Tax relief package to mitigate COVID-19 shocks under consideration, FBR tells KCCI

Tax relief package to mitigate COVID-19 shocks under consideration, FBR tells KCCI

KARACHI: A top official of Federal Board of Revenue (FBR) has informed the office bearers of Karachi Chamber of Commerce and Industry (KCCI) that a tax relief package for business community was under consideration in order to dilute the adverse impact of coronavirus pandemic (COVID-19).

“The relief measures in Sales Tax and other levies are under consideration during the prevailing crisis situation due to Covid-19, which are outside the scope of Federal Budget 2020-2021. These relief measures will be revisited in January 2021 again and decisions will be made in accordance with the situation at that time,” a statement issued by the KCCI quoting Member Inland Revenue (Policy) Dr. Hamid Ateeq Sarwar.

A meeting was held on April 16, 2020 between the KCCI and FBR to discuss the proposals for the Federal Budget 2020-21.

Siraj Kassam Teli, Chairman-Businessmen Group and Former President KCCI led the KCCI team which included Agha Shahab Ahmed Khan, President-KCCI and Ibrahim Kasumbi, Former SVP and Convener-Budget Standing Committee.

The FBR team was headed by Nausheen Javaid Amjad, Chairperson-FBR and participated by Dr. Hamid Ateeq Sarwar Member-IR Policy, Muhammad Javed Ghani, Member-Customs-Policy & Operations, Mohiyuddin Alwi, Chief Secretary, Sales Tax Policy, Mohd. Ali Khan, Secretary-Sales Tax Policy.
The KCCI proposed reduction in Sales Tax from 17 percent to Single digit. Member IR-Policy agreed that FBR will review the rate and recommend to rationalize the same in the budget 2020-21.

The Member further added that the proposals forwarded to the Prime Minister by Siraj Kassam Teli, Chairman BMG are also being taken into consideration while working on the relief packages.

Initiating the discussion on KCCI’s budget proposals Ibrahim Kasumbi, took up the issues related to Sales Tax, Income Tax, Customs and FED, besides the major anomalies and discretionary powers that exist in the tax regime.

Dr. Hamid Ateeq Sarwar, Member-IR Policy gave his comments and apprised of the actions to be taken by FBR with regard to each proposal, which are stated here:

KCCI proposed to withdraw 3 percent Further Tax on local sales to unregistered buyers, which initially was 1 percent imposed through Finance Act, 2013. Member-FBR IR Policy stated that proposal is under consideration to reduce the rate to 1 percent instead of 3 percent in the FY 2020-21 and zero percent in the next fiscal year.

Moreover, KCCI had proposed that where the CNIC number is provided by supplier for sales to unregistered persons, 3 percent Further Tax should not be charged. Member-IR Policy endorsed the proposal and said that the rate of 3 percent Further Tax will be reduced to 1 percent in FY 2020-21 and will be phased out next year.

He said that subject to provision of detailed data regarding Paper Converter Industry, the FBR will consider to reduce the Value Addition Tax from 10 percent to 5 percent of the basic Sales Tax.

Member IR-Policy apprised the KCCI team that the system is being automated and rules are being amended to allow the registered persons to revise the Sales Tax Return online and rectify clerical errors under Rule. 14(a) without the need to get prior approval from Commissioner-Inland Revenue, in response to the proposal submitted by KCCI.

KCCI had proposed that audit of tax-payers should not be conducted more than once in three years and the discretionary powers of the commissioners to open the audits other than established criteria should be withdrawn.

Member-IR Policy stated that FBR has limitations under the FATF to put limitations on audit and cannot exempt anyone from audits.

Member-IR Policy however asked the KCCI team to provide feedback and propose solutions to counter the harassment and misuse of powers to conduct multiple audits.

Commenting on KCCIs proposal to reduce the time period for retention of records from 6 years to 3 years, Member IR Policy said that in certain cases where refunds are admissible or pending it is necessary to retain records for more than 3 years.

Ibrahim Kasumbi said that in such cases a separate regime for such exporters may be created because majority of tax-payers do not fall in the category of exporters or not entitled to refunds.

