Tag: withholding tax

FBR urged to abolish withholding tax on telecom services

KARACHI: Federal Board of Revenue (FBR) has been recommended to abolish withholding tax on telecom services considering the rate is too high and a large segment of people living below poverty line.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that currently, telecommunication services in Pakistan are subject to withholding tax at 12.5 percent, which is much higher as compared to other sectors.

Since approximately 30 percent of the population lives below the poverty line and the percentage of return filers is also nominal, imposition of withholding tax on the entire subscriber base is neither fair nor based on sound principle of proportionate taxation.

The OICCI recommended the FBR to abolish withholding tax to promote the accessibility of internet/data services to the low-income groups.

The OICCI also highlighted the issue of sales tax on services applicable in provinces.

In Punjab, KPK, Baluchistan and Sindh, GST on telecom sector is charged from all consumers at 19.5 percent. In the federal capital, this rate is 17 percent.

It is pertinent to mention that the provinces are levying a much lower rate of GST on other services – i.e. 13 percent – 16 percent.).

The OICCI recommended:

i. Reduce and harmonize GST across the country – i.e. a single rate for all services across all jurisdictions.

ii. Since GST is a consumption tax on usage, the decrease in GST/FED rate will result in increase in usage of telecom services and consequently drive tax collection upwards.

iii. A recent GSMA study1 concluded that harmonization of GST on mobile services to 17 percent would yield have an estimated PKR 62 billion positive impact on the GDP and exchequer. Additionally, we can expect 4.5 million more subscribers primarily on mobile broadband, which will be further stimulate GDP growth.

May 14, 2020

FBR proposed to eliminate distortion in withholding tax on dividends from equity investments

KARACHI: Federal Board of Revenue (FBR) has been proposed to rationalize of withholding tax on dividends as higher rate from equity investments discourage investment in the capital market.

Pakistan Stock Exchange (PSX) in its proposals for budget 2020/2021 submitted to Federal Board of Revenue (FBR) said that withholding tax on profit from debt instruments is currently charged a lower rate compared to the withholding tax charged on dividend from equity investments.

The difference ranges between 2.5 percent – 5 percent. This reduces the incentive to invest in the equity market.

Tax treatment on various asset classes should not be the primary driver of investment decisions, the PSX said, adding that the profit on debt and dividends should receive the same tax treatment.

At present, it is observed that corporate profits are first taxed at company level, and subsequently, the resulting profits which are distributed as dividends are taxed at the individual level.

This is essentially a form of double taxation, and result in the misallocation of capital in an economy by giving an upper hand to fixed income investments.

To remove this discrepancy, the government should introduce a mechanism to eliminate the distortion on the tax charged on dividends, and make the effective tax rate equal to that on debt.

Tax rate on investments	Profit paid is more than rupees five hundred thousand	Profit paid is rupees five hundred thousand or less
Profit on Debt u/s 151	15 percent	10 percent
Sukuk-holder (individual or an association of person), if the return on investment is more than one million U/S 150A	12.5 percent
Sukuk-holder (individual and an association of person), if the return on investment is less than one million U/S 150A	10 percent
Dividend U/S 150 & 236S	15 percent

The PSX submitted following proposals:

i. Government should introduce a mechanism to remove the double taxation of company’s profits – once in the hands of the company, and once in the hands of shareholders as dividends – such that the effective tax rate on dividends is on par with profit on debt.

ii. Rationalize the current tax rate on dividends to make it equal to the tax rate on profit from debt.

Provided that there should be no withholding tax on dividend up to Rs100,000 per annum.

Giving rationale to the proposals, the PSX said that a similar tax treatment on dividend from equity investment and debt instrument will provide a level playing field to equities and attract higher inflows in the stock market. Further, it would lead to increase in numbers of UINs.

The PSX proposed following proviso should be inserted in section 150 and Section 236S to the Income Tax Ordinance, 2001:

“Provided that there should be no withholding of tax where amount does not exceed Rs100,000 per annum.”

Clause (b) Division-I, Part III, First Schedule to the Income Tax Ordinance, 2001, for the word ’15 percent’ shall be substituted by ’10 percent.’

May 11, 2020

PSX proposes reduction of withholding tax on margin financing transactions

KARACHI: Pakistan Stock Exchange (PSX) has proposed to reduce the rate of withholding tax in the gross income earned on margin financing transactions to 2.5 percent from existing 10 percent.
(more…)

May 11, 2020
FBR proposed revamping withholding tax regime, reducing to five rates

KARACHI: Federal Board of Revenue (FBR) has been proposed to revamped withholding tax regime and reduced the number of withholding tax rates to maximum five.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for fiscal year 2020/2021 highlighted withholding tax as one of the key irritant for compliant tax payer.

