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  • Pakistan introduces automated system for withholding tax payments

    Pakistan introduces automated system for withholding tax payments

    ISLAMABAD: Pakistan has introduced an automated system for real-time payment for withholding tax. The system has been introduced through the Finance Act, 2022 by making amendment to the Income Tax Ordinance, 2001.

    The Federal Board of Revenue (FBR), the apex tax collecting agency of Pakistan, issued Income Tax Circular No. 15 of 2022/2023 to explain important amendments introduced through the Finance Act, 2022 to the Income Tax Ordinance, 2001.

    READ MORE: Tax imposed on foreign payments made by exchange companies

    The FBR said that currently, withholding agents are required to collect and deduct tax at the time of making payment and deposit the same in government treasury within the prescribed time period.

    Similarly, withholding agents are required to file quarterly and annual withholding statements which consumes time and resources of taxpayers leading to increased compliance cost.

    Moreover, certain large withholding tax agents like banks, DISCOs, TELCOs, Government institutions etc. are still depositing tax through a single payment receipt for multiple taxpayers.

    READ MORE: Minimum tax for commercial importers enhanced: FBR

    “In order to streamline withholding tax collection and deduction mechanism, enabling provision for the placement of a fully automated system by the name Synchronized Withholding Administration and Payment System (SWAPS) has been introduced under section 164A of the Ordinance,” the FBR said.

    A withholding agent notified under section 164A will be called a SWAPS agent.

    The notified SWAPS agent will be integrated with Board and withholding tax will be deposited in government treasury on real time basis simultaneously at the time of making third party payment processed through SWAPS by the SWAPS agent.

    READ MORE: Tax through electricity connections on retailers, service providers

    It will also result in auto populated withholding statements thereby saving time and reducing cost of compliance for the business.

    SWAPS Payment Receipt (SPR) will be generated upon deposit of tax in this manner which will be a valid document for the purpose of claiming credit against tax payable under the provisions of this Ordinance.

    In case if a notified SWAPS agent fails to integrate with the Board in the manner prescribed, the said agent will not be eligible for credit under Part X of Chapter III of the Ordinance and exemption under any of the provisions of the Ordinance.

    READ MORE: FBR explains income tax on export of services

    All other provisions of the Ordinance not specifically dealt with in newly inserted section 164A will mutatis mutandis apply on a notified SWAPS agent.

    Corresponding changes have been made in section 164 of the Ordinance.

  • Minimum tax for commercial importers enhanced: FBR

    Minimum tax for commercial importers enhanced: FBR

    ISLAMABAD: The Federal Board of Revenue (FBR) said that withholding tax for commercial importers has been enhanced to 3.5 per cent from 2 per cent.

    The FBR issued Income Tax Circular No. 15 of 2022/2023 to explain important amendments introduced through Finance Act, 2022 to the Income Tax Ordinance, 2001.

    READ MORE: Tax through electricity connections on retailers, service providers

    The FBR said that the rate of withholding tax on import of goods falling in Part II of Twelfth Schedule of the Ordinance has been enhanced from 2 per cent to 3.5 per cent for commercial importers, which shall be minimum tax.

    Following changes have been incorporated with regard to withholding tax on import under section 148 of the Income Tax Ordinance 2001.

    READ MORE: FBR explains income tax on export of services

    Withholding tax on imports collected at 1 per cent and 2 per cent on goods falling under Part I and II of Twelfth Schedule to the Ordinance respectively is adjustable for an industrial undertaking if goods have been imported for own use. In numerous circumstance, goods imported by an industrial undertaking for own use may fall under Part III of Twelfth Schedule to the Ordinance on which tax at 5.5 per cent is collectible at import stage. This resulted in a situation whereby tax collected at 5.5 per cent on import of goods by an industrial undertaking for its own use became minimum tax. For the purpose of streamlining, tax collectible from an industrial undertaking on import of all goods for own use has been made adjustable.

    READ MORE: FBR restores 100% depreciation deduction

    Tax collectible under section 148 on import of edible oil, packaging material, paper and paper board, and plastics has been made minimum tax whether imported by an industrial undertaking for own use or by a commercial importer.

