Pkrevenue.com

Tag: Pakistan Tax Bar Association

  • PTBA suggests reducing record retention time to five years under Sindh tax laws

    PTBA suggests reducing record retention time to five years under Sindh tax laws

    KARACHI: Pakistan Tax Bar Association (PTBA) has submitted budget proposals 2019/2020 to Sindh Revenue Board (SRB) suggesting to reduce time limit for retaining records to 5 years from 10 years.

    The apex tax bar said that under present legislation a taxpayer is required to retain records for a period of 10 years and show-cause notices may be issued within a period of 8 years from the date of relevant tax period.

    This is in excess of the statute of limitation provided under the Sales Tax Act and Income Tax Ordinance. It will not only put excess burden on the taxpayer, but also disincentivizes the tax authorities from taking timely action.

    It is therefore recommended that the time period for retention of records and assessment of tax should be reduced to five years.

    This would save taxpayers from practical difficulties and unnecessary burden while pushing the tax authorities to take more timely action.

    The PTBA also highlighted the issue that no input tax is allowed to be claimed on goods or services acquired prior to six months preceding the date of commencement of the provision of taxable services by a taxpayer.

    Therefore it is recommended that such restriction should be eliminated.

    Giving rationale to the suggestions, the PTBA said that any bar on admissibility of input tax borne by the taxpayer prior to six months preceding the commencement of provision of taxable services is against the basic principal of VAT. It is also not justifiable in case of a long term projects.

    Regarding assessment order, the apex tad bar said that it can be amended by a tax officer on the basis of any subsequent information, etc.

    “Such powers are arbitrary and unjust and may open the doors for harassment and corruption.”

    The PTBA suggested that the taxpayer should first be confronted with a show-cause notice with substantial reasons and definite information/evidence(s) that warrant reopening or amending the assessment order.

    “Further, the powers to amend any assessment order should only be vest with the Commissioner or Board only.”

    This recommendation would introduce transparency in the tax system for revision of shut and close transactions and provide justice to the taxpayer.

    The PTBA further pointed out that the tax officer is empowered to ask for any information from a taxpayer without specifying the reason or nature of the case being investigated by him.

    Scope of Section 52(1) should be restricted to specific parties and transactions which are within the jurisdiction of Sindh and are specifically identified by the tax officer instead of fishing and roving enquiries.

    This promotes equity and natural justice and avoids harassment and unnecessary proceedings.

  • FBR urged to extend tax credit to investment in infrastructure

    FBR urged to extend tax credit to investment in infrastructure

    KARACHI: Federal Board of Revenue (FBR) has been urged to extend tax credit facility to investment in factory building and manufacturing related infrastructure.

    Pakistan Tax Bar Association (PTBA) in its tax proposals for budget 2019/2020 said that tax credit under section 65E of Income Tax Ordinance, 2001 is restricted to investment in plant and machinery.

    Tax credit under section 65D is available only at the time of setting up a new industrial undertaking. No tax credit is given on subsequent expansion of such an industrial undertaking since section 65E restricts eligibility to companies formed before 01 July, 2011.

    Expansion of plant or undertaking a new project involves investment in factory building and manufacturing related infrastructure and as such, these types of investments should also be made eligible for tax relief.

    Expansion is also possible in industrial units’ set-up after 01 July, 2011.

    It is, therefore, recommended that tax credit under section 65E should also be extended to investment in factory building and manufacturing related infrastructure.

    Applicability of section 65E to only such companies’ setup after 01 July, 2011 may be relaxed to include industrial undertakings formed thereafter as well, which undergo expansion.

    An increased availability of tax credits may act as an incentive to new investment since the investors foresee tax benefits which they may practically be able to utilize.

    The tax bar further highlighted that tax credits under sections 65B and 65E are restricted to investment in plant and machinery.

    The rational behind these tax credits is not the purchase of plant and machinery but industrial expansion and increased economic activity. In this regard, it may be appreciated that expansion of business (and the consequent increase in economic activity) is not achieved from plant and machinery in isolation and is, for all practical purposes, not possible without an appropriate support structure.

    In order to streamline section 65B(4) with the wordings of section 65B(1), the following wording, in bold, may be inserted:-

    “65B (4) make an investment for the purposes of extension, expansion, balancing, modernization and replacement of the plant and machinery.”

