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

Date extended up to June 30 for updating tax profile

tax profile update

The Federal Board of Revenue (FBR) on Friday extended the deadline for updating taxpayer information until June 30, 2021.

FBR issued Circular No. 14 of 2021 March 26, 2021, to extend the date of renewal of the taxpayer profile from March 31, 2021 to June 30, 2021.

The date has been extended with a request for tax restrictions that coronavirus cases were on the rise and most offices were operating at 50% capacity.

Updating the profile of all taxpayers registered under Section 181 of the Income Tax Ordinance, 2001 and other conditions specified by the Federal Board of Revenue (FBR) is a required requirement under Section 114A of the Ordinance.

In Finance Act, 2020, Section 114A is introduced to make the review profile binding to the following persons:

(a) every person applying for registration under section 181;

(b) every person who earns less than the head tax, “business income”;

(c) everyone whose income is less than the final tax;

(d) any non-profit organization as defined in subsection (36) of section 2;

(e) any trust or welfare fund; or

(f) any other person determined by the Board.

The FBR described a recently introduced section: “The complexity of return forms is an example of the complexity of tax law. However, there is a great need to simplify the return forms without compromising on the details required to ensure the accuracy of the published version. ”

The FBR said that instead of trying to get all the right information on tax returns, a new section could be set up where taxpayer information could be stored so that the taxpayer could take the correct information.

It states that persons who have registered before September 30, 2020, and receive business or income through the final tax, trusts, welfare organizations, non-profit organizations, and other persons defined by FBR are required to submit a profile on or before December 31, 2020, which has not been extended until -March 31, 2021.

Persons who receive their registration after September 30, 2020, are advised to submit that profile within 90 days of registration. In the event that there is a change in the details, those people will update their profile within 90 days of the change of details. The profile contains information relating to revenue in respect of bank accounts, communications used, business premises including all production, storage, or retail outlets operated or leased by the taxpayer, the types of businesses, and other information that may be provided by FBR.

FBR stated that if a person fails to provide or renew a taxpayer profile within a reasonable time or period extended by FBR under Section 214A, that person will not be included in the active taxpayer list for the last tax year ending before the date specified above or the date extended.

However, when filing or updating the profile, such persons will be allowed to be included in the list of active taxpayers in the case of a tax liability of Rs20,000 in the case of a company, Rs10,000 in the case of a corporation and Rs1,000 in the case of an individual.

In addition, the fine for non-filing or non-renewal of the profile is also increased at a rate of Rs2,500 per day non-payment of less than the minimum fine of Rs10,000.

Source: PkRevenue

Tax penalty reduced to half for making false statement

tax penalty

According to Tax Laws (Second Amendment) the Ordinance, of 2021 was announced the day before, the amount of the tax penalty under Section 182 of a misleading or false statement has been reduced to 50 percent from the 100 percent tax balance.

Under Serial No. 10 of Section 182: any person who makes a false or misleading statement to the Inland Revenue Authority either in writing or orally or electronically includes a statement on request, certificate, declaration, notification, return, objection, or other documents including accounted documents made, prepared, provided, filed or provided under this Ordinance, then that person shall pay a fine of twenty-five thousand rand or 50 percent of the amount due in any of the above:

Provided that in the event of an inspection order contemplated under section 120, it shall not be penalized to the extent that the tax deduction occurs due to the taxpayer assuming an objection to the use of this Ordinance in place of taxpayers.

Under recent legislation, a fine for misleading information under Section 114A is prescribed. Section 114A relates to the profile of taxpayers.

Reference: PkRevenue

Taxpayers Need to Update their profile to remain as Filer!

tax profile update

According to Profit.PkistanToday, taxpayers need to update their details by March 31, 2021, to avoid penalties and to be removed from the Active Taxpayers (ATL) list.

The last day to renew the profile was December 31, 2020, extended by the Federal Board of Revenue (FBR) until March 31, 2021, in view of the problems faced by taxpayers.