    Certain goods have been shifted from Part II to Part I of the Twelfth Schedule. The goods included in Part I are subject to tax at 1 per cent irrespective of import by industrial undertaking or commercial importers.

    READ MORE: FBR notifies graduated tax rates on disposal of securities

  • FBR mulls reducing more withholding tax provisions

    FBR mulls reducing more withholding tax provisions

    ISLAMABAD: Federal Board of Revenue (FBR) is considering to withdraw more withholding tax provisions as it has already abolished a number of provisions.

    The FBR said it is contemplating reduction in number of withholding tax lines without compromising the documentation contribution of these taxes. “Nine withholding taxes have already been abolished and further reduction is under consideration,” the FBR said in a report..

    The FBR aims at re-designing the tax system on ideal principles of taxation, which, inter alia, includes moving towards taxation of net profits under income tax and subjecting all taxable supplies to standard sales tax regime. The initiative involves removal of tax distortions, unnecessary exemptions, tax reductions, zero rating etc. Major guiding principles of tax policy include:-

    Corporate income tax reforms—- removal of redundant tax credits, accelerated depreciation, exemptions, reduced rates, exemption from specific provisions etc. This aspect has already been completed by promulgation of Tax Laws (Second Amendment) Ordinance, 2021.

    Personal Income Tax Reforms—- removal of unnecessary exemptions and rationalization of tax rates and reduction of tax slabs to simplify tax procedures for swift and hassle-free compliance.

    Rationalization of minimum taxes— FBR is rationalizing presumptive and minimum tax regimes in an effort to realize revenue according to the actual potential of taxpayers.

    Removal of procedural complications in tax compliance— Complexities in tax procedures are being removed in order to facilitate compliance.

    Removal of anomalies in General Sales Tax on goods—- This involves removal of unnecessary exemptions, reduced rates, zero rating, special tax regimes. The broad guideline is that exemptions / concessions available to all goods except essential food items, health and education related goods are to be reviewed.

    Sales tax harmonization —- FBR is pursuing sales tax harmonization with the provincial revenue authorities which includes common definition of goods and services, common minimum threshold, harmonized tax rates, single portal and single sales tax return. The initiative is-expected to complete in medium term.

    Promoting ease of doing business— Cognizant of difficulties faced by taxpayers in making tax compliance, FBR is introducing such facilitating measures as making CNIC as the unique identifier for all taxes administered by FBR, harmonization of valuation table for immovable properties with provinces and establishing one-window operations at various compliance levels.

    Finance Act, 2021: Withholding tax on banking transactions abolished; highlights of relief measures
  • Withholding tax up to 30% to be collected on profit from national saving schemes

    Withholding tax up to 30% to be collected on profit from national saving schemes

    A significant alteration to the income tax rate on profits from national saving schemes has been introduced through the Finance Act, 2021. As of July 01, 2021, individuals not listed on the Active Taxpayers List (ATL) are now subject to a 30% withholding income tax rate on profits earned from saving schemes.

    (more…)
  • Additional tax on transfer of unregistered motor vehicles to continue

    Additional tax on transfer of unregistered motor vehicles to continue

    ISLAMABAD: The levy of withholding tax to discourage on money on transfer of motor vehicles will continue beyond July 01, 2021.

    The Federal Board of Revenue (FBR) in an explanation to Finance Act, 2021 said that application of withholding tax on motor vehicles transferred without registration will continue during current fiscal year and onwards.

    The FBR said that in order to discourage ‘on’ money, additional tax of Rs.50,000 , Rs.100,000 and Rs.200,000 for vehicles upto 1000 cc, between 1000cc and 2000cc and beyond 2000cc respectively was imposed where a vehicle is sold within 90 days of its ownership.

    This was introduced vide Tax Laws (Amendment) Ordinance, 2021. It was applicable till 30.06.2021. Due to its positive impact, it has been continued. Further, the period of 90 days has been withdrawn.

    Now the persons buying motor vehicles would be required to get them registered in their own names otherwise, this tax would be collectable.

  • Withholding tax rates for industrial, commercial consumers revised

    Withholding tax rates for industrial, commercial consumers revised

    ISLAMABAD: The Federal Board of Revenue (FBR) has said that withholding tax rates for industrial and commercial consumers have been revised.

