalization proposed for exploration, production companies

    As per the current sales tax law output sales tax is only applicable on EPP as a result IPPs are not able to fully adjust the input sales tax charged leading to build up of sales tax refund.

    It is recommended that the IPP sector is already facing circular debt issues and in addition to that huge amount of Sales Tax Refunds are further worsening the working capital conditions of the industry. It is proposed that supply of fuel to IPPs (Coal/ Gas / HSD, etc.) should be exempted from Input Sales Tax.

    READ MORE: FBR urged to restore sales tax exemption on LED lights

    The OICCI said since 1994 the dividend income paid by Independent Power Producers (IPP’s) was subject to tax @ 7.5 per cent under the repealed Income Tax Ordinance, 1979 (ITO, 79). This was also the full and final tax in the hands of recipients and IPPs’ shareholders did not have to pay any additional tax when filing their tax returns, which have been revised as follows vide Finance Act 2019:

    i. In clause (a), the reduced tax rate of dividend of 7.5 per cent for power generation industry (covering power purchaser, producer, and supplier of coal to power producer) has been restricted to power producers only where such dividend is pass through under CPPA, and

    ii. Higher rate of tax of 25 per cent has been introduced under clause (c) of the said section for the Companies that have nil tax liability due to carry forward of losses, tax exemption or tax credits.

    READ MORE: Minimum tax 0.2% suggested for listed chemical companies

    Hence, in case of power producers (having non-pass-through agreements with CPPA) and coal suppliers, that previously enjoyed reduced rate under clause (a), the tax rate has been drastically increased from 7.5 per cent to 25 per cent due to exclusion from revised clause (a) and applicability of the new clause (c) as these entities are currently in tax holiday.

    It is recommended:

    i. Clause (a) of Division III of Part I of First Schedule as applicable before Finance Act 2019, should be reinstated, to include power producer companies (having non-pass-through agreements) and coal suppliers.

    ii. Similarly, amendment be made for the withholding tax rates specified in clause (a) of Division I of Part III of the First Schedule, by reinstating the position prior to Finance Act 2019.

    iii. The new clause (c) of Division III of Part I of First Schedule, inserted by Finance Act, 2019 be removed being against the fundamental principles of ITO, 2001.

    READ MORE: Proposals for capital gain on disposal of securities by insurance companies

    The chamber further informed that as a result of the passing of the Finance (Supplementary) Act, 2022 (“FSA”), the exemption provided to the power sector (“IPPs”) from payment of Sales Tax on the import of machinery and equipment provided under Table-3 of the Sixth Schedule to the Sales Tax Act, 1990 has now been withdrawn.

    Under various power policies, the GOP has guaranteed the exemption of sales tax on the import of plant and machinery till the Commercial Operations Date of the IPPs.

    It is recommended either the exemptions are restored or a proviso similar to the proviso inserted by the FSA in clause 132 Part I of the Second Schedule to the Income Tax Ordinance, 2001 be inserted.

    (Provided further that the exemption under Serial 4, 5 & 6 Table 3 of the Sixth Schedule to the Sales Tax Act, 19s90 shall be available to persons who entered into the agreement or letter of intent is issued by the Federal or Provincial Government for setting up an electric power generation project in Pakistan on or before the thirtieth day of June 2021 and who obtains a letter of support on or before the thirtieth day of June 2023.

  • Tax rate rationalization proposed for exploration, production companies

    Tax rate rationalization proposed for exploration, production companies

    KARACHI: The exploration and production companies are subject to tax rate at 40-50 per cent instead the prevailing rate of 29 per cent, which should be aligned with the tax rate applicable on other sectors.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) said that as per the Fifth Schedule of the Income Tax Ordinance 2001, the applicable tax rate for the E&P sector ranges from 40 per cent and 50 per cent – 55 per cent, whereas the general corporate tax rate is 29 per cent.

    READ MORE: FBR urged to restore sales tax exemption on LED lights

    The corporate tax rate for E&P Companies needs to be aligned with general corporate tax rate of 29 per cent.

    As per Rule 3 of Part 1 of Fifth Schedule, depletion is calculated @ 15 per cent of the gross receipts representing well-head value of production, but not exceeding 50 per cent of taxable income. E&P industry interprets above by calculating depletion at 15 per cent of Gross Revenue before royalty deduction. Tax authorities calculate depletion at 15 per cent of Gross Revenue after deduction of royalty.