    An explanation be added to sub-section (1) of Section 65B:-

    “For removal of doubts, for the purposes of this section, it is declared that the words “purchase of a plant and machinery” includes all direct expenses which are necessary to make the Plant and Machinery in a workable condition and also includes factory buildings and manufacturing related infrastructure.”

    Tax credit under Section 65E should also be extended to investment in factory building and manufacturing related infrastructure, the PTBA recommended.

    The proposed amendment/modification in tax credits will clarify the ambiguity for the companies’ set-up before first day of July, 2011 and shall promote industrial expansion and increased economic activity.

  • PTBA suggests allowing further tax adjustment to suppliers

    PTBA suggests allowing further tax adjustment to suppliers

    KARACHI: Pakistan Tax Bar Association (PTBA) has recommended the Federal Board of Revenue (FBR) to allow adjustment of further tax against input tax.

    The PTBA in its proposals for budget 2019/2020, said that presently further tax has been charged by the registered person on the supplies made to the person who are required to be registered but does not obtain registration is not available for adjustment against input tax in pursuance of section 7(1) of the Sales Tax Act, 1990.

    Moreover, through the Finance Act, 2017, further tax at the rate of 2 percent was also levied on zero-rated supplies.

    The PTBA said that this results in unnecessary increase in cost of doing business and unrest amongst the taxpayers which is creating a negative business environment.

    “Due to this amendment, all zero –rated supplies including exports are subject to further tax.”

    Exports are made to non-resident persons who are not required to be registered with Pakistan tax authorities. Resultantly, the exporters will have the bear the amount of further tax charged to exporters which will badly affect their competiveness in the international market.

    The PTBA recommended that the supplier should be allowed adjustment of further tax against input tax.

    Appropriate clarification should be issued that export sales are not subject to further tax, the PTBA further advised.

    The proposed amendments would put an end to unnecessary litigation, result in reducing the cost of doing business and create trust between taxpayers and tax collector.

    The exporters will not be burdened with extra cost of further tax.

  • FBR advised to substantially reduce penalties on non-filing, late-filing of tax returns

    FBR advised to substantially reduce penalties on non-filing, late-filing of tax returns

    The Pakistan Tax Bar Association (PTBA) has advised the Federal Board of Revenue (FBR) to significantly reduce penalties imposed on non-filers and late filers of income tax returns and wealth statements.

    (more…)
  • FBR suggested removing impediments in availing exemption certificates for industrial growth

    FBR suggested removing impediments in availing exemption certificates for industrial growth

    KARACHI: Federal Board of Revenue (FBR) has been suggested to remove restriction of exemption certificates for import of plant and machinery for new projects in order to promote industrial growth in the country.

    Pakistan Tax Bar Association (PTBA) in its tax proposals for budget 2019/2020 said that existing procedures and rules for obtaining exemption certificates for import of plant & machinery and raw material by taxpayers has serious restrictions which causes hardship and increases cost of doing business.

    The PTBA highlighted following issues related to exemption certificates:

    Current income tax rules do not support issuance of exemption certificate for import of raw material by manufacturers starting new business or in the process of expanding the current product or launched a new product etc. These restrictions are hindering industrial growth in the country;

    For qualifying for exemption, maximum import of raw material is restricted to the extent of 125 percent of the material previously imported and consumed;

    In order to qualify for exemption, the law requires minimum tax (equal to higher of last two years tax liability) to be paid before qualifying for exemption. This means that in the case of lower taxable profits due to expansion or operational reasons, the taxpayer will inevitably have a tax refundable in the current year;

    In case of newly established undertakings, tax credit under section 65D of Income Tax Ordinance, 2001 is not being allowed by the department while working out tax liability of the last two years;

    Coupled with a high rate of withholding at 5.5% these restrictions badly affect working capital of the manufacturers; and

    Currently, certificate of exemption from withholding tax on imports under Section 148 of Income Tax Ordinance, 2001 is not allowed to persons who are importing raw material, plant, machinery, equipment and parts for its own use unless they qualify as industrial undertaking.

    The tax paid at import stage on such imports by persons other than the industrial undertaking is treated as a final tax.