    Withholding tax on domestic electricity consumption was collected at the flat rate of 7.5% if the monthly domestic electricity bill exceeded Rs. 75,000.

    In order to promote documentation and broadening of tax base this withholding tax has been:

    — done away with in case of persons appearing on Active Taxpayer’s List irrespective of amount of bill.

    — threshold for collection of tax has been reduced from Rs. 75,000 to Rs. 25,000.

    The new rate of collection of tax from commercial and industrial consumers from gross amount of bills shall be as set out in the following Table, namely :-

    TABLE

    S.NoGross amount of BillTax
    1upto Rs. 500Rs. 0
    2exceeds Rs. 500 but does not exceed Rs. 20,00010% of the amount
    3exceeds Rs.20,000Rs. 1950 plus 12% of the amount exceeding Rs. 20,000 for commercial consumers Rs. 1950 plus 5% of the amount exceeding Rs. 20,000 for industrial consumers

    Taxpayer’s are entitled for exemption certificate under section 235 on discharge of their advance tax liability. However the language of law was constructed to the effect that advance tax liability for the whole tax year was required to be discharged to obtain this certificate. Now this ambiguity has been resolved by making necessary changes in sub section (3) of section 235 of the Ordinance. Now the taxpayer can obtain certificate for a quarter by discharging their advance tax liability for the quarter.

  • Additional withholding tax imposed on cars sold without registration

    Additional withholding tax imposed on cars sold without registration

    KARACHI: The application of withholding tax on cars / motor vehicles that are sold without registration shall pay additional withholding income tax.

    According to the Finance Bill, 2021 the withholding tax in addition to registration/transfer would be applicable and the same would be collected by the motor vehicle registration authority of Excise and Taxation Department if manufactured motor vehicles sold prior to registration by the person who originally purchased it from the local manufacturer.

    Tax analysts at KPMG Taseer Hadi Chartered Accountants said that Tax Laws (Amendment) Ordinance, 2021 inserted sub-section (2A) in Section 231B, whereby, every motor vehicle registration authority of Excise and Taxation Department shall collect advance tax at the time of sale of such vehicles from buyers of locally manufactured vehicles who sell the vehicles within 90 days of taking delivery from the local manufacturers/assemblers, whether or not registered by the respective authorities.

    The rates of withholding tax on motor vehicles sold prior registration are:

    Up to 1000CC: Rs50,000

    1000CC to 2000CC: Rs100,000

    2000CC and above: Rs200,000

    The tax analysts said that above rates were applicable till June 30, 2021.

    However, the Finance Bill, 2021 proposed to continue the provision. However, the restriction of 90 days is proposed to be done away with.

  • Budget 2021/2022: Duty, taxes abolished on cars up to 850cc

    Budget 2021/2022: Duty, taxes abolished on cars up to 850cc

    ISLAMABAD: The government has announced abolishing duty and taxes on locally manufactured and imported cars with engine capacity up to 850cc to enable low earning families to afford motor vehicles.

    Finance Minister Shaukat Tarin while presenting federal #budget 2021/2022 on Friday announced duty and tax incentives for sale and import of motor cars with engine capacity up to 850cc.

    The finance minister made following announcement:

    Withdrawal of FED and Reduction in Sales Tax on Locally Manufactured cars up to 850 cc: Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly, it is proposed that small cars upto 850 cc capacity may be exempted from levy of FE besides reducing Sales Tax rate from 17% to 12.5% and withdrawing value added tax.

    Exemption from Withholding Tax on Import: It is proposed that no tax may be collected on imports of books, journals, agriculture equipment and motor vehicles in CBU condition upto 850 cc.

    To incentives this sector further additional custom duty and regulatory duty on CBU import of vehicles upto 850cc are being exempted.

    Whereas relief to existing manufacturing industry and new models is also being provided by removing Additional Customs Duty (ACD) and rationalizing the tariff structure.

    Due to these targeted interventions the middle class of this country will be able to afford a car of this specific category and will accrue the benefits of governments flagship projects of “Meri Gari Scheme” which will enable many countrymen who wish to graduate from motorcycle to own their car by providing small car at an affordable price.

    Moreover further incentives in the form of reduction of customs duties are also being provided to electric vehicles for one year to promote the culture of electric vehicle in Pakistan.

