KARACHI: officials in the Federal Board of Revenue (FBR) have said that through Tax Laws (Second Amendment) Ordinance, 2021 various clauses of Second Schedule of Income Tax Ordinance, 2001 have been deleted that have allowed tax exemptions from total income.
(more…)Tag: Tax Laws (Second Amendment) Ordinance 2021
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Minimum penalty of Rs10,000 fixed for defaulting withholding statement
KARACHI: A minimum penalty of Rs10,000 has been fixed for defaulting withholding statement where no tax is required to be deposited.
Official at the Federal Board of Revenue (FBR) said that the amendment has been brought into Section 182 of Income Tax Ordinance, 2001 through Tax Laws (Second Amendment) Ordinance, 2021.
Chartered Accountants said that prior to the amendment following penalties are prescribed for non-filing of statements under sections 165, 165A or 165B within due date:
a) Rs. 5,000 where the person has deposited the tax withheld within due date and the statement is filed within 90 days;
b) In all other cases, Rs. 2,500 for each day of default with a minimum penalty of Rs. 10,000.
However, a new proviso has been inserted whereby minimum penalty has been prescribed at Rs. 10,000 in cases where there is no tax withholding to be deposited in a particular period.
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Penalty amount for late return filing reduced up to 75 percent
KARACHI: Penalty amount for late return filing has been reduced up to 75 percent in order to encourage people to make compliance of mandatory filing of declaration of income.
Sources in the Federal Board of Revenue (FBR) said that the reduction in penalty amount has been made part of the Income Tax Ordinance, 2001 and amendments have been introduced through Tax Laws (Second Amendment) Ordinance, 2021.
They said that the penalty amount will be reduced by 75 percent in case tax return is filed within one month after the due date for filing income tax return.
According to a commentary on Tax Laws (Second Amendment) Ordinance, 2021 released by PwC A. F. Ferguson & Co. the law prescribes penalty for non-filing of return of income within due date as under:
a) 0.1 per cent of tax payable for the tax year under consideration for each day of default, subject to minimum penalty of Rs. 40,000 and maximum penalty up to 50 per cent of the tax payable for the tax year under consideration;
b) In case, 75 per cent of the income is from salary, and the same is less than Rs. 5 million, minimum penalty is Rs. 5,000
However, two new provisos have been added whereby:
a) Minimum penalty has been prescribed at Rs. 5,000 if taxable income for the year is up to Rs. 800,000; and
b) Amount of penalty is reduced by:
75 per cent if the return of income is filed within one month of the due date;
50 per cent if the return of income is filed within two months of the due date;
25 per cent if the return of income is filed within three months of the due date.
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100pc tax credit allowed with mandatory return filing
KARACHI: The tax exemption regime transposed into tax credit regime and certain businesses have been allowed 100 percent tax credit with mandatory requirement of income tax return filing.
Chartered Accountants at PwC A. F. Ferguson & Co. in a commentary on Tax Laws (Second Amendment) Ordinance, 2021 said that income / profits and gains of the following persons were exempt from tax under Part I of the Second Schedule to the Ordinance:
(i) persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects – clause (132B);
(ii) a startup (as defined in section 2(62A) of the Ordinance) for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years – clause (143); and
(iii) persons deriving income from exports of computer software or IT services or IT enabled services (as defined) up to the period ending on June 30, 2025; provided that 80 percent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels- clause (133).
Through the Amendment Ordinance, the exemptions have been transposed into tax credit regime whereby the aforementioned persons shall be allowed a tax credit equal to 100 percent of the tax payable including minimum and final taxes for the period upon fulfillment of the following conditions:
(a) return has been filed;
(b) tax required to be deducted or collected has been deducted or collected and paid;
(c) withholding tax statements for the immediately preceding tax year have been filed; and
(d) sales tax returns for the tax periods corresponding to relevant tax year have been filed.
They said that it has also been provided that the benefit contained in this newly inserted section shall not preclude the aforesaid persons’ case from audit selection by the Federal Board of Revenue (FBR) or the Commissioner Inland Revenue.
Since these taxpayers are now allowed 100 percent tax credit against tax payable (including minimum tax), tax exemption presently available to them (under Part I of the Second Schedule) has been withdrawn whereas relevant clauses for exemption from turnover tax of section 113(provided under Part IV of the Second Schedule) though not withdrawn have effectively become redundant.
