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  • Pakistan Business Council urges Sindh to reopen industries

    Pakistan Business Council urges Sindh to reopen industries

    KARACHI: Pakistan Business Council (PBC) has urged Sindh government to allow industries to reopen with surety of safety compliance to prevent coronavirus.

    In a letter to Sindh Chief Minister on Wednesday, PBC appreciated the proactive steps taken by your government to contain the spread of the Covid-19.

    No doubt countless lives have been saved. We also record our appreciation of the phased and safety driven manner in which your government has allowed economic activity to resume.

    Many of our members in food, pharmaceutical, iron and steel and export sectors in Sindh have demonstrated a heightened sense of responsibility to safe-work practices.

    There are anomalies between the sectors allowed to reopen by various provinces. These are working to the detriment of those with manufacturing facilities in Sindh.

    As a result, the Sindh based units are losing revenue and market share, whilst continuing to pay employees and incur fixed costs.

    A case in point is electronic appliance manufacturers which have been allowed to reopen in Punjab, whilst those in Sindh are still locked down.

    PBC advised the Sindh government to allow industries other than steel, cement and apparel to resume operations, conditional of course to compliance with the SOPs prescribed.

    Prolonged shutdown carries the risk of permanent closure of some undertakings and the consequent loss of jobs and revenue to the Government of Sindh.

    The Pakistan Business Council (PBC) is a private sector business policy advocacy forum composed of the largest businesses including multinationals operating in Pakistan.

    Its members contribute nearly 25 percent of the national tax revenue, generate 40 percent of annual exports and contribute every 9th rupee to Pakistan’s GDP.

    Members operate in nearly all sectors of the formal economy and many have a strong presence in Sindh.

  • PBC Advocates Abolishing Anti-Dumping Duty on Raw Material Used for Exports

    PBC Advocates Abolishing Anti-Dumping Duty on Raw Material Used for Exports

    KARACHI: Pakistan Business Council (PBC) has advocated abolishing anti-dumping duty on imported raw material that are used for export oriented units (EOU).

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  • FBR proposed to ensure CPR for deposited withholding tax

    FBR proposed to ensure CPR for deposited withholding tax

    KARACHI: Federal Board of Revenue (FBR) has been advised to ensure Computerized Payment Receipt (CPR) for deposited withholding tax in order to avert chances of revenue leakages.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, said that presently the taxpayer has to deposit the withholding tax deducted fortnightly, i.e. within seven days from the end of each week ending on every Sunday.

    In addition, certain WHT agent do not deposit on time and some agents do not deposit at all. This also includes agencies/govt. organizations in respect of withholding tax, where CPR is not provided hence revenue leakages to government in the absence of withholding tax deposit.

    On the other hand, where withholding tax is deducted by agencies/government organization, but do not provide system (IRIS) generated CPR as they do not enter in the system. Therefore assesse cannot get input benefit due to non-availability of CPR from IRIS system on account of withholding tax in spite of reminders.

    The PBC recommended that timeline of 7 to 13 days should be extended to one week after the month.

    Besides, IRIS system should be applicable for all with holding agent including agencies/government organizations and CPR in respect of withholding tax facing authority should be available from IRIS.

    This will help in ease of doing business and facilitate withholding tax agents.

    Furhter, the proposed amendment will help in controling revenue leakages as well as assesse can claim input tax properly.

    Thus neither it is loss to authority nor the assesse. In the absence of non-availability of CPR , this is an extra cost for doing business.

  • FBR advised to amend withholding tax on prize winnings

    FBR advised to amend withholding tax on prize winnings

    KARACHI: Federal Board of Revenue (FBR) has been advised to amend the income tax law related to withholding tax deduction on prize winnings.

    Pakistan Business Council (PBC) in its budget proposals for 2020/2021 submitted to the FBR said that under Section 156 of the Income Tax Ordinance, 2001 requires a company to deduct 20 percent tax on “prize offered by companies for promotion of sale”.

    The PBC suggested amended in the Section 156 that every person paying prize of prize bonds, or winning from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sale to end consumers, or cross-word puzzle shall deduct tax.

    The PBC said that the clear intention of this section is to capture tax through withholding at source from persons who are recipients of these prizes or winnings; the intention is not to tax any person who belongs to the supply chain of the companies who offer prize for promotion of sales.

    The income of the supply chain i.e. dealers, distributors is subjected to withholding tax in the shape of withholding taxes imposed under separate withholding regimes.

    It is therefore suggested that to clear any ambiguity in law regarding application of this section, it may be amended to add the term “end consumers” to oust any person in the supply chain from the ambit of this section.

  • FBR advised to make annexure-J mandatory to prevent under reporting

    FBR advised to make annexure-J mandatory to prevent under reporting

    KARACHI: Federal Board of Revenue (FBR) has been advised to make it mandatory the filing annexure-J along with monthly sales tax returns in order to remove disparity between formal and informal sectors.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, said that currently only certain persons as defined under Rule 14 to Sales Tax Rules, 2002 are required to file annexure J.