    Similarly, keeping in view the changing international motorcycles trend usage of local manufacturing of heavy motorcycles and specific categories of trucks and tractors are also being incentivised by rationalizing the tariff structure.

    Tax Incentives for promoting electric vehicles: To address environmental issues, reduce reliance on gasoline and provide cheaper source of transportation to public, Government of Pakistan is encouraging the manufacture and use of electric vehicles.

    For this purpose, various tax exemptions and concessions are being proposed, which include tax exemption on import of CKD kits for local manufacturing of electric vehicles, reduction in sales tax rate on locally manufactured electric vehicles from 17% to 1%, withdrawal ofvalue addition tax on import of electric vehicles and CKD kits and withdrawal of federal excise duty on 4-wheelers electric vehicles.

  • Withholding tax collection grows by 91pc as FBR refuses active status to late return filers

    Withholding tax collection grows by 91pc as FBR refuses active status to late return filers

    KARACHI: Collection of withholding tax has registered 91 percent increase to Rs11.5 billion during April 2021 as compared with Rs6 billion in the same month of the last year, according to statistics of Large Taxpayers Office (LTO) Karachi.

    The phenomenal growth has been attributed to significant decline in number of active taxpayers for tax year 2020. A person, as an active taxpayer, is entitled to exemption of withholding tax or reduced rate of withholding tax on various types of transactions.

    A large number of income tax return filers have been deprived from appearance on the ATL following change in definition by the FBR. Now a taxpayer will only qualify for active taxpayer if he files his income tax return by due date. In other cases the filing of return is after the due date then the person requires to pay surcharge for late filing the return and for appearance on the ATL.

    Appearance on the ATL assures exemption of withholding tax or reduction in rate of withholding tax on various transactions.

    The FBR issued the ATL for tax year 2020 on March 01, 2021 and denied the inclusion of names of those taxpayers who filed their returns after the due date i.e. December 08, 2020.

    This results only 2.17 million (as per ATL issued on March 01, 2021) taxpayers qualified for active taxpayers as against 3.11 million active taxpayers for tax year 2019.

    The sources said that on a weekly basis those taxpayers who filed return after the due date were paying surcharge to appear on the ATL.

    The latest ATL issued on May 03, 2021 the number of active taxpayers increased to 2.62 million for the tax year 2020.

  • Withholding tax collection from new car registration declines by 39pc in TY2020

    Withholding tax collection from new car registration declines by 39pc in TY2020

    ISLAMABAD: The collection of withholding tax on registration of new cars has declined by around 39 percent in tax year 2020 due coronavirus pandemic that has lowered the sales of locally assembled motor vehicles.

    According to details released by Federal Board of Revenue (FBR) the collection of withholding tax fell to Rs5.88 billion in tax year 2020 as compared with Rs9.58 billion in the preceding tax year.

    The drastic fall in revenue collection has been attributed to lower car sales that were impacted by COVID-19 and slowdown in the economy.

    The annual sales of locally assembled cars posed a decline of 53 percent during fiscal year 2019/2020. According to Pakistan Automobile Assemblers Association (PAMA), the total car sales in the country were recorded at 110,583 units during fiscal year 2019/2020 as compared with 235,229 units in the preceding fiscal year.

    The provincial motor vehicle registration authorities collect withholding tax on behalf of the FBR. The withholding tax has been collected on the registration of new motor car under Section 231B of the Income Tax Ordinance, 2001.

    Following rates of withholding tax under Section 231B:

    S. No.Engine capacityTax
    (1)(2)(3)
    1.upto 850ccRs. 7,500
    2.851cc to 1000ccRs. 15,000
    3.1001cc to 1300ccRs. 25,000
    4.1301cc to 1600ccRs. 50,000
    5.1601cc to 1800ccRs. 75,000
    6.1801cc to 2000ccRs. 100,000
    7.2001cc to 2500ccRs. 150,000
    8.2501cc to 3000ccRs. 200,000
    9.Above 3000ccRs. 250,000]

    The above rates are applicable for persons on the Active Taxpayers list (ATL). However, the tax rate shall be enhanced by 100 percent in case person is not on the ATL.