Archive April 2021

SHC declares income tax on undistributed profits as unconstitutional

KARACHI: Sindh High Court (SHC) on Friday declared levy of tax on undistributed profits under Section 5A of Income Tax Ordinance, 2001 as unconstitutional and set aside all the show cause notices and demand notices issued by the tax authorities under the section.

A division bench of the SHC ordered in Sapphire Textile Mills Limited vs Federation of Pakistan & Others: “insertion of Section 5A in the Income Tax Ordinance, 2001, including amendments thereto from time to time, does not fall within the parameters delineated per Article 73 of the constitution of Pakistan, 1973, hence, the provision impugned is found to be ultra vires of the constitution, and is hereby struck down.”

It ordered further that as a consequence, any show cause / demand notices or constituents thereof, seeking enforcement of Section 5A of the Income Tax Ordinance, 2001, are hereby set aside.

A large number of taxpayers filed petition before the higher court seeking relief against action initiated by Federal Board of Revenue (FBR).

The petitioners challenged the Section 5A of the Income Tax Ordinance, 2001, which was initially inserted in the Ordinance through Finance Act, 2015 and amended through Finance Act, 2017, ostensibly in order to induce certain public companies to distribute dividends among their shareholders.

In original form, as inserted through Finance Act, 2015, the tax was levied upon the reserves of a company. However, post Finance Act, 2017 the levy befell upon accounting profit before tax of a company.

The petitioners requested the court to declare the provision as unconstitutional. The plain reading of Section 5A suggests that it amounts to double taxation, as income received or taxed in the same hand ceases to be income.

It is submitted: “the regulation of companies is undertaken inter alia vide the Companies Act, 2017, being special in nature, and any attempt at such regulation by inserting penal provisions into the Ordinance routed through a money bill, was prima facie unmerited.”

Counsel for the respondents submitted: “5A did not amount to double taxation as it contemplated an independent levy.”

It was argued that 5A identified a class to be taxed, hence, could not be considered discriminatory.

It was concluded that the legislature had ample power to regulate economic behavior and 5A was merely one species of exercise of such power.

The court observed that 5A of the Ordinance amounts to legislation, not contemplated in the Constitution to be undertaken to vide a money bill. “In such a scenario no rationale has been articulated before us to justify the regulation of companies behavior, pertaining to dividends, to be effected vide a money bill, within the mandate of Article 73 of the Constitution, while abjuring the regular legislative process.

“Therefore, it is our deliberated view that section 5A of Income Tax Ordinance, 2001 cannot be sustained on the constitutional anvil; hence, could not be construed to have legal effect.”

FBR advised to use withholding statements for identifying new taxpayers

tax profile update

KARACHI: Tax practitioners have advised the Federal Board of Revenue (FBR) to examine withholding statements and extract information of persons not paying taxes and not filing their annual returns.

The members of Karachi Tax Bar Association (KTBA) in their pre-budget 2021/2022 seminar urged the FBR for mining of its database to identify new taxpayers & those not fully discharging their liabilities

FBR should extract information from withholding statements, details of government supplies and maintain a database of above third party information, according to a presentation made by Haider Patel, former president, KTBA.

He further suggested that relevant organizations, departments, institutions including utility companies, banks, NADRA and information obtained related to offshore transactions should submit prescribed information on quarterly basis to the FBR.

The FBR has been further advised effective enforcement for compliance of filing of Return of Income under section 114 of Income Tax Ordinance, 2001.

Reference: PkRevenue

FBR notifies panel of advocates for Islamabad station

tax profile update

ISLAMABAD: Federal Board of Revenue (FBR) on Wednesday notified a panel of advocates to represent tax authorities before various courts and tribunals at Islamabad station.

The FBR placed following advocates, on the Panel of FBR, relating to court matters of Inland Revenue Service for a period of three years:-

01. Atti q-Ur-Rehman

02. Usman Ahmed Ranjha

03. Chaudary Shafiq-Ur Rehman

04. Salman Ajaib

05. Bilal Tariq Khan

06. Barriester Shayyan Qaisar

07. Ms. Ayesha Siddique Khan

08. Shaheer Bin Tahir

09. Mohsin Kamal Awan

10. Nargis Sultana Chohan

11. Raja Zubair Hussain Jarral

12. Asad Hussain Ghalib

13. Barrister Waias Az z Qureshi

14. Zeeshan Ali

15. Lajbar Khan Khalil

16. Osama Amin Qazi

17. Abdul Munaf Khan

18. Ali Nawaz Kharal

19. Farrukh Iqbal

20. Shumayl Aziz

21. Usman Rasool Ghuman

Advocates may be assigned Court cases for pleading before various Courts / Tribunals at Islamabad Station, on the basis of merit, keeping in view their experience and facts of each case.

The matter relating to professional fee/ special professional fee, appointment, performance evaluation, de-notification, the conduct of the Panel Advocates and other related matters will be governed by the SOPs/ policy guidelines circulated vide/ FBR’s letter No. 176432 dated 12.10.2020, No. 129965-R dated 24.10.2017 and No. 9(2)PA/2020-21(Pt) dated 26.01.2021 and any other notification issued or to be issued from time to time.

Source: PkRevenue

Number of active taxpayers for Tax Year 2020 increases to 2.6 million

ISLAMABAD: The number of active taxpayers has been increased to 2.6 million by April 25, 2021 for tax year 2020, according to latest data released by Federal Board of Revenue (FBR) on Monday.

The weekly Active Taxpayers List (ATL) for tax year 2020 updated those taxpayers’ names, who filed their income tax returns up to last date or the date was extended by commissioner Inland Revenue or those taxpayers’ names who filed their income tax returns after the deadline but paid surcharge for appearance on the ATL.

The FBR officials said that around 0.43 million taxpayers had enrolled their names in the ATL 2020 by filing returns and paying surcharge after the issuance of first ATL 2020 on March 01, 2021.

The FBR has changed the mechanism for availing reduced rate of withholding tax on various transactions. Previously, the filers were entitled to avail exemptions or reduced rate of withholding tax rates on various types of transactions. But not a person has to file annual return by due date given by the FBR. In case a person fails to file annual return by due date but files after the due date, he will be not entitled to get his name in the ATL. However, it will only be possible after paying of surcharge to appear on the ATL.

Source: PkRevenue

PM praises FBR for achieving 41pc growth in March

PM Imran Khan

Prime Minister Imran Khan on Wednesday commended the Federal Board of Revenue (FBR) for posting an unprecedented 41 percent growth in revenue collection by March 2021.
“I commend the efforts of FBR, I even have achieved a historic growth of 41 percent in March 2021 with recorded shares of Rs460 billion,” the prime minister said during a tweet.
FBR collected about Rs322 billion in the same month last year. FBR also posted a 10 percent growth rate of Rs3,380 billion over the first nine months (July-March) in the current financial year. FBR collected Rs3,060 billion within the corresponding months of the previous fiscal year. “This reflects the broader environmental reforms that are driven by government policies,” the prime minister added.

Source: PkRevenue