The Federal Board of Revenue (FBR) has introduced new penalty regime introduced for non-filing tax returns in order to encourage documentation.
(more…)Tag: Tax Laws (Third Amendment) Ordinance 2021
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NADRA’s computation to be treated as assessment: FBR
ISLAMABAD: Federal Board of Revenue (FBR) has said that computation of income and assets prepared by the National Database Registration Authority (NADRA) shall be treated as assessment.
The FBR in explanation to Tax Laws (Third Amendment) Ordinance, 2021 said that a new section 175B has been inserted in the Income Tax Ordinance, 2001 aiming to broaden the tax base through collaboration between NADRA and FBR.
Sub-section (1) of section 175B mandates NADRA to share its records or any other information available or held by it, on its own motion or upon application by the Board.
Sub-section (2) thereof allows NADRA to compute indicative income and tax liability on the basis of various expenses, receipts, assets, properties and liabilities etc. using artificial intelligence, mathematical or statistical modeling or any modern methods.
The FBR may forward such information to the concerned tax authorities having jurisdiction in connection to the subject matter relating to the information, who may utilize the information for the purpose of levy of tax.
The indicative income and tax liability shall be communicated to the person to whom it relates. Such person shall have the option to pay tax as prescribed. In case of failure to pay such liability within stipulated
timeframe, the tax authority shall take action under the provisions of the Ordinance on the basis of the Indicative Income so computed.
If the person against whom the liability has been determined under sub-section (4) of the newly inserted section pays such liability, such payment shall be construed to be an amended assessment order under section 120 or 122(1) or 122(4) as the case may be.
Board is also vested with the powers to make rules for the purposes of subsections (4) and (5) to prescribe the extent of installments, and any relief regarding the penalty and default surcharge, and time limits.
To provide an enabling environment for the joint mechanism the restrictions on provision of information in terms of section 198 have been done away with and the said section is now omitted.
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Non-filers get ready for suspension of phone, gas, power
The Federal Board of Revenue (FBR) in Pakistan has issued a stern warning to individuals who failed to file their annual tax returns by September 30, 2021.
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FBR not to ask source of remittances sent through ECs
ISLAMABAD: Federal Board of Revenue (FBR) on Thursday said that tax authorities will not ask source of foreign exchange not exceeding Rs5 million remitted through exchange companies (ECs) or money transfer operators.
The FBR issued explanation to the Tax Laws (Third Amendment) Ordinance, 2021. The revenue body said Section 111(4) of Income Tax Ordinance, 2001 provides exclusion from unexplained income or assets to any amount of foreign exchange remitted from outside Pakistan through normal banking channels not exceeding Rs5 million en-cashed into rupees by a scheduled bank.
The amendment through insertion of an explanation has now also treated remittances through Money Service Bureaus (MCBs), Exchange Companies (ECs) and Money Transfer Operators (MT0s) or other similar entities as foreign exchange remitted from outside Pakistan through normal Banking channels.
After a formal clarification from SBP, Circular No. 05 of 2022 was issued by the Board.
Through this amendment the FBR’s clarification has now been made part of legislation to facilitate foreign remittance and align the law with innovations that have taken place in the banking industry.
Through the Circular No. 05 of 2022, the FBR has withdrawn all the appeals pertaining to income tax exemption on inward foreign remittances.
“In order to win the trust of the taxpayers and spare the public resources for more productive use elsewhere, all departmental appeals filed on the strict sensu interpretation of the law, be withdrawn immediately, and no further appeals be filed if one all fours of this clarification,” according to the circular.
Further, all circulars and instructions issued on the matter previously issued stand rescinded, the FBR added.
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Tax laws amended to include digital payment
ISLAMABAD: Federal Board of Revenue (FBR) on Thursday said that tax law has been amended to include mode of digital payment.
To improve documentation, a new clause (la) has been inserted through Tax Laws (Third Amendment) Ordinance, 2021 in section 21 of the Income Tax Ordinance, 2001.
