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.
READ MORE: PSX demands slashing CGT rates on disposal of shares
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.”
READ MORE: PSX demands slashing CGT rates on disposal of shares
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
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FBR suggested reduce corporate tax rate for listed companies
KARACHI: Pakistan Business Council (PBC) has suggested the Federal Board of Revenue (FBR) to lower the corporate tax rates, especially for listed companies.
The PBC in its proposals for budget 2022/2023 recommended reduction in corporate tax rate to 20 per cent.
READ MORE: Tax cut suggested on dividend paid by exempt entities
The council in its proposals for reducing the cost of doing business in Pakistan, said all companies except banking companies and companies defined in section 2 of Income Tax Ordinance, 2001 are subject to be taxed at 29 per cent on taxable income
It recommended that the rate of income tax on companies should be gradually reduced to 20 per cent to align with the taxation rate of other countries in the region.
READ MORE: PBC suggests reducing further tax to stop flying invoices
Listed companies should be given the first benefit of the lower taxation rates as compared to other companies to further encourage transparency and documentation.
The PBC said that through section 113C of Income Tax Ordinance, 2001 Alternate Corporate Tax (ACT) was imposed on companies at the rate of 17 per cent on accounting profits.
READ MORE: Commercial importers misusing tax registration
It recommended that Section 113C should be abolished as there is already minimum tax on goods and services
The council further said that currently under Section 154(3B) of the Ordinance, every direct exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub -Chapter 7 of Chapter XII of the Customs Rules, 2001 shall, at the time of making payment for a firm contract to an indirect exporter shall deduct tax at 1 per cent of the payment made.
READ MORE: FBR urged to massively reduce tax rates for return filers
“This 1 per cent tax deduction shall be considered as final tax on the income of the indirect exporter. This clause should be extended to all exporters under various schemes like EFS, EOU etc. to remove differential treatment under various export schemes,” it recommended.
The Commissioner has been empowered to modify the withholding tax recovery order, companies would thus be required to maintain records and details for an indefinite period of time. Failure to provide such records could be used as a tool by the tax authorities to create undue tax demands in order to achieve their revenue targets.
READ MORE: FBR urged to make Google pin location must for retailers
Sub-section (3) of Section 161 should be omitted for avoiding record retention for unlimited period. The limitation of time be provided under the law for initiating and concluding the monitoring of withholding tax proceedings, like those for non-monitoring proceedings which is also important for harmonization.
Section 15A(1)(h) of Income Tax Ordinance 2001. As per Finance Act 2020, deductibility of administrative collection charges has been restricted to 4 per cent of revenue as compared to 6 per cent previously.
Renting of property is also a business and various administrative and collection charges are incurred which normally exceed even the 6 per cent threshold.
The allowable threshold should be allowed on actual basis as is the case in other sources of income or at the very least be restored to 6 per cent of gross rental revenue
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Tax cut suggested on dividend paid by exempt entities
KARACHI: Federal Board of Revenue (FBR) has been urged to reduce rate of income tax on dividend from exempt entities as the higher rate of dividend effectively withdraws the benefit of exemption.
Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to the FBR, urged to reduce the dividend tax to 15 per cent on dividend received from exempt entities.
READ MORE: PBC suggests reducing further tax to stop flying invoices
It said that tax of 25 per cent on dividends from exempt entities introduced via Finance Act 2019 (Division III of Part I of First Schedule) of the Income Tax Ordinance, 2001.
Through Finance Act 2019, rates of dividend taxation have been increased from 15 per cent to 25 per cent on dividends paid by entities whose income is exempt under the Income Tax Ordinance 2001.
READ MORE: Commercial importers misusing tax registration
The higher rate of dividend in such cases effectively withdraws the benefit of exemption or concession intended to be provided e.g., if Government intends to provide concession to SEZ than while providing corporate tax exemption at one end, higher tax incidence on its dividend reduces the benefit at other end.
Exemptions are associated with some economic objective and higher dividend rate will discourage such economic objectives, the PBC said.
READ MORE: FBR urged to massively reduce tax rates for return filers
It recommended that Clause (a) of Division III of Part I of First Schedule of Income Tax Ordinance, 2001 as applicable before Finance Act 2019, should be reinstated, to apply the rate of 15 per cent on dividend received from exempt entities.
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.
READ MORE: FBR urged to make Google pin location must for retailers
Earlier, the PBC recommended to reduce the further sales tax to one per cent in order to discourage flying invoices. The PBC said that at present, general rate of sales tax is 17 per cent and another 3 per cent further tax is also applicable incase supplies are made to unregistered persons.