    The tax bar recommended that in order to address the issues faced in respect of claim of exemption under section 148 of the ITO, following amendments are proposed:-

    Restrictions in respect of issuance of exemption certificate for new projects / capacity expansions / formula and process changes may be removed which will allow industrial growth in the country;

    Maximum volume restriction be at least enhanced to 150 percent of last year’s raw material imported;

    Requirement to meet the tax payment equal to previous two tax years be abolished and may be linked with payment of advance tax liability for the respective period (as in the case of exemption under section 153);

    Amendments may be made to allow tax credit under section 65D while working out previous year’s tax liability for newly established undertakings already under immense cash-flow burden. This would help eliminate piling up of unnecessary refunds for newly established undertakings; and

    The rate of tax on import of raw material and plant & machinery may be gradually reduced to 1 percent.

    Clause (a) of sub-section (7) of Section 148 should be amended as under:-

    “Raw material, plant, machinery, equipment, parts or any other goods by any person for its own use”.

    In present situation, high rate of withholding at 5.5% coupled with these restrictions badly affect the working capital of the manufacturers. Removal of these hardships would provide incentive to industries and reduction of piling of huge refunds, it said.

  • FBR recommended tax exemption to inter-corporate dividend

    FBR recommended tax exemption to inter-corporate dividend

    KARACHI: Federal Board of Revenue (FBR) has been suggested to allow tax exemption to inter-corporate dividend for promoting group formation and consolidation and strengthen the overall corporate structure in Pakistan.

    Pakistan Tax Bar Association (PTBA) – the umbrella of tax bars in the country – in its tax proposals for budget 2019/2020, said that through Finance Supplementary (Second Amendment) Act, 2019 a new clause in Part I of the Second Schedule of Income Tax Ordinance, 2001 was inserted, which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed group relief under section 59B, computed according to the following formula:-

    A x B/C; Where,

    A is the amount of dividend;

    B is the shareholding of the company receiving the dividend in the company distributing the dividends; and

    C is the total ordinary share capital of the company distributing the dividend.

    The PTBA said that pursuant to the provisions of clause (103A) of Part I of the Second Schedule, any income derived from inter-corporate dividend was exempt for group companies entitled to group taxation under section 59AA or group relief under section 59B.

    The Finance Act, 2015 then added a condition, that such exemption would only be available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded entities entitled to group relief under section 59B from the exemption entirely.

    The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers of taxation on dividends issued by group entities.

    This resulted in corporate structures becoming inefficient due to multiple taxation of the same income, on mere distribution within the group, even though no value addition was taking place. This also led to substantial litigation from various groups.

    Although, to cater the above problem an exemption has been introduced via the Second Supplementary Act, 2019, it is imperative to note that the newly inserted clause provides a relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually been surrendered between the two entities and even then, only to the extent of the shareholding that the parent entity has in its subsidiary. In effect, this means that:-

    — since the provisions of section 59B require listing within a specified period, the relief would not be available to private groups unless they are willing to list;

    — the relief would be available only to the entities actually surrendering or receiving the losses, and not all companies within the entire corporate structure;

    — based on a literal interpretation, the holding company (i.e. the entity receiving the dividend) may not be able to claim the exemption if the losses under group relief are transferred from one subsidiary to another (i.e. between sister concerns);

    — since a company cannot surrender its losses for more than three years, this is not an indefinite relief; and

    — the benefit may practically be availed only in specific cases since a company, both receiving dividends and availing group relief in the same year, is normally only possible in structures where a holding company has several subsidiaries.

    Overall, this has significantly watered-down relief compared to the demands of the corporate sector, the benefit of which may likely be availed in very few cases that may comply with all the conditions.

    It is therefore recommended to exempt inter corporate dividends as it was used to be prior to the amendments brought about by the Finance Act, 2016.

  • FBR advised to restore tax credit to sales tax registered persons

    FBR advised to restore tax credit to sales tax registered persons

    KARACHI: Federal Board of Revenue (FBR) has been proposed to restore tax credit to sales tax registered persons for documentation of the economy.

    In its tax proposals for budget 2019/2020, the Pakistan Tax Bar Association (PTBA) said that the provisions of this section were applicable in case of sales made to the sales tax registered tax registered person.