Previously payments under a single head account exceeding two hundred and fifty thousand rupees, made by any taxpayer were required to be made through crossed cheque or crossed baking instruments including digital payments.
Through this amendment, payments made by a company under a single head of account exceeding two hundred and fifty thousand rupees other than by digital means from business bank account of the taxpayer notified to the Commissioner under section 114A of the Ordinance shall not be admissible as deductions.
However, certain expenditures on account of utility bills, freight charges, travel fare, and payment of taxes and fines would continue to be admissible even though paid in cash or via traditional banking instruments.
The purpose behind this legislative enactment is to encourage digital payments and discourage traditional mode of transactions by the corporate sector in the first phase. However, owing to lack of total digital readiness by some corporate taxpayers, the corporate taxpayers are allowed to switch to this mode w.e.f. November 01, 2021.
In the intervening period they may use digital payments or continue with the existing procedure of making payments by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer.
The FBR further said that currently, any salary paid or payable exceeding twenty five thousand rupees per month has to be made through cross cheque or direct transfer of funds to the employee’s bank account under clause (m) of section 21 of the Ordinance.
In order to bring this provision in conformity with newly inserted clause (la) ibid, in case of payments against salary in excess of twenty five thousand rupees per month, the mode of digital payment has been added to the available modes referred to above.
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Revised taxation for banks applicable January 01, 2021
ISLAMABAD: The Federal Board of Revenue (FBR) has revised taxation for banks from tax year 2022 (starting from January 01, 2021, to December 31, 2021) onwards.
An important amendment has been introduced through Tax Laws (Third Amendment) Ordinance, 2021, which was promulgated through a presidential ordinance.
Through Finance Act, 2021, a sub-rule (6A) in rule 6C of Income Tax Ordinance, 2001 was introduced, which was applicable for banks from the tax year 2022 (January 01, 2021 to December 31, 2021).
The text of sub-rule 6A was:
(6A) For tax year 2022 onwards, the taxable income attributable to investment in the Federal Government securities shall be taxed at the rate of—
(i) 40 per cent instead of rate provided in Division II of Part I of the First schedule if the assets to deposit ratio as on last day of the tax year is upto 40 per cent;
(ii) 37.5 per cent instead of rate provided in Division II of Part I of the First schedule if the assets to deposit ratio as on last day of the tax year exceeds 40 per cent but does not exceed 50 per cent; and
(iii) at the rates provided in Division II of Part I of the First schedule if assets to deposit ratio as on last day of the tax year exceeds 50 per cent.
However, through Tax Laws (Third Amendment) Ordinance, 2021 this was amended and for the words ‘assets’, wherever occurring, the words ‘gross advances’ shall be substituted.
Tax experts believe that the amendment would have a negative impact on banks with ADR of less than 50 per cent as they have to pay additional tax on their entire income arising from investment in government securities rather than additional income as was the case previously.
They said that the banks with low ADR took the impact of the same in June 2021 financial results and as a result effective tax rate of banking sector increased from 38 per cent in 2Q2020 to 40 per cent in 2Q2021. This is likely to have an earnings impact of around 5-10 per cent for the sector.
The idea of this increased taxation was to encourage banks to increase their lending activity but this remains a big question mark of how effective this policy measure will be.
The latest banking sector data (week ending September 3, 2021) show that ADR of the sector is at 47 per cent, below the threshold of 50 per cent for additional taxation. This compares to ADR of 48 per cent in Sep-2020 and 45 per cent in Jun-2021.
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Measures against non-, under-filers in ordinance: Tarin
KARACHI: Finance Minister Shaukat Tarin has explained the measures have been taken against non-filers and under-filers who are declaring zero income.
Talking at a meeting with office bearers of Karachi Chamber of Commerce and Industry (KCCI) a day earlier, Shaukat Tarin categorically stated that victimization was definitely not the purpose of the Ordinance which was purely for non-filers and those under-filers who file zero tax.