The council said that further tax at 3 per cent incentivizes issuance of flying invoices by unscrupulous persons. In order to discourage issuance of flying invoices and to encourage proper reporting of sales, rate of further tax should be reduced down to 1 per cent or to maximum 1.5 per cent.
The PBC made this recommendation to document the economy and providing a level playing field for the formal sector.
READ MORE: FBR’s database mining suggested for new taxpayers
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PBC suggests reducing further tax to stop flying invoices
KARACHI: Pakistan Business Council (PBC) has recommended to reduce the further sales tax to one per cent in order to discourage flying invoices.
The PBC in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) recommended reduction in further tax to address the issue of flying invoices.
READ MORE: Commercial importers misusing tax registration
The PBC said that at present, general rate of sales tax is 17 per cent and another 3 per cent further tax is also applicable incase supplies are made to unregistered persons.
The council said that further tax at 3 per cent incentivizes issuance of flying invoices by unscrupulous persons. In order to discourage issuance of flying invoices and to encourage proper reporting of sales, rate of further tax should be reduced down to 1 per cent or to maximum 1.5 per cent.
READ MORE: FBR urged to massively reduce tax rates for return filers
The PBC made this recommendation to document the economy and providing a level playing field for the formal sector.
Earlier, the PBC suggested measures for preventing misuse of POS by importers who use fake registration profile of retailer.
In order to avail / misuse reduced rate of sales tax at 12 per cent on supplies of textile (which is available on supply of finished textile article through integrated POS system for retail outlets), some unscrupulous persons, after importing raw materials get tolling bills issued in their name from other manufacturers.
READ MORE: FBR urged to make Google pin location must for retailers
Thereafter, such imported raw material is being sold as finished textile article through POS integrated with FBR system to avail reduced sales tax rate of 12 per cent.
FBR, view notification dated January 4, 2022 has already clarified that bulk supply through POS is tantamount to be treated as wholesale and hence would be chargeable to standard rate of 17 per cent sales tax.
READ MORE: FBR’s database mining suggested for new taxpayers
To prevent this unscrupulous practice, the following should be made mandatory for entities whose imports are over 70 per cent of their output and who have a POS facility:
a) Should declare the number of their retail shops and
b) Provide the square ft. retail space, detailed address, and Google pin location of all the retail stores
c) Report per shop per month sales volume and invoices along with the monthly sales tax return.
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FBR urged to make Google pin location must for retailers
KARACHI: The Federal Board of Revenue (FBR) has been urged to make Google pin location mandatory for Tier-1 retailers to stop misusing sales tax registration for point of sales (POS).
Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to the FBR proposed to make Google pin location for Tier-1 retailers.
READ MORE: Commercial importers misusing tax registration
The PBC suggested measures for preventing misuse of POS by importers who use fake registration profile of retailer.
In order to avail / misuse reduced rate of sales tax at 12 per cent on supplies of textile (which is available on supply of finished textile article through integrated POS system for retail outlets), some unscrupulous persons, after importing raw materials get tolling bills issued in their name from other manufacturers.
Thereafter, such imported raw material is being sold as finished textile article through POS integrated with FBR system to avail reduced sales tax rate of 12 per cent.
READ MORE: FBR urged to massively reduce tax rates for return filers
FBR, view notification dated January 4, 2022 has already clarified that bulk supply through POS is tantamount to be treated as wholesale and hence would be chargeable to standard rate of 17 per cent sales tax.
To prevent this unscrupulous practice, the following should be made mandatory for entities whose imports are over 70 per cent of their output and who have a POS facility:
a) Should declare the number of their retail shops and
b) Provide the square ft. retail space, detailed address, and Google pin location of all the retail stores
c) Report per shop per month sales volume and invoices along with the monthly sales tax return.
READ MORE: Commercial importers’ under invoicing destroying industry
Earlier, the PBC also highlighted practice of commercial importers misusing tax registration to avail lower rates.
Considering the fact that most of the commercial importers have been misusing the lower rate of tax otherwise available to manufacturers, therefore, FBR has reduced down the rate of tax at import stage to 1 per cent/2 per cent/5.5 per cent [on the basis of HS codes] for manufacturers as well as commercial importers.
READ MORE: FBR’s database mining suggested for new taxpayers
However, instead of making rate of tax at par for both commercial importers and manufacturers, PBC recommends to place system-based controls to track those commercial importers involved in under invoicing and importing under the garb of registration as manufacturers.
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Commercial importers misusing tax registration
KARACHI: The Pakistan Business Council (PBC) has alleged that commercial importers are misusing registration as manufacturers to avail reduced tax rates on imports.
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