    Annexure J requires taxpayers to file details of stock in hand in terms of value as well as quantity.

    Other taxpayers are encouraged to file the same but there is no mandatory requirement as per applicable laws to file the same.

    “It is feared that registered taxpayers are under reporting or suppressing their actual sales to escape the sales tax charge as currently there is no mechanism to report the details of stock (Raw material, WIP, and Finished Goods).

    The PBC proposed to make it mandatory for all the taxpayers to file Annexure J along with their monthly sales tax return in order to ensure that sales are not suppressed or made without charging proper sales tax.

    It said that the proposed mandatory requirement would help in removing disparity between formal and informal sectors.

  • FBR urged to clarify income tax relief to group companies

    FBR urged to clarify income tax relief to group companies

    KARACHI: Federal Board of Revenue (FBR) has been urged to clarify group relief under income tax laws regarding a holding company can purchase losses of its subsidiary.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, stated that as per Section 59B of the Income Tax Ordinance, 2001, a holding company can purchase the loss of its subsidiary provided there is continued ownership of five years as mentioned in sub-section 2 of Section 59B.

    The PBC said that this subsection 2 of Section 59B has already been misinterpreted by the tax department in various companies that purchase of loss by the holding company is allowed in the sixth year i.e. after the end of continued ownership of five years.

    “Practically speaking, subsidiary companies mostly incur losses in the initial years of establishment due to huge amount of depreciation / initial allowance on new setup (plant & machinery, etc.) and mostly no losses incurred after a period of 5 years (i.e. in the sixth year).”

    Taking the approach used by the tax authorities, practically speaking, none of the holding company would be able to claim losses of its subsidiary.

    Therefore, the PBC suggested following amendment to Income Tax Ordinance:

    At the end of sub-section 2 of Section 59B, an explanation be added as below:

    “Explanation: For the removal of doubt, it is clarified that the holding company can adjust the losses of its subsidiary during the aforesaid period of 5 years.”

    The PBC said that the propose amendment would promote consolidation of businesses.

  • Various tax laws discouraging investment: PBC

    Various tax laws discouraging investment: PBC

    KARACHI: Pakistan Business Council (PBC) has detected that various tax laws are discouraging investment in the country. The council recommended measures for promoting industrialization, growth and job creation.

    The PBC in proposals for budget 2020/2021 said that at present, new local/foreign investors are reluctant to invest in manufacturing industry of Pakistan due to various impediments including collection of sales tax (10 percent upfront plus 3 percent minimum value addition plus 7 percent Postdated cheques) and income tax 5.5 percent at import of plant and machinery/ spare parts in addition to various other taxes and levies thereafter.

    The PBC proposed new entry number 1(viii) be inserted in column number 2 of the Table specifying rate of tax at import stage as given in Part-II of the 1st Schedule to the Income Tax Ordinance, 2001 as follows:

    “(viii) industrial undertakings importing Plant and Machinery and spare parts”

    The PBC further said that the current rate of minimum tax is 1.5 percent, this tax on turnover is impacting the sustainability of industries especially in the light of current crises.

    The provision under which the minimum turnover tax is charged, both for manufacturing and services sectors should be suspended for at least the next two financial years.

    As income of SEZ entity (Zone Enterprise or operator) is exempt from income tax for a period of 10 years, there should not be any withholding of Income tax at source at any stage for Zone Enterprises and under any provisions of ITO till such time exemption is available to the Zone Enterprise.

    However currently exemption is not granted under Income Tax Ordinance, 2001 Section 113, 147, 148, 153, 236K, 236W etc., from collection of income tax.

    Since income of Zone enterprise is exempt from income tax under clause 126E, it is proposed that exemption be granted to Zone enterprises and operators from all withholding and tax collection provisions as these will lead to refunds.

    The PBC recommended necessary insertion be made in clause 11A of Part IV of the Fourth schedule to the Income Tax Ordinance to exempt Zone operator and Entity from minimum tax under section 113.

    Import of raw material by Export Oriented sector is subject to income tax withholding of 1 percent whereas on the other hand, import of Plant & Machinery by these sectors is subject to 5.5 percent income tax withholding.

    Entry no. 1(iv) in column number 2 of the Table specifying rate of tax at import stage as given in Part-II of the 1st Schedule to the Income Tax Ordinance, 2001 be amended as follows:

    “Manufacturers covered under Notification No. S.R.O. 1125(I)/2011 dated the 31st December, 2011 and importing items covered under S.R.O. 1125(I)/2011 dated the 31st December, 2011, Plant & Machinery and Spare parts;”

    Greenfield Industries –

    Through the Tax Laws (Second Amendment) Ordinance, 2019, the term Greenfield industries has been defined in the Income Tax and Sales Tax laws to make it identical to “Pioneer Industry”.

    Therefore it is recommended: “Delete condition no. “(iv)” of the definition of Greenfield industry to make it distinct from Pioneer industry, otherwise the purpose of growth through investment would not be achieved.”