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Transposition of exemption into tax credit to create complications
KARACHI: The immediate withdrawal of tax exemptions to certain business into tax credit regime may create complications for taxpayers in the income year.
In a commentary on Tax Laws (Second Amendment) Ordinance, 2021, chartered accountants at PwC A. F. Ferguson & Co. said since the amendment ordinance has been enforced with immediate effect, businesses which have been transposed from exemption to tax credit regime would have to account for such change during the income year.
“This would create multiple complications. Such complication would also arise for the other exemptions withdrawn/ amended with immediate effect,” they said.
The Federal Board of Revenue (FBR) is expected to issue clarification on this matter. It is also expected that when Amendment Ordinance would be made part of forthcoming finance bill, all the amendments proposed through the Amendment Ordinance, with appropriate changes, would be suitably placed and accounted for to make these amendments effective from July 1, 2021.
The chartered accountants said that the concept of tax credit regime was introduced few years back whereby blanket tax exemptions are codified into a tax credit regime subject to fulfilment of certain conditions.
The change in regime in effect means that taxable income and tax liability (which is not computed under the exemption regime) is computed under the tax credit regime, against which full or partial credits are allowed.
The tax credit regime provides a more transparent mechanism for allowing tax break. However, certain enabling amendments are required to be made to make tax credit regime more effective (e.g., provisions which allow issuance of exemption certificate do not account for or treat tax credit regime equivalent to tax exemption regime as a result of which those who avail tax credit regimes suffer tax withholdings which is eventually refundable).
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FBR urged to restore tax exemption for inter corporate dividends
KARACHI: Federal Board of Revenue (FBR) has been urged to restore tax exemption for inter corporate dividends, which has been abolished through Tax Laws (Second Amendment) Ordinance, 2021.
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Key changes made through Tax Laws (Second Amendment) Ordinance, 2021
KARACHI: The federal government recently introduced amendments to Income Tax Ordinance, 2001 through a presidential ordinance namely Tax Laws (Second Amendment) Ordinance, 2021.
According to a chartered accountant firms following are the key changes made through the Amendment Ordinance:
(1) Exemption for inter corporate dividend for those group structures which are eligible for group relief has been withdrawn. This amendment needs to be reconsidered in view of the overall framework and policy for promoting group / holding company structures.
(2) Donations eligible for direct deduction from income has been transposed into tax credit regime. As a result of that, overall upper limit for tax break for the donors, in respect of charitable donations, has been reduced.
(3) Tax credit regime for the NPOs has been further simplified and clarified. Certain religious and welfare organisations and international NGOs are allowed to avail tax credit regime subject to registration under the relevant laws and regulations.
(4) Tax exemptions of following businesses have been transposed into full / partial tax credit regime, resulting that these businesses can now avail tax breaks subject to certain compliances:
(i) coal mining projects of Sindh
(ii) startup businesses certified by Pakistan software board
(iii) export of software, IT and IT enabled services.
(iv) greenfield projects / ship building
(v) undertakings engaged in manufacturing of plant and machinery with dedicated use of generation of renewable energy.
Appropriate amendments are required to be made in the relevant provisions and SROs so that those eligible for tax credit regimes are issued exemption certificates and they do not suffer tax Withholdings which are eventually refundable.
(5) Tax credit for enlistment of a company on stock exchange has been withdrawn.
(6) Certain penalty provisions have been rationalised.
(7) Number of tax exemptions and concessions in the Second Schedule have been withdrawn, some of which were either person-specific or were timebound whereas some of the exemptions/ concessions have been transposed into tax credit regime. Major businesses affected by withdrawal of exemptions / concessions include Modarabas, LNG terminal owners & operators, services/contracts rendered/executed outside Pakistan and those IPPs who will enter into agreement or to whom letter of intent will be issued for setting up of power generation project on or after July 1, 2021.
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FBR issues list of non-profit organizations eligible for tax credit
ISLAMABAD: Federal Board of Revenue (FBR) has restricted the benefit of tax concession to 62 non-profit organizations (NPOs) under Tax Laws (Second Amendment) Ordinance, 2021.
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Tax exemption withdrawal ahead budget to adversely affect trade, industry
KARACHI: The apex trade body of the country has expressed reservations over withdrawal of tax exemptions ahead of federal budget 2021/2022 and said that it will adversely affect trade and industry.