    READ MORE: Minimum tax 0.2% suggested for listed chemical companies

    It is recommended that definition of Wellhead Value in Rule 6 (8) be deleted and Rule 3 rephrased as “depletion allowance to be calculated @ 15 per cent of gross receipts, before royalty deduction”.

    Through the Tax Laws (Second Amendment) Ordinance, 2021, an amendment is introduced in the Third Schedule of the Income Tax Ordinance, 2001 whereby entry related to 100 per cent tax depreciation in respect of “Below Ground Installations” has been omitted. E&P industry is capital intensive and high-risk industry, as such 100 per cent tax depreciation was allowed in respect of Below Ground Installations (entry in third schedule specific to E&P companies since 1979 in line with International best practices).

    READ MORE: Proposals for capital gain on disposal of securities by insurance companies

    It is recommended that changes introduced through the Tax Laws (Second Amendment) Ordinance, 2021 in the Third Schedule of the Income Tax Ordinance, 2001 should be reversed and previous position of allowing 100 per cent tax depreciation in the year of incurrence should be restored.

    The OICCI said 10 per cent Tax credit u/s 65B on Investments made by Industrial Undertakings in Plant & Machinery for extension, expansion, Balancing, modernization, replacement. This incentive was introduced through Finance Act 2010 and was available until June 30, 2019.

    READ MORE: FBR urged to align corporate tax rate for banks

    It is recommended that this incentive to be extended up to 2024. Clarification on definition of industrial undertaking to include E&P Companies assessed under Fifth Schedule of ITO 2001.

  • FBR urged to restore sales tax exemption on LED lights

    FBR urged to restore sales tax exemption on LED lights

    KARACHI: The Federal Board of Revenue (FBR) has been urged to restore sales tax exemption on supply of LED or SMD lights as these are meant for conservation of energy.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 said that through Finance Act 2021, under 6th Schedule, Table II (local supply/sales stage), Serial no. 24: Exemption from sales tax on the supply of following had been withdrawn: LED or SMD lights and bulbs meant for conservation of energy, HS codes 8539.5010, 8539.5020, 9405.1030 and 9405.4020.

    READ MORE: Minimum tax 0.2% suggested for listed chemical companies

    It is recommended that sales tax at local supply/sales (Table II) of LED or SMD lights and bulbs meant for conservation of energy, HS codes 8539.5010, 8539.5020, 9405.1030 and 9405.4020 should be exempted as it would protect local industry setup/investment, would give it advantage over imported finished goods and provide cheaper energy efficient LED light to consumers.

    The OICCI further highlighted that through Finance Supplementary Act 2022, under 6th Schedule of Table III of Sales Tax Act, sales tax exemption on import of parts and components for manufacture of LED lights was removed.

    READ MORE: Proposals for capital gain on disposal of securities by insurance companies

    It is recommended that sales tax exemption on import of parts and components for manufacture of LED lights under Table III of Sixth Schedule of Sales Tax Act should be restored as it would protect local industry setup/investment, would give it advantage over imported finished goods and provide cheaper energy efficient LED light to consumers.

    The Finance Act 2020 declared only construction sector (person directly involved in the construction of buildings, roads, bridges and other such structures or the development of land) status as Industrial undertaking to enjoy benefit of imports of plant and machinery and other goods to be utilized in such activity as adjustable. This amendment does not include taxpayers involved in the execution of contracts and in providing of engineering services in the manufacturing, power producing and other industries and importing goods, raw material or plant & machinery.

    READ MORE: FBR urged to align corporate tax rate for banks

    It is recommended that taxpayers involved in execution of contracts and in providing of engineering services in manufacturing, power producing, and other industries are also included in the definition of “industrial undertakings”. Various imports are used in contract execution by companies which are not covered under Part I and II of the Twelfth Schedule, thus are also subject to minimum tax @ 5.5 per cent.

    Further, the tax deducted on the contract execution under clause (c) of sub-section 1 of section 153 at the rate of 6.5% is also minimum tax on the income in terms of the provisions of sub-section 3 of section 153. it is obvious that there cannot be a double taxation of the same income, but it can be unnecessarily interpreted that the imports used in contract execution is subject to minimum tax at (i) the import stage and (ii) also on the income arisen of such contract execution. Due to such provisions taxpayer will be suffering minimum tax twice on the same income (i.e. @ 5.5 per cent at the time of import and 6.5 per cent at the time of contract execution / income from such contract execution) and can lead to litigation.

