Karachi, October 6, 2023 – The Pakistan Business Council (PBC) has issued an urgent call to the caretaker government, demanding immediate measures to put an end to widespread under-invoicing, which is causing substantial revenue leakages.
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Pakistan Business Council Suggests Measures to Reduce Electricity Costs and Boost Forex Savings
Karachi, October 2, 2023 – Pakistan Business Council (PBC) has put forth a comprehensive set of recommendations to the government to alleviate country’s soaring electricity costs and enhance foreign exchange savings.
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Open file transactions facilitate tax evasion in property sector: report
A recent report published by the Pakistan Business Council (PBC) highlights the prevalence of tax evasion in property transactions facilitated by open files, which are often exchanged without official transfer of ownership or payment of associated taxes. These undocumented transactions have allowed individuals to evade tax obligations, according to the report.
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Study provides insights into Pakistan’s struggle to tax retailers and wholesalers
A recent study conducted by the Pakistan Business Council (PBC) sheds light on the country’s persistent challenges in bringing wholesalers and retailers into the tax net.
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PBC terms super tax as penalty on documented sector
The Pakistan Business Council (PBC) has expressed its dissatisfaction with the imposition of super tax on corporate profits, describing it as a penalty on the documented sector.
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PBC raises concerns over proposed requirement of beneficial owner records
The Pakistan Business Council (PBC) has raised concerns over the Federal Board of Revenue’s (FBR) SRO 229(I)/ 2023, which requires companies and foreign investors to maintain records of beneficial owners, despite the comprehensive documentation already mandated by the Securities and Exchange Commission of Pakistan (SECP).
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Discontinuation of Rs5000 banknote suggested to formalize Pakistan economy
Pakistan Business Council (PBC) in a report suggested discontinuation of the highest denomination banknote of Rs5000 in order to formalize the country’s economy.
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Tax exemption sought for plant, machinery import
KARACHI: The business community has sought exemption from withholding tax on import of plant and machinery in order to reduce the cost of doing business.
Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to Federal Board of Revenue (FBR), said that Section 148 (1) of Income Tax Ordinance, 2001 covers advance tax on Imports and Section 153 covers advance tax on sale of goods and services.
READ MORE: Proposed list of higher withholding tax rates for non-filers
Companies are required to pay advance quarterly income tax based on their projected incomes under Section 147 of the Ordinance.
In addition, companies are also required to pay advance tax on imports at 1 per cent/ 2 per cent/ 5.5 per cent and on sale of their goods at 4 per cent and services at 8 per cent. This leads to the creation of refunds as companies are paying advance income tax based on projected income, advance income tax on imports and advance income tax on sales.
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There is a cumbersome procedure for seeking exemptions under Section 148 (advance tax on imports) which also does not take into account capacity expansions.
“Import of plant and machinery by companies should be exempted from withholding at import stage,” the PBC suggested. Moreover, for raw materials, preferably corporate manufacturers should be excluded from the ambit of income tax withholding at import stage. In case, FBR wants to keep track of GD wise import of raw materials and complete exemption from tax collection is not feasible, then at least the rate of income tax collection should be reduced down to 0.5 per cent across the board for all raw materials from the existing 1 per cent / 2 per cent and 5.5 per cent for different items.
READ MORE: FBR suggested reduce corporate tax rate for listed companies
In addition to above, local supply by corporate manufacturers should be excluded from the ambit of income tax withholding under section 153 in line with the general exemption given to commercial importers despite the fact that income tax collection from commercial importers at import stage is minimum.
The PBC highlighted the withholding tax under section 148 of Income Tax Ordinance, 2001 (Imports), Section 161 Subsection 3:
Withholding tax u/s 148 (Imports) -Income Tax Ordinance 2001: Certain raw material covered under category III of Twelfth Schedule are subject to WHT tax and fall under minimum tax regime.
READ MORE: Tax cut suggested on dividend paid by exempt entities
In order to claim the advance tax, the tax payers are required to file an application to Commissioner/ Board for claiming adjustment of withholding tax deducted as advance tax, which leads to administrative and operational inefficiencies, and puts the company at the risk of exposure till such application is entertained.
Tax deduction on import of raw material for own use u/s 148 (Imports) should be explicitly expressed as withholding advance tax across the board in the Income Tax Ordinance, which will save the companies from exposure resulting from possible delays in acceptance of application by the Commissioner/ Board or non-acceptance at all. It will remove operational and administrative hassle also.
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FBR urged to audit income of commercial importers
KARACHI: The Federal Board of Revenue (FBR) has been urged to audit sales and income of commercial importers in order to discourage under-invoicing and misdeclaration for tax evasion.
The Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to the FBR, recommended measures to stop under-invoicing by commercial importers.
The PBC suggested: “Monthly sales declared by commercial importers should be matched with sales declared in annual income tax return as well as the credit entries in all business bank accounts. In case of any discrepancy, a reconciliation with justifiable reasons should be submitted by the commercial importers.”
READ MORE: Proposed list of higher withholding tax rates for non-filers
The council said that transparency in collection of taxes will discourage mis-declaration, measures to discourage evasion of taxes and duties will help industry to fairly compete with unscrupulous imports and also Government stands to benefit from the increased indirect taxes revenues. It will also help in accountability of the customs staff and will reduce the incidence of Customs Duty and Sales Tax evasion and increase government revenues.
The PBC said that values at which import shipments are cleared through PRAL or CARE need to be publicly available.
“The Government of Pakistan must insist of Electronic Data Interchange (EDI), for both FTA and non-FTA imports from China. In future the requirement of EDI should be made compulsory for imports from FTA / PTA partner countries.”