It said that the fact that the ‘collection and deduction of income tax at source (Withholding Agents Perspective) (Taxpayer’s Facilitation Guide)’ on the FBR website is of 51 pages highlights the complexity of the withholding tax regime which has more than 30 tax provisions that need to be followed and 50 different tax rates, applicable on nearly all heads of receipts/payments.

The rate of withholding/advance tax also varies depending upon the nature of transaction, legal/tax status of the parties i.e. company or individual and active or in-active filer.

Moreover, FBR system does not auto populate taxes withheld in the portal to the credit of the beneficiary.

Furthermore, at present FBR has prescribed following categories of withholding tax (WHT) rates under the ITO 2001, for various types of payments and it has become extremely difficult for the person processing payments to be precise and accurate in applying WHT rates and ensure compliance.

The, complexity for the withholding agent has been further compounded after the introduction of active taxpayers list and different rates for an active and non-active filers, the OICCI said.

It recommended that withholding tax regime should be revamped by reducing it to a maximum of five rates for all withholding taxes and the differentiation should be on the basis of active and inactive taxpayers only.

FBR system should be upgraded and all taxes withheld should be auto populated in the portal to the credit of the beneficiary.

Final Taxation Regime should be done away with and all withholding taxes should be available for adjustment and the operations wing of FBR should ensure that all persons whose taxes have been deducted file their tax returns.

Withholding agents should be given incentive in the form of 2 percent tax credit of the amount collected for facilitating the Government.

In addition to the above administrative/streamlining issues, withholding/ advance tax rates on below transactions should be reconsidered.

Withholding tax rate be reduced to 1 percent for all FMCG distributors in line with the withholding taxes applicable on the distributors of cigarette and pharmaceutical products.

Withholding tax rates applicable on services is 8 percent minimum tax regardless of the actual taxable income of the service provider.

The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.

Withholding taxes deducted from payments should be deposited in the Govt. treasury on monthly rather than current requirement of weekly basis.

In case of payments to non-residents, the law requires to deposit corresponding withholding tax amount, seven days before the actual remittance to the non-resident person. The deposit of withholding tax should be aligned to the payment to non-resident due to exchange rate implications.

Withholding tax deduction u/s 153 (1)(a) which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list

i. Withholding tax under section 153 (1b) be reduced to 3% for all the taxpayers providing

ii. services in line with 18 service sectors as mentioned in sub-clause 2 clause 1 of Division III of Part III of Schedule I. not clear

iii. Withholding agent should be given authority to adjust from subsequent payments, in case of reversal of excess deduction of withholding or where underlying transactions are cancelled, reversed or cases where tax status is updated subject to filing of proper adjustment form/return.

May 7, 2020
CEO Jazz says abolishing withholding tax to benefit consumers

Chief Executive Officer (CEO) of Jazz, Aamir Ibrahim, has emphasized that abolishing the withholding tax on mobile phone services would directly benefit consumers by making telecom services more affordable.
(more…)

May 7, 2020
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.

May 5, 2020
Tax collection from phone services jumps up 630 percent

ISLAMABAD: The collection of withholding tax from phone subscribers registered a phenomenal increase of 630 percent to Rs27 billion during first half of the current fiscal year, according to data made available to PkRevenue.com

The sources in Federal Board of Revenue (FBR) told that the restoration of withholding tax on phone usage by the Supreme Court of Pakistan (SBP) helped the tax authorities to generate substantial amount during the period under review.

The data revealed that the FBR collected withholding tax to the tune of Rs27 billion during first six months (July – December) 2019/2020 as compared with Rs3.7 billion collection in the corresponding period of the last fiscal year.

The FBR collects withholding tax on telephone usage under Section 236 of Income Tax Ordinance, 2001 from telephone subscribers and internet.

The tax rate is zero percent on monthly bill up to Rs1,000. However the bill exceeding Rs1,000 shall liable to tax rate at 10 percent.

In case subscriber of internet, mobile telephone and pre-paid internet or telephone card the tax rate shall be 12.5 percent of the amount of bill or sales price of internet pre-paid card or prepaid telephone card or sale of units through any electronic medium or whatever form.

The phone companies preparing bills or selling prepaid cards are responsible to collect withholding tax on behalf of the FBR from telephone subscribers, internet subscribers, purchaser of internet prepaid cards.

The withholding tax collected from phone usage is adjustable against the taxpayers’ liability.

The FBR incurred a loss of Rs55 billion in 2018/2019 due to suspension of withholding tax on telecommunication services by the Supreme Court of Pakistan.