It was a matter of concern that out of a total of 2.9 million filers, one million are those who file tax returns and show zero taxable income.
“We are intending to take help of artificial intelligence would examine electricity, gas, telephone bills along with banking transaction activities and other details of such filers and classify them as under-filers who will be asked to submit their taxes through a third party.
He assured that the Drawback of Local Taxes & Levies (DLTL) has been extended and it will not be discontinued while the business community is going to get all its claim on time as funds for the purpose have already been allocated in the budget and the pending DLTL claims of Rs32 billion of the last fiscal year will also be settled in the next six months.
Exchanging views with the leadership of Businessmen Group (BMG) and Karachi Chamber of Commerce & Industry (KCCI) at a meeting held here in a local hotel on Sunday, Finance Minister advised KCCI to visit Islamabad in order to discuss their reservations about the new Ordinance, besides resolving all issues on the spot by arranging meetings with Prime Minister Imran Khan, Advisor Commerce & Investment Razak Dawood, Federal Minister for Energy Hammad Azhar and Federal Minister for Industries & Production Makhdoom Khusro Bakhtiar. “We will instantly give deadlines for all the pending policies as PM is determined to revive business, industrial and agricultural activities”, he added.
Chairman Businessmen Group & Former President KCCI Zubair Motiwala, Vice Chairmen BMG Tahir Khaliq, Haroon Farooki & Jawed Bilwani, General Secretary BMG AQ Khalil, President KCCI Shariq Vohra, Senior Vice President Saqib Goodluck, Vice President Shamsul Islam Khan, Former Vice President Muhammad Idrees, Former Presidents, KCCI Managing Committee Members along with prominent business figures attended the meeting.
He said that the government was serious towards resolving issues in order to ensure sustainable economic growth at the rate of 5 percent which was the basic reason for enhancing the PSDP and reducing prices of raw materials so that the industry could stand on its feet. “Good news is that we are growing as all the indicators are showing improvements and we are growing faster than what was being expected.”, he said, “However, the import bill is going to touch US$19 billion this year as compared to US$13 billion of last year mainly due to rising petroleum prices and other commodities which we have to absorb.”
He said that the government’s target was to improve the pace of exports from the existing 8 percent to 18 percent in the next few years while the narrow industrial base was also being expanded through incentivization. Incentives have been given to construction sector, pharmaceutical sector, spare parts manufacturers. “Anyone with economy of scale production is being incentivized to enable them to go for exports as well. We have to improve the exports and FDI by facilitating the local investors through Board of Investment. If our local investors will not be happy, how are we going to attract foreign investors.”
He was of the opinion that inflation was not the issue of Pakistan alone as many countries around the world including regional countries were also facing this issue which was due to disruption in production all around the world due to covid along with logistics disruptions and exorbitant container chargers. “Prices of Palm oil, wheat and rice have been rising globally since 2018. We cannot isolate ourselves from international commodities prices as we are linked with them.”
He also assured to convey KCCI’s concerns over dilapidated state of Karachi’s infrastructure to Prime Minister with a request to come up with some kind of a direct action by the Federal Government to improve the poor state of Karachi’s infrastructure.
Chairman BMG & Former President KCCI, while expressing deep concerns over the newly promulgated ordinance in which enforcement measures have been introduced in the name of broadening the tax base, stated that this ordinance has frightened everyone mainly because of the term under-filer which was pinching in everyone’s mind and needs to be removed.
He said that it was highly unfair that instead of appreciating and pampering the filers and acting strictly against the non-filers, this ordinance targets existing filers too by tagging them as under-filers which would open up more avenues of harassment and corruption. Hence, the term under-filer has to be expunged from the ordinance.
Underscoring the need to take everyone into the tax net, he said that any income being derived from this country which crosses the benchmark set by the government should attract tax whether it was agriculture, industry or trading. “We are patriotic citizens and we would like to see Pakistan growing and tax collection at optimum level so that development takes places all over the country.”