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Depending on industry, the Import Trade Price (ITP) be fixed e.g. on the basis of country of origin, weight, volume etc. after discussion with stakeholders. ITP’s may be fixed for most items prone to mis-declaration such as consumer goods and margins of commercial importers be monitored to assess the value of subsequent supply of imported goods. “A certificate to this effect should be issued by auditors of commercial importers.”
The PBC said for items, prone to under invoicing and mis-declaration, FBR should designate one or two ports (including the dry ports) for clearing of import consignments. “This will allow better monitoring of the import consignments where chances of mis-declaration are on a higher side.”
Additionally, the old Customs General Order 25 needs to be revived with a provision that local manufacturers be given the option to buy at a 15 per cent premium, any consignment which appears undervalued.
READ MORE: FBR suggested reduce corporate tax rate for listed companies
Taxes and duties deposited by local manufacturers and commercial importers should be published.
The rate of tax collected from commercial importers be increased by at least by 2 per cent. Presently, tax collected from commercial importers is treated as Final Tax. In order to avoid burdening of genuine commercial importers, we would recommend that the income tax collected at import stage be treated as an advance tax, it said.
In order to allow commercial importers to claim adjustment of taxes deducted at import stage, commercial importers should be asked to present certificate from auditors that at least 70 per cent of imported items have been exported or sold to registered manufacturers.
Online CREST system must be amended in a way to trace sales along with value addition thereon of person to whom supplies were made by Commercial importers.
The proposed change will help in boosting the manufacturing base of Pakistan. This will also help increase the overall tax base.
READ MORE: Tax cut suggested on dividend paid by exempt entities
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Proposed list of higher withholding tax rates for non-filers
KARACHI: A proposed list of higher rates of withholding tax for non-filers of income tax returns has been sent to Federal Board of Revenue (FBR) for broadening the tax base.
The concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy, said Pakistan Business Council (PBC) in its proposals for budget 2022/2023.
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Though large amounts are being collected from non-filers, no effort has been made to increase the tax base.
The non-filers for the most part have built the cost of this government levy into pricing and passed it on to their customers.
The PBC said in order to broaden the tax base and to achieve increase in overall tax collection without burdening existing tax payers, the policy to increase tax on non-filers / unregistered persons should be implemented specifically in the following cases:
READ MORE: FBR suggested reduce corporate tax rate for listed companies
a) unregistered industrial / commercial entities (not having STRN) having bill amount in excess of Rs. 20,000 per month, extra sales tax should be increased from 17 per cent to 30 per cent
b) After collection of extra tax as referred above for a continuous period of 6 months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.
c) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs.2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non-compliance, utility companies be directed to disconnect utility connections.
d) Moreover, in order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies. In case of failure to provide NTN, electricity connection should be disconnected.
READ MORE: Tax cut suggested on dividend paid by exempt entities
Considering the fact that all industrial / commercial connections will be linked with NTN, the tax department will then be in a better position to assess the electricity consumed by commercial / industrial users and corroborate the same with amount of sales / production etc. reported in sales tax / income tax return
e) in order to bring all commercial / industrial users in the tax net and to verify filer status, Electric distribution companies should provide one year to all such consumers to get their NTN registered with them. Thereafter, such commercial/industrial consumers without NTN should be charged advance income tax @ 20 per cent (from existing 5 per cent/12 per cent for industrial and commercial connections respectively) on their utility bills.
f) Advance tax @7.5 per cent is collected from domestic connections in the name of Non-Filers is collected where monthly bill is Rs.25,000 or more. Rate of advance tax be increased to 30 per cent where monthly bill is in excess of Rs.75,000
g) All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers so that exempt income is also reported and wealth is reconciled.
READ MORE: PBC suggests reducing further tax to stop flying invoices
h) Withholding tax of Rs. 50,000 for non-filers be levied on International business class tickets
i) Withholding income tax on interest income u/s 151 is 15 per cent for filer and 30 per cent for non-filer. Rate should be increased to 50 per cent for non-filers in case interest income is more than Rs.2,000,000/-
j) Annual advance income tax @ 20,000 is applicable [under section 234] for non-filers owners of vehicles of 2000cc and above. Amount of tax should be increased to 100,000 for non-filers.
k) Advance income tax of Rs. 800,000 on purchase of vehicles in excess of 2000cc by non-Filers [under section 231B] should be increased for non-Filers to Rs. 2,400,000 [3 times]
l) Advance income tax on transfer of vehicles [applicable on 2nd hand buyer] under section 231B(2) should be increased for non-Filers as follows:
a) Existing rate of Rs75,000 for 2001cc to 2500cc be increased to Rs225,000 [3 times]
b) Existing rate of Rs100,000 for 2501cc to 3000cc be increased to Rs300,000
c) Existing rate of Rs125,000 for 3000cc and more be increased to Rs375,000
READ MORE: Commercial importers misusing tax registration
m) Advance income tax of Rs. 400,000 on sale of vehicle [2001cc and above] by non-filers before registration [own money] should be increased to Rs1,200,000
e) Advance income tax is collected on sales of immovable property under section 236C, which is 1 per cent for both filers and non-filers, should be increased for non-filers to 10 per cent for properties of 900 square yards or more
f) In order to generate tax revenues and to divert funds from unproductive resource to productive area [for import substitution / export promotion industry], holding of land by non-filers should be made more expensive by asking those authorities collecting property tax (cantonment boards / societies / registrar) to collect adjustable advance income tax, from non-Filers, on behalf of the Federal Government as follows:
g) Rs. 500,000 per year for 800 yards or more but less than 1800 yards
h) Rs. 1 million per year for 1800 yards and above.
READ MORE: FBR urged to massively reduce tax rates for return filers