    READ MORE: OICCI suggests duty cut on locally manufactured cars

  • Minimum tax 0.2% suggested for listed chemical companies

    Minimum tax 0.2% suggested for listed chemical companies

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested that the minimum tax should be reduced to 0.2 per cent for listed companies with large turnover with lower profit margins.

    The OICC in its proposals for budget 2022/2023 submitted to Federal Board of Revenue (FBR) made tax recommendations related to chemical, pesticides, fertilizers, paints and cement sectors.

    READ MORE: Proposals for capital gain on disposal of securities by insurance companies

    The chamber recommended that minimum tax rate should be reduced to 0.2 per cent for listed chemical companies with large turnover with low profit margins.

    It recommended minimum tax at Import Stage for Fertilizer manufacturers and said: Clause b of Section 148(7) of Income Tax Ordinance, 2001 as deleted by the Finance Act, 2017 should be restated, which read as follows: “148(7) b fertilizer by manufacturer of fertilizer” to allow adjustment of tax deducted at import stage for fertilizer imported by a fertilizer manufacturer so as not to make it a Final Tax.

    READ MORE: FBR urged to align corporate tax rate for banks

    The chamber sought exemption under Clause 42 of Part IV of Second Schedule to the terminal operators. It recommended exemption under Clause 42 read with section 153(3) of the ITO, 2001 be available to all terminals without discrimination. The said clause be re-worded as follows:

    “(42) The provisions of sub-section 3 of section 153 shall not apply in respect of payments received by a resident person for providing services by way of operation of terminal(s) at a sea-port in Pakistan or of an infrastructure project covered by the Government’s Investment Policy, 1997.”

    READ MORE: OICCI suggests duty cut on locally manufactured cars

    The OICCI highlighted anomaly between input and output sales tax for fertilizer manufacturers. It said for the fertilizer industry, the General Sales Tax (GST) on supply of natural gas as feed stock is at 5 per cent and as fuel stock is 17 per cent. However, the output GST rate on sales of finished goods i.e. urea is 2 per cent. This mismatch between input and output GST results in excessive input tax refundable build-up.

    It is recommended: “GST rate on supply of natural gas for fertilizer industry should be zero percent.”

    For sales tax rate on raw material of paints, the OICCI recommended:

    i. Sales tax of 25 per cent should be imposed on some basic raw materials like Titanium dioxide and other similar categories for commercial importers.

    ii. Enforcement measures to be made more effective in consultation with OICCI members, who are established taxpayers, to penalize tax evaders.

    READ MORE: Return filing be made mandatory for account holders

    The OICCI pointed out higher tax rates on fertilizer micronutrients. Macro nutrients being imported under Chapter 31 of Pakistan Customs Tariff, enjoy reduced duties and taxes representing only 8% of the value imported whilst in case of micronutrients being imported under Chapter 28, the import duties and taxes are quite high representing 29% of import value.

    It recommended to make necessary amendments in the revenue regulation to reduce sales tax and import duties on import of micronutrients.

    The authorities have been informed about dual taxation on dealers belonging to chemical sector under Section 236G and Section 233 of the Ordinance shall be removed.

    It recommended that dealers of chemical sectors be removed from the scope of Section 236G who are already paying tax on their commission income under Section 233 of the Ordinance and are also appearing in Active Taxpayer List (ATL).

    READ MORE: Unjustified audit notices annoy taxpayers

    The OICCI sought exemptions withdrawn on import and supply of seeds for sowing.

    It recommended sales tax exemption for the seeds industry be reinstated by withdrawal of amendments made through the Finance Supplementary Act 2021.

    Concessions allowed to exploration and production Companies and their contractors under SRO 678(I)/2004 on custom duty on import of spares, chemicals and consumables. It is recommended E&P Companies are exempt from payment of additional customs duty (ADC) on imports for their off-shore projects. FSRU is an offshore installation and therefore imports for FSRU should be allowed the same concession as the E and P companies are allowed in condition (vii).

  • Proposals for capital gain on disposal of securities by insurance companies

    Proposals for capital gain on disposal of securities by insurance companies

    KARACHI: The Federal Board of Revenue (FBR) has been proposed to notify rules for computation of capital gain on disposal of securities for insurance companies.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023, said that as institutional investors, insurance companies are very important participants in the financial market, especially in the capital market.