  • Exemption from withholding tax at import stage suggested

    Exemption from withholding tax at import stage suggested

    KARACHI: Pakistan Business Council (PBC) has suggested the tax authorities to exempt withholding tax at import stage for avoiding generation of tax refunds and expansion of industry.

    In its proposals for budget 2020/2021, the PBC recommended exemption from collection of withholding tax under section 148 at import stage and exemption for manufacturing concerns under Section 153.

    It said that procedures and rules for obtaining exemption certificates for import of plant and machinery and raw material by tax payers have serious restrictions, which causes hardship.

    Corporate manufacturing sector should be excluded from the purview of income tax withholding at import stage under section 148 as well as from tax deduction on local supply under section 153.

    Similar exemption is already given to the greenfield industries through the Finance Supplementary Second Amendment Act 2019 announced in March 2019.

    The same exemption, however, is not available, for the brownfield expansion.

    Moreover, all the companies engaged in manufacturing should be exempt from withholding of tax under section 153.

    Similar exemption is available for Sales Tax in the Sales Tax Special Procedure (Withholding) Rules, 2007 via SRO 586 dated July 1, 2017.

    Alternatively, issuance of exemption certificate from withholding under sections 148 and 153 should automatically trigger on the FBR portal based on payment of quarterly advance tax under section 147 to avoid harassment of genuine taxpayers.

    This will enable taxpayers to avoid creating huge tax refunds and focus on more expansion.

    This would increase the investments for brownfield capacity expansion as well and would provide a meaningful relief (similar to greenfield expansion) with regard to BMR and extension / expansion. Further, it will also attract foreign direct investment in the form of new expansion ventures as well as partnerships and hence will also result in export growth.

  • Misuse of Afghan transit trade should be checked

    Misuse of Afghan transit trade should be checked

    KARACHI: Smuggling through Afghan Transit Trade has always been the biggest threat for economic growth and hardly any sector has been left untouched by this menace.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 said that smuggled goods through the borders of Afghanistan, Iran China, India and the Afghan Transit Trade form a chunk of the informal economy, volume of which ranges between 50 to 60 percent of the formal economy.

    It is costing the national exchequer in billions. Markets across the country are flooded with smuggled goods and local industries are struggling for survival as smuggled goods are not only easily available everywhere but are also attracting the buyers who prefer foreign merchandise Goods moving under ATT from Pakistan to Afghanistan should be charged with duties and taxes under the Pakistani laws and the same should be transferred to Afghan Government.

    Secondly, the duties/taxes so paid should be deposited with State Bank in USD.

    A quantitative restriction should be applied on goods moving under ATT on the basis of consumption.

    Allow industry to fairly compete with unscrupulous imports, Government to benefit from increased revenue.

  • Withholding tax rate should be increased for immovable property purchase by non-filer

    Withholding tax rate should be increased for immovable property purchase by non-filer

    KARACHI: The withholding tax rate should be enhanced to 10 percent for non-filer purchaser of immovable property in the budget 2020/2021.

    Pakistan Business Council (PBC) in its budget proposals 2020/2021 recommended to increase the rate of withholding tax for unregistered and non-filers of income tax returns.

    The PBC recommended that advance income tax is collected on sales of immovable property under section 236C, which is 1 percent for both filers and non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more.

    The PBC said that the concept of separate withholding tax rates for filers & non-filers was introduced as a measure for increasing documentation of the economy.

    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.

    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:

    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 5 percent to 20 percent.

    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. 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 @ 30 percent (from existing 12 percent) on their utility bills. Those with NTN but non-filer status be charged at 20 percent WHT.

    f) Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs.1.2 million per year or levy advance income tax withholding of 20 percent.

    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.

    h) Withholding tax on International business class tickets under section 236L is same Rs. 16,000 for filer and non-filer, it should be increased to Rs. 50,000 for non-filers.

    i) Withholding tax @ 5 percent or Rs. 20,000, whichever is higher, is applicable under section 236D on all functions organized by filers as well as nonfilers. Rate of withholding be increased for non-filers to Rs. 100,000 as minimum and no WHT from filer.

    j) Function halls withholding tax on electric bills should be 30 percent which can be adjusted against tax liability by providing proof of tax deducted from their customers.

    k) Withholding income tax on interest income u/s 151 is 15 percent for filer and 30 percent for non-filer. Rate should be increased to 50 percent for non-filers in case interest income is more than Rs.2,000,000/-

    l) Annual private motor vehicle tax u/s 234 for non-filers is Rs. 9,000 for 1600cc-1999cc and Rs. 20,000 for 2000 cc and above. Rate for non-filers should be increased to Rs. 50,000 for 1600cc-1999cc and Rs. 200,000 for 2000 cc and above

    m) Advance income tax is collected on sales of immovable property under section 236C, which is 1 percent for both filers and non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more

    n) 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:

    o) Rs. 500,000 per year for 800 yards or more but less than 1800 yards

    p) Rs. 1 million per year for 1800 yards and above.