April 17, 2020
Withholding tax exemption for cellular consumers under consideration

ISLAMABAD: The Committee on Issues of Cellular Mobile Operators has agreed to prepare proposals for withdrawal of withholding tax as a relief for cellular consumers in the wake of coronavirus outbreak.

First meeting of the Committee on Issues of Cellular Mobile Operators was held here on Monday. Federal Secretary Ministry of IT Shoaib Ahmad Siddiqui chaired the meeting.

It was decided that proposals shall be prepared for withdrawal of withholding tax for 90 days as a relief for cellular consumers during this situation in addition to the tax harmonization between Federation and provinces regarding FED/GST.

In line with directions of the Prime Minister, Committee on Issues of Cellular Mobile Operators was formed to evaluate the issues of Cellular Mobile Operators and formulate recommendations for onward submission to the Prime Minister’s Office including settlement of license renewal matters with cellular mobile operators that shall help the government in valuable income generation in the current crisis situation.

Matters related to, additional spectrum allocation in Pakistan and AJK & GB, mutually agreed license renewal frameworks, tax rationalization, Right of Way (RoW) and reduction of NADRA Biometric Verification Charges were discussed during the meeting.

During the meeting, NADRA was requested to reduce charges of biometric verification of SIM especially in view of this situation resulted after COVID-19 in the country.

Representative of NADRA sought sometime to discuss the matter with its Chairman and Board. The Chair directed NADRA to give its version in this regard next week.

Ministry of Industries and Production agreed to the proposal that Telecom sector should be given functional Industry status.

The telecom operators shared serious interest in additional spectrum auction in Pakistan and AJK & GB to facilitate quality mobile broadband services necessary assist people especially students and professional to work from home and comply to COVID_19 related advisory.

The Chair emphasised the need for urgent availability of required spectrum in Pakistan and AJK & GB and that Ministry of Kashmir Affairs & Northern Areas has already been sensitized to take lead on the matter for their respective areas in line with applicable laws.

The Chair directed PTA and telecom industry to work together to firm up proposals regarding data pricing to avoid abuse of service.

The meeting was attended by senior officers of the Ministry of IT, Cabinet Division, Ministry Finance, Ministry of Industries & Production, Federal Board of Revenue, representatives from PTA, NADRA and Cellular Mobile Operators.

April 14, 2020
ECC approves withholding tax exemption on remittances transfer to bank accounts

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has approved exemption from withholding tax on transfer of remittances into bank accounts.

The ECC approved at the meeting on Wednesday chaired by Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh.

The ECC approved that the amount of the remittances transferred into bank accounts will be exempted from withholding tax with effect from July 1, 2020.

The ECC approved a host of measures to encourage and facilitate the overseas Pakistanis to send their remittances through official banking channels.

Under the decision, following measures for the enhancement of home remittances through banking channels were approved:

i. The rebate of reimbursement of T.T. Charges transactions between USD 100 and USD 200 will be increased from SAR- 10/- to SAR-20/-.

ii. Continuation of the New Scheme of incentives launched in 2018-19 for banks and exchange companies during the current calendar year from January 2020. As per Scheme financial institutions would be incentivized Rs. 0.50 per 1 USD on 5 percent growth, Rs. 0.75 per 1USD on 10 percent growth and Rs. 1/- per 1USD on 15 percent growth.

iii. The amount of the remittances transferred into bank accounts will be exempted from withholding tax with effect from July 1, 2020.

iv. A “National Remittance Loyalty Program” will be launched from September 1, 2020 with collaboration of major commercial banks and government agencies through which various incentives will be given to remitters through mobile apps and cards.

ECC approved a technical supplementary grant of Rs.9.6 billion during the current financial year to finance the above mentioned initiatives.

Taking up other agenda items, the ECC approved a proposal by the Ministry of Federal Education & Professional Training for a technical supplementary grant of Rs 5 billion in favour of the Higher Education Commission (HEC) for the current Financial Year 2019-20 with instruction for a judicious and need-based distribution of funds among the universities.

The ECC also approved a proposal by the National Security Division for a technical supplementary grant amounting to Rs 15 million for the Strategic Policy Planning Cell (SPPC) created in the National Security Division with the approval of the Prime Minister to act as an intellectual hub for evidence-based policy input on key national security issues.

On a proposal by the Ministry of Defence, the ECC okayed a proposal for a technical supplementary grant amounting to Rs 34.528 million for Internal Security Duty Allowance to the Pakistan Air Force.

On a proposal by the Petroleum Division, the ECC approved allocation of gas to SSGC and Provisional Tight Gas Incentive for Rehman-4 Well in Kirthar Block subject to the finalization and approval of requisite third-party certifications for Tight Gas for the same well.