    READ MORE: FBR urged to align corporate tax rate for banks

    But unfortunately there is no rules exist for computation of capital gain on disposal of Securities for insurance companies as Rule 13E for computation of capital gain on disposal of securities is for Companies that fall under section 37A of Income Tax Ordinance, 2001.

    “Rules 13D for computation of Capital gain on disposal of securities under Section 37 A should also be applicable on Fourth Schedule of the Income tax ordinance, 2001,” it recommended.

    READ MORE: OICCI suggests duty cut on locally manufactured cars

    The OICCI also pointed out personal Lines / micro insurance products of Insurance Companies should be exempted from Federal Excise Duty.

    “The insurance related exemptions provided in Table II of the Third Schedule of the Federal Excise Duty Act 2005 should include the following:

    3) Marine insurance for export, 4) Life insurance, 5) Health insurance, 6) Crop Insurance, 7) Livestock insurance, 8) Personal accident Insurance, 9) Travel Insurance, and 10) Home property/ Household Insurance.”

    READ MORE: Return filing be made mandatory for account holders

    It further noted that through Finance supplementary (Second Amendment) Bill, 2019, a proviso was inserted in section 37A, which states that losses sustained during the tax year 2019 and onwards on the disposal of securities chargeable to tax under the above section if not fully set off during the year, would be allowed to carry forward to the next year and subsequent two tax years, to be offset against capital gain earned in those years chargeable to tax under Fourth schedule of the Ordinance.

    READ MORE: Unjustified audit notices annoy taxpayers

    As the amendments in the supplementary Bill will not be effective for Insurance Companies unless the said amendments will be made in the Fourth Schedule to the Income Tax Ordinance 2000,

    It proposed that similar amendments should be made in the Fourth Schedule by inserting new Clause 6C.

  • FBR urged to align corporate tax rate for banks

    FBR urged to align corporate tax rate for banks

    KARACHI: Federal Board of Revenue (FBR) has been urged to bring corporate tax rate for banking companies at par with the other sectors.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 pointed out towards higher effective tax of banking sector.

    It recommended that corporate tax rates for the banking sector should be aligned with other sectors. Super Tax relief, as granted to other industries, should be given to banking sector as well.

    The OICCI also pointed out enhanced rate of tax on income from investment in Federal Government Securities (Rule 6C of Seventh Schedule). It recommended that the banking sector is already burden with higher tax rates as compared to other service sectors. Incremental tax applied under Rule 6C (6A) of seventh schedule of Income Tax Ordinance, 2001 should be deleted, whereby enhanced rate is applied on banks total income ratio (ADR).

    Alternatively, enhanced tax shall be reverted to the previous condition, i.e. incremental tax shall be applicable on Additional income from additional investment in government securities rather than total income.

    The overseas chamber further recommended the original provisions of the Seventh Schedule should be restored where provision for bad debts as per the Prudential Regulations of SBP and supported by an Auditors certificate was allowable as a tax deduction to the banks.

    Alternatively, threshold for allowing provision for bad debts should be increased to 2 per cent of gross advances to corporate customers without the categorization of loss, doubtful or substandard and delete the Explanation inserted through Finance Act, 2019 along with the Clauses 1(d), (e) and (f).

    Overriding Provision in Seventh Schedule to Income Tax Ordinance, 2001. The rule 9 of the Seventh Schedule of ITO 2001 should be deleted as it is being misused and leading to unnecessary litigation.

    Regarding Islamic banks, the OICCI said Rule 3 (1) & (2) of Seventh Schedule of Income Tax Ordinance, 2001 should be replaced with the following text under Rule 3(1):

    “The audited financial statements of Islamic Banks and Disclosure related to Islamic window operations of the conventional banks as contained in the audited financial statements submitted to the State Bank of Pakistan shall form the basis for the calculation of income tax liability as provided in this Schedule.”

    The OICCI pointed out withholding tax on all modes of Islamic financing and recommended that tTo provide tax neutrality for assets financed by Islamic banks and Islamic windows of conventional vis- a vis conventional banks. Following clarification be inserted after clause 153(7)(iii):

    “For the removal of doubt, it is clarified that any goods delivered under an Islamic modes of financing by a bank or financial institution approved by the State Bank of Pakistan or the Securities Exchange Commission of Pakistan, shall not be considered as sale of goods for the purpose of this section.”