KCCI had raised the issue of Tax Credit not being allowed on procurement of building materials and accessories under section 8 (1) H & I of Sales Tax Act, as amended through Finance Act, 2014. Member IR-Policy commented that any purchases by end-user cannot be entitled to input tax against Sales Tax liability.

Hence the FBR is unable to accept the proposal at this time. Instead proposal is under consideration to shift the construction related tax policies within the purview of provinces.

KCCI had highlighted an anomaly in classification of LED lights/bulb housing which are incorrectly classified HS Code 9405.1090 which pertains to complete Chandeliers and subject to a higher rate of duty.

Member IR-Policy asked the KCCI team to furnish more details explaining the anomaly so that the same may be rectified.

In response to the proposals by KCCI to curtail the powers of IR officials and field formations under Sections 37, 37A, 37B, 38 and 45B which are a source of harassment to the industries, Member-IR Policy assured the team that a reforms have been undertaken where the human interface is minimized and checks and balances are being introduced to curtail abuse of these provisions.

In this regard the FBR will hold consultations share draft rules with stake holders including the KCCI to provide input to prevent misuse of such powers and ensure accountability of concerned officers.

Commenting of the proposal of KCCI to rationalize Sales Tax and Further Tax on Dairy products, including Flavored Milk, Yogurt, Cheese and Butter etc. the Member-IR Policy apprised that Further Tax will be reduced to 1 percent in FY2020-2021 and will be phased out in next fiscal year.

Responding to the proposal to restore 10 percent Tax Credit allowed where 90 percent of sales are made to registered persons, the Member IR stated that FBR is under constraint from IMF not to allow Tax Credits, yet he assured that in the current scenario of Covid-19, FBR will endeavor to restore the said tax credit provision.

Under Section 153 (a) With-holding tax at the rate of 4.0 percent to 4.5 percent is deducted on supply of goods by filer companies and registered persons respectively. This is a very high rate of WHT and KCCI proposed to reduce the rate to 1 percent. Member IR-Policy assured that the rate of WHT on local supply of goods will be rationalized as proposed.

KCCI had raised the issue of discretionary powers given to the Directorate of Intelligence and Investigation vide SRO.1301 (I)/2019 dated 29.10.2018 whereby officers of the level of Assistant Director can raid premises, conduct audits, confiscate records and conduct criminal investigations. Such powers are prone to serious abuse and should be withdrawn. Member Policy explained that it is part of the anti-smuggling measures and such powers are not applicable to domestic trade. Government is aiming to further strengthen the anti-smuggling measures through an ordinance which may be issued soon. He suggested to KCCI team to propose ways and means to prevent abuse of the powers under SRO.1301 so that apprehensions of business community can be removed.

It was submitted by KCCI that rates of With-Holding Tax on import of raw materials by Commercial Importers and manufacturers have vast disparity which results in misuse of exemption by unscrupulous persons.

Many fake entities have been registered as manufacturer to take advantage of exemption under Rule 72B, Part IV of second schedule of Income Tax Ordinance.

Therefore, uniform rates of WHT may be applied on both categories of importers of raw material.

Member-IR policy agreed to the proposal and assured that the same would be adopted in Budget 2020-2021.

Vide SRO.1190 (I) /2019, FBR had restricted adjustment of input tax to 90 percent on import by commercial importers, which has created anomaly and importers of raw material have to pay additional 1.7 percent.

KCCI contended that since commercial importers do not add any value, the restriction on 100 percent is unjustified. Member-IR Policy agreed to allow adjustability of additional 1.7 percent paid by the importers with tax returns.

Due to inclusion of Automobile and Motorcycle spare parts in Third Schedule, the importers are facing serious hardships in printing of MRP (Maximum Retail Price) on the auto parts due to various factors. KCCI had elaborated on the handicaps in complying to such requirement and proposed to the FBR to exclude the Automobile and Motorcycle parts from Third Schedule and treat the same under normal import regime.