“Keeping in view all the expenditures, we really need at least a minimum tax collection of Rs12,000 billion but for that purpose, you will have to look where the funds were being lost instead of looking for them everywhere”, he said, adding that the ordinance was being considered as victimization for being in the tax net as the FBR, which has all the details of the filers would go for the easiest way by acting against filers instead of hunting for non-filers. “Before devising such laws, all the stakeholders should have been consulted and taken on board.”
Zubair Motiwala also pointed out that DLTL has not been extended as no extension notice has been issued since July 1, 2021 and the exporters have no idea whether DLTL was there or not. “Although DLTL claims worth Rs32 billion have been cleared by FBR and sent to the State Bank as well but the amount has not been released as yet”, he added.
Highlighting the issues of Karachi, he said that the Prime Minister announced an ambitious Karachi Transformation Plan (KTP) of Rs11,000 billion but nobody knows when it was going to come on ground and what was the progress so far. Representatives of business community, who know where exactly the development and upliftment works were needed in industrial areas, were also not being consulted in the transformation plan for Karachi. “The design of K-IV Project, which is the lifeline for Karachi, has been changed 11 times that resulted in escalating the cost of this project from Rs22 billion to more than Rs100 billion which was also a very serious issue.”
He was of the view that although Pakistan’s ranking in World Bank’s doing business index has improved to 108th but it was still too high because the business community has not been provided an even-playing field. “Within Pakistan, we don’t have an even playing field as Karachi was expensive when compared with the cost of doing business in Punjab and other areas. Although the government extended RLNG at $6.5 per MMBTU and electricity at 9 cents per unit to five zero rated sectors but the RLNG relief has not been given to industries in Karachi who just started receiving electricity at 9 cents after a gap of two-and-a-half months.”
He appreciated Finance Minister for allowing trade in rupees with Afghanistan but the State Bank has not issued relevant notification in this regard and the trade with Afghanistan has gone down by 60 percent.
President KCCI Shariq Vohra, while welcoming the finance minister, appreciated the strategies adopted by the government that led to consolidating the economy with a GDP growth of 4.8 percent whereas consistency was visible in the exports and the large-scale manufacturing was also performing well, creating a much comfortable situation not only for the government but also for the private sector.
Highlighting KCCI’s macroscopical perspective, he said that there has always been a mismatch in Exports vs. Imports as the exports remain stagnant in between US$22 to US$25 billion and the imports keep rising. Depreciating rupee value was also neither supporting the exports nor the businesses and the economy which can only be saved when the government devises effective strategies for enhancing the meager industrial base of the country and also creates an environment in which the industrial units could have surplus production.
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Digital tax payment to be must from November 1
ISLAMABAD: Federal Board of Revenue (FBR) has said digital payment for corporate taxpayers shall be must from November 01, 2021.
In a statement, the FBR said it is considering allowing the corporate taxpayers a grace period of 40 days to switch over to the digital mode of payments w.e.f. November 1, 2021 under Tax Laws (3rd Amendment) Ordinance, 2021.
This has been stated in a press release issued by FBR to clarify the relevant clauses of Tax Laws (3rd Amendment) Ordinance.
The Federal Board of Revenue vide the Tax Laws (3rd Amendment) Ordinance, 2021, (the New Ordinance) has introduced significant changes to the Income Tax ordinance, 2001 with a view to the documentation of the economy, capture the supply chains, and broaden the tax base.
The New Ordinance has restricted the scope of payments via traditional banking channels on account of expenditures exceeding Rs.250, 000/- to taxpayers other than companies.
Consequently, clause (la) in section 21 has been inserted in the Ordinance whereby it is now mandatory for companies to make payments on expenditures exceeding Rs.250, 000/- through digital mode only.
However, expenditures on account of utility bills, freight charges, travel fair, and payment of taxes and fines would continue to be admissible either paid in cash or traditional banking instruments.