The ECC also discussed a proposal regarding quarterly adjustments of the K-Eectric Limited for the period from July 2016 to March 2019 and in the light of input and discussion by the members, set up a committee including Minister for Power Omar Ayub Khan, Minister for Economic Affairs Muhammad Hammad Azhar, Deputy Chairman Planning Commission, Secretary Finance and a representative from the K-Electric to examine the issue in detail and recommend to ECC within a week a solution and roadmap for resolving the issue.

The ECC also deliberated upon a proposal by the Ministry of Energy to further extend till June 2020 the grant of subsidy to agricultural tubewell consumers in Balochistan.

Earlier, the ECC was briefed that nearly 30,000 agri consumers in Balochistan had been given subsidy since 01.01.2015 with 40 percent of the burden of subsidy born by the Government of Pakistan and the remaining 60% picked up the Balochistan government.

However, the recovery of dues from the farmers for the electricity consumed over and above the limit of subsidy had been negligible and attempts to recover these dues from defaulters in the past had not been successful.

The ECC discussed the issue in detail and set up a Committee, including the Minister for Power, to discuss the issue with the Government of Balochistan to ensure a credible solution to the problems impeding a judicious execution of the scheme for which the federal government alone was contributing Rs 9 billion annually, and also allowed the extension of subsidy until a solution to the issue was found by the Committee and put in place.

On a proposal by the Ministry of Industries and Production for revival of M/s Tuwairqi Steel Mills Limited (TSML) – A Direct Reduced Iron (DRI) Unit, the ECC discussed the issue and asked the Ministry of Industries and Production to resubmit the proposal in the light of recent and ongoing development on different issues among stakeholders on the proposal.

March 4, 2020
Persons not on new ATL to pay 100% additional withholding tax

KARACHI: Persons who have failed to submit their annual income tax returns and declaration of assets for tax year 2019 will pay 100 percent additional withholding tax on certain transactions, sources in Federal Board of Revenue (FBR) said on Monday.

They said that those taxpayers availing the benefit of reduced rate of withholding tax on the basis of returns filed for tax year 2018 would not more eligible.

The FBR issued new Active Taxpayers List (ATL) for tax year 2019 including names of those return filers who filed their returns up to February 29, 2020.

The new ATL included name of 2.53 million taxpayers who filed their returns for tax year 2019. These taxpayers were salaried persons, business individuals, Association of Persons (AOPs) and companies.

The FBR had extended the last date for filing income tax returns and declaration of assets up to February 28, 2020.

The sources said that through Finance Act, 2019 a new 10th Schedule to Income Tax Ordinance, 2001 was introduced under which the FBR imposed 100 percent additional withholding tax on those persons whose name were not on the ATL.

Previously, the law provides for the concept of a non-filer and stipulates higher withholding rates for the same which were adjustable at the time of filing of income tax return.

This tax regime has created a misconception that a non-filer can go scot free by choosing not to file income tax return.

The measure was meant to increase the number of filers, however over time the focus shifted to raising additional revenue only.

The measure had not achieved the desired results as the regime did not provide for any legal framework to ensure filing of return by such non filers.

In order to remove the aforesaid misconception, the concept and the term of “non-filer” was abolished from the statute, wherever occurring.

In its stead a separate Schedule is being introduced to specifically provide a legal framework for punitive measures for persons not appearing on ATL and to ensure filing of return by such persons.

The main attributes of this scheme are as under:-

— Persons whose names are not appearing on the ATL will be subjected to hundred percent increased rate of tax.

— The withholding agents will clearly specify the names, CNIC or any other identification of such persons in the withholding statement so that legal provisions to enforce return can come into effect.

— Where a withholding agent is of the opinion that hundred percent increased tax is not required to be collected on the basis that the person was not required to file return, the withholding agent shall furnish an intimation to the Commissioner setting out the basis on which the person is not required to file return.

The Commissioner shall accept or reject the contention on the basis of existing law. In case the Commissioner fails to respond within thirty days, permission shall be deemed to be granted to not deduct tax at hundred percent increased rate o Where the person’s tax has been deducted or collected at hundred percent increased rate and the person fails to file return of income for the year for which tax was deducted, the Commissioner shall make a provisional assessment within sixty days of the due date for filing of return by imputing income so that tax on imputed income is equal to the hundred percent increased tax deducted or collected from such person and the imputed income shall be treated as concealed income.

— The provisional assessment shall be of no effect if the person files return within forty five days of completion of provisional assessment and the provisions of the Ordinance shall apply accordingly. Where return is not filed within forty five days of provisional assessment, it shall be treated as final assessment and the Commissioner shall initiate penalty proceedings for concealment of income.

March 3, 2020