    The tax credit of 3 percent of tax payable was available to the seller for sales being made to the registered persons, however to promote documentation and registration with tax authorities it was suggested that this incentives should also be made available on purchases from registered persons as well.

    “The government abolished this incentive available to the sellers instead of extending this credit to the purchasers as well,” the PTBA said.

    It recommended that the application of above tax credit of making 90 percent sales to sales tax registered persons be restored and also be extended to persons making 90 percent of purchases from persons registered under the Sales Tax Act, 1990.

    This change would enhance the number of sales tax registered person and documentation of the economy, the PTBA added.

  • PTBA urges benefits for taxpayers opting out of PTR

    PTBA urges benefits for taxpayers opting out of PTR

    KARACHI: Pakistan Tax Bar Association (PTBA) has urged the tax authorities to give benefits to persons opting out of presumptive tax regime (PTR).

    In its proposals for budget 2019/2020, the apex tax bar said that through Finance Act, 2012 positive steps were taken for opting out of presumptive tax regime in respect of sale of goods, import and export of goods, subject to certain conditions, which were highly appreciated.

    The Finance Act, 2014, however reversed the amendments and in place thereof inserted new clauses (56B), (56C), (56D), (56E), (56F) and (56G); whereby certain persons may opt out of the final tax regime by filing the return of income along with accounts and documents as may be prescribed subject to the condition that their minimum tax liability under normal tax regime shall not be less than the tax already collected/deducted at the applicable rates of the respective Sections.

    The Finance Act, 2014 also inserted certain new clauses on similar lines. Under these clauses, the option to opt out of the final tax regime was provided to a person who provides services of stitching, dying, printing, embroidery, washing, sizing and weaving to exporters or an export house.

    Furthermore, petrol pump operators and persons earning commission or brokerage are also provided with such an option.

    Under the new clauses introduced by the Finance Act, 2014, the tax liability of persons is higher than the tax liability they were required to pay under the initiative introduced vide the Finance Act, 2012.

    “Furthermore, it should be noted that as per the current position of the law, the taxpayers would, in practice, not obtain any financial benefit by opting out of the presumptive regime and would instead be required to face the additional burdens and risks of tax audits,” the tax bar said.

    The PTBA said that the options introduced by the Finance Act, 2012 should be reintroduced or alternatively, as a first step the corporate sector is given option to opt out from presumptive taxation.

    The proposed modification may help starting the journey to tax real income instead of taxation under the PTR reduces the additional burdens imposed on the corporate sector.

  • PTBA recommends retaining alternative corporate tax or minimum tax

    PTBA recommends retaining alternative corporate tax or minimum tax

    KARACHI: Pakistan Tax Bar Association (PTBA) has recommended the tax authorities to retain either Alternative Corporate Tax (ACT) or minimum tax, as existence of both regimes is inappropriate.

    (more…)
  • PTBA suggests 5-year policy for gradually reducing sales tax rate

    PTBA suggests 5-year policy for gradually reducing sales tax rate

    KARACHI: Pakistan Tax Bar Association (PTBA) has suggested gradually reduction of sales tax rate under five-year policy and for first year the sales tax rate should be brought down to 15 percent from next fiscal year.

    In its budget proposals for 2019/2020, the PTBA said that present rate of Sales Tax at 17 percent with 3 percent value addition tax on commercial importers is too high.

    It said that there is a narrow tax base due to the high rate which induces tax evasion, under invoicing, corruption and smuggling.

    The PTBA proposed that this year as a first step Sales Tax Rate may be brought down to 15 percent and five year policy may be announced for reduction of rate of tax by 1 percent every year.

    Moreover, same rate of value addition tax (i.e., 3 percent) may be levied on luxury goods which are expected to be sold at a higher value addition in the local market as compared to other goods.

    “Higher value addition tax should be levied on import of luxurious items such as cosmetics, shampoos, cars, etc.”

    It said that the proposed amendments would assist in the expansion of tax base, reduction in smuggling and corruption, rise in government revenues and increased competitive edge and promotion of documentation of economy.

    Furthermore, the reduced tax rate will encourage the unregistered persons to get themselves registered, resulting in broadening of tax base.

    Higher value addition tax on luxury goods will not only generate additional revenue but will discourage import and also support the local industry.