Mian Nasser Hyatt Maggo, President of Federation of Pakistan Chambers of Commerce and industry (FPCCI) in a statement on Sunday said that under the prevalent difficult condition of COVID-19, the pre-budget withdrawal of number of exemptions will affect trade and industry negatively, which is based on planning of fiscal based promised position for year up to June-2021.
“Such non predictability is against the sustainable growth of business economy and encroaches upon ease of doing business,” he said.
He was referring to the Tax Laws (Second Amendment) Ordinance, 2021 dated March 24, 2021.
While expressing concerns over the amendments before budget, he said that FPCCI has already suggested that the amendment should be made only with prior consultations with, to be affected stakeholders with sufficient time space to prepare the future plan of the left out period up to June-2021.
The outcome of consultations of both public and private sector may have otherwise trimmed the contents of the ordinance in the business economy interest, equally important for government in terms of goodwill and believe in consultations with private sector.
He further said that the business sector is already facing tight restrictions as per IMF program conditionality, much being agreed amongst stakeholders as originating implementation directions concurred by public sector without any reference to the negotiations with private sector.
The amendments were introduced through the Tax Laws Amendment Ordinance, 2021 issued through presidential Ordinance to amend 76 corporate income tax exemptions and allow tax credit facility from March 24, 2021.
The tax credit facility has been extended to industrial undertakings; charitable organizations and IT export services. Under the Ordinance, 100 percent tax credit would be allowed to the IT services or IT-enabled services after fulfillment of certain conditions including the filing of returns/withholding tax statements.
President FPCCI further stated that withdrawal of exemptions in lieu of extending credit facilities is a measure which gauges the poor performance of FBR up till now and hence the collection targets are finding the only priority and it appears that FBR is running on a bad doctrine that more tax collection will improve the growth of economy, to which we disagree in absolute terms.
President FPCCI Mian Nasser Hyatt Maggo also said that the newly promulgated Ordinance 2021 is also limiting the charitable activities by allowing restricted number of such institutions and placed them under newly introduced 13th schedule for Section 61 of the Income Tax Ordinance.
President FPCCI said that we are not following the successful tax models which are based on reducing the tax rates and extending the facilities to be affecting the increase in tax collections, rightly agreed by the apex body that Laffer curve will result in maximum tax revenue for government by cutting taxes in certain circumstances that would allow governments to cut the taxes and simultaneously increase revenue and economic growth.
President FPCCI said that public sector negotiating with IMF in exclusion of participation of apex body representing private sector trade, industry and service sector is dictatorial impositions of decisions negatively affecting the business and its growth for reducing the fiscal deficits, a prime objective we believe is being asked for by IMF.
He further said that country like US during the period of Ronald Reagan, 40th US President, the tax cuts resulted in doubling the tax from USD 500 Billion to Dollar 01 Trillion. The Georgian politicians and businessmen together in the reforms reduce the number of taxes to 1/3rd and reduce the national tax burden to quarter of a GDP resulted in doubling the percentage of taxes from 13 percent to 25 percent of GDP.
He further said that the case of India is no exemption wherein single GST increase the GST registrations by almost 100 percent.
“We are not learning any lesson from the available examples of tax reforms and what we are marching towards is to hide our inefficiencies in tax administration by withdrawing the exemptions, imposing RDs, ACDs and taking all the measures which has made the whole taxation structure full of the anomalies,” he said, adding that the government should think about that if either the economy will generate taxes or imposition of increase in taxes will generate growth of the economy.
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Exchange companies to pay 0.6pc withholding tax on cash withdrawal
ISLAMABAD: The concessionary rate of tax allowed to exchange companies on cash withdrawal has been linked to active taxpayers list. The amendment has been brought through Tax Laws (Second Amendment) Ordinance, 2021, officials in Federal Board of Revenue (FBR) said.
The rate of tax is 0.15 percent under section 231A on cash withdrawal by an exchange company, duly licensed and authorized by the State Bank of Pakistan, exclusively dedicated for its authorized business-related transactions, subject to the condition that a certificate issued by the concerned Commissioner Inland Revenue for a financial year mentioning details and particulars of its Bank Account being used entirely for business transactions is provided.
Now, tax at rate of 0 percent will be charged 0.6 percent if the exchange company is not on active taxpayers list.