Member-IR Policy stated that certain facilitations have been given to the importers however the FBR will review the policy in consultation with stake-holders.

KCCI team submitted that through an amendment in SRO.190 (I)/2002 through Finance Act’2019 entries relating to PVC and PMC materials were deleted, thereby allowing Zero rating on export of Polyethylene and Polypropylene.

The provision has opened up an avenue for evasion and misuse because Pakistan does not have capacity to manufacture Polyethylene or Polypropylene. KCCI recommended that the entries related to Polyethylene and Polypropylene may be inserted in the list of exclusions from zero rating in SRO.190 (I)/2002.

Member IR-Policy apprised the KCCI team that the said measure was taken on the recommendation of the Ministry of Commerce and KCCI should raise the issue with the ministry to seek redress.

KCCI had proposed to withdraw exemption in With-Holding Tax under section 148 (7) D to Large import Houses in the Budget 2020-21 which was agreed by Member IR-Policy.

Responding to the proposal regarding Section 108 B, whereby the commission paid by supplier to the unregistered dealer will not be allowed as expense with effect from FY 2020-21. Member-IR Policy suggested to further discuss the issue through a representation so that the provision may be withdrawn.

In response to the proposal to waive requirement of CNIC number from customers on purchases of Gold Jewelry above the amount of Rs. 50,000/-, Member IR-Policy stated that strict limitations have been imposed under FATF and more details and undertaking are required from buyers/suppliers of gold. He suggested that representatives of Jewelry trade may hold a meeting over video link with the FBR to evolve workable solutions.

In this regard KCCI will facilitate the representatives of Jewelry trade to present their views and propose workable solutions to their issues.

By amendment in section 148 through Finance Bill 2018-19, With-Holding Tax of 4.5 to 6.0 percent on commercial importers was converted into Minimum Tax which earlier was a Fixed Tax. KCCI had proposed to either reduce the Tax rate or treat it as Fixed Tax as before. Member IR-Policy agreed that the rate of WHT will be rationalized in upcoming budget 2020-21 but maintained as minimum tax.

Issues related to multiple audits under various provisions of Income Tax Ordinance, Sales Tax Act and Federal Excise Act, were raised by KCCI. The multiple audits were a cause of stress and harassment to tax payers. KCCI proposed that all provisions for Audit may be consolidated and clear parameters be set. Member IR-Policy advised that FBR is working to create a common pool and procedure to conduct consolidated audit for Sales Tax, Income Tax and FED to eliminate multiple audits.

Commenting on KCCIs proposal to restore the provision of Tax Credit on investment under section 65B of ITO, Member-IR Policy stated that under the IMF program, FBR has limitations on allowing tax credit.

KCCI had proposed that the Sales Tax at the rate of 17 percent on import of industrial machinery is extremely high and unjust. Ultimately all machinery is utilized for manufacturing process and contributes to GDP and generates employment. Member IR-Policy agreed to the proposal and said that the rates will be revised in slabs of 10 percent, 5 percent and 1 percent according to various categories of machinery.

Under present laws, payments collected by travel agents from clients on behalf of the airlines is treated as turnover of travel agents and is charged with 8 percent turnover tax which is unjust. KCCI had proposed that only the margin of travel agents in gross receipts may be treated as turnover and charged with minimum tax.

Member IR-Policy agreed to the proposal and suggested that the representatives of travel agents may hold a meeting with FBR and provide all required information and data so as to enable the FBR to prepare budget recommendation.

KCCI in its proposals raised the issue of very complex Income Tax return form and proposed that the form may be simplified to make it easier for the tax-payers to complete. It was proposed that separate forms may be designed for Companies, AOPs and individuals/sole proprietors, to facilitate the tax-payers.

Member IR-Policy agreed to the proposal and assured that simplified forms will be issued for different categories of tax-payers.

Provision of WHT under sections 236 G and H of Income Tax Ordinance are being unjustly applied on Beverages which fall under the category of FMCG. KCCI proposed to exclude the beverages from the scope of Sec.236 G & H, which was agreed by Member IR-Policy.