In terms of the Finance Act, 2020, Section 114A was included in the Income Tax Ordinance, 2001, regarding the taxpayer’s profile. According to the provision, the following persons are required to update their details on the IRIS: every person who applies for registration under Section 181; everyone earning taxable income under the head ‘money from business’; everyone whose income is taxed is the last; any non-profit organization as defined in subsection (36) of Section 2; any trustworthy or welfare organization; and any other person determined by FBR.

Details required to update the taxpayer profile are included: bank accounts; help communication; business premises, including all production, storage, or sales facilities operated or leased by a taxpayer; types of businesses; and other details that may be provided.

The FBR has issued a detailed statement on the matter stating that the difficulty of return forms is an example of the complexity of tax law. “However, there is a great need to simplify return forms without compromising on the details required to ensure that the translation is accurate.”

The FBR said that instead of trying to get all the right information on tax refunds, a new section could be set up where taxpayer details could be identified so that the taxpayer could take the correct information.

“A person who is already registered before September 30, 2020, and who receives business income or income through taxation, trust, welfare organizations, non-profit organizations, and other persons appointed by the board is required to submit a profile on or before December 31, 2020 (extended until March 31, 2021). ”

The FBR further stated that persons who received their registration after September 30, 2020 were proposed to submit the issue within 90 days of registration. In the event of a change in the details, those persons will update their details within 90 days of the change.

“The profile contains information relating to income in respect of bank accounts, communications, business premises including all production, storage or sales facilities operated or leased by the taxpayer, types of businesses and other information as determined by the board.”

FBR stated: “If a person fails to provide or update taxpayer details within a specified date or time as extended by FBR under Section 214A of the Ordinance, that person will not be included in the current active taxpayer list for the tax year ending before the due date or extended date.”

However, when filing or updating the profile, such persons will be allowed to be placed in the ATL upon payment of the other proposed tax of Rs20,000 in the case of a company, Rs10,000 in the case of a corporation (AOPs) and Rs1,000 in the case of a corporation of the individual.

“In addition, a fine of non-renewal or non-renewable profile of Rs2,500 per day for non-payment is subject to a minimum penalty of Rs10,000,” FBR said.

Foreign Tax Relief and Tax Treaties for Individuals

foreign tax relief

Foreign Tax Relief
If a person has paid foreign income tax in connection with this salary, then the salary of foreign resources received by a resident is exempt from tax in Pakistan.

Where a resident taxpayer receives foreign sources of income in exchange for taxes in Pakistan, the taxpayers have paid foreign taxes in this regard taxpayers are allowed to pay an amount equal to the tax less than the foreign income tax or an amount equal to the amount of Pakistan tax payable in respect of this income

Foreign sources of income are an exception for non-citizens of Pakistan if the person is a resident only for employment and no one has been in Pakistan for more than three years. This exception does not apply to businesses established in Pakistan and income from foreign sources brought or received in Pakistan.

Tax treaties
Tax treaties represent an important aspect of international tax law in many countries. A tax treaty is a two-party agreement between two countries to resolve issues related to double taxation on the passive and active income of each of its citizens. When an individual or business invests in a foreign country, a problem may arise as to which country will tax the investor’s earnings.

Pakistan has implemented tax treaties with more than 66 countries which are following:

Sr.No Title
1 Bulgaria
2 Hong Kong
3 Brunei Darussalam
4 Czech Republic
5 Nepal
6 Kyrgyz Republic
7 Ukraine
8 Spain
9 Serbia
10 Yemen
11 Vietnam
12 United States of America
13 Uzbekistan
14 United Arab Emirates
15 United Kingdom.
16 Turkmenistan
17 Tunisia
18 Turkey
19 Tajikistan
20 Thailand.
21 Saudi Arabia
22 Syria
23 Switzerland
24 Sweden.
25 Sri Lanka
26 South Africa.
27 Singapore.
28 Romania.
29 Qatar.
30 Portugal
31 Poland
32 Philippines