The purpose behind this legislative enactment is to encourage digital payments and discourage traditional mode of transactions by the corporate sector in the first phase.
It is pertinent to mention that currently grey transactions (hiding/suppressing sales invoices and un-reconciled payments through open/revolving cheque or cash) are highly prevalent in business value chains. Almost 99% of all business transactions are on cash/cheque.
Moreover, 3rd party payments are highly prevalent in the organized and informal sector whereby businesses do not use their own bank accounts when making payments for supplies and tell their own customers/transaction-based informal-investors to make direct payments to the principle supplier.
This is highly prevalent in supply chains and has become an accepted norm. Likewise, cross cheques create financial inefficiency due to clearing period of 1-3 days.
Similarly, cross cheques/open cheques do not carry the “purpose” of the payment or its relationship with the invoice. Despite many attempts to increase documentation of supply chains such as WHT and Further tax, the number of unregistered distributors and retailers remains high whereby sales are suppressed and due income tax is completely avoided.
However, owing to lack of digital readiness by some corporate taxpayers immediately, FBR is considering to allow the corporate taxpayers a grace period of 40 days to switch over to the digital mode of payments w.e.f. November 1, 2021. In the intervening period they may use the traditional banking transaction methods including cross cheques, cross bank drafts, cross pay orders, or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer in addition to digital mode of payment as long as those are compliant with the law.
In the meantime, FBR is also engaging the State Bank of Pakistan (SBP) to issue necessary instructions to operationalize this important provision of law as well as encourage the banking sector to facilitate the corporate businesses to accomplish digitization within the stipulated timeframe.
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Penalty up to Rs3 million for failure to integrate business
ISLAMABAD: The Federal Board of Revenue (FBR) may impose up to Rs3 million as a monetary penalty upon persons for failure to integrate their businesses with the online system under Sales Tax Act, 1990.
An important amendment has been made through Tax Laws (Third Amendment) Ordinance, 2021, which was promulgated on September 15, 2021 through a presidential order.
Serial No. 25A has been added to Section 33 of the Sales Tax Act, 1990 to prescribe penalty for non-integration of businesses under the sales tax regime.
Text of the newly added Serial No. 25A of the Section 33 is:
25A. A person required to integrate his business as stipulated under sub-section (9A) of section 3, who fails to get himself registered under the Sales Tax Act,1990 and if registered, fails to integrate in the manner as required under the law and rules made thereunder.
Such person shall be liable to pay
(i) penalty of five hundred thousand rupees for first default;
(ii) penalty of one million rupees for second default after fifteen days of order for first default;
(iii) penalty of two million rupees for third default after fifteen days of order for second default;
(iv) penalty of three million rupees for fourth default after fifteen days of order for third default:
Provided that if such person fails to integrate his business within fifteen days of imposition of penalty for fourth default, his business premises shall be sealed till such time he integrates his business in the manner as stipulated under sub-section (9A) of section 3:
Provided further that if the retailer integrates his business with the Board [FBR]’s computerized system before imposition of penalty for second default, penalty for first default shall be waived by the Commissioner.”
The condition of making mandatory the integration of businesses has been introduced through sub-section 9A of the Section 3 of Sales Tax Act, 1990.
Text of the sub-section 9A of Section 3 is:
“(9A) Notwithstanding anything contained in this Act, Tier-1 retailers shall pay sales tax at the rate as applicable to the goods sold under relevant provisions of this Act or a notification issued thereunder:
Provided further that from such date, and in such mode and manner, as prescribed by the Board, all Tier-1 retailers shall integrate their retail outlets with Board’s computerized system for real-time reporting of sales.”
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FBR to stop gas, electricity of unregistered persons
ISLAMABAD: Federal Board of Revenue (FBR) has been empowered to discontinue gas and electricity connections of any person who is making taxable supplies but not registered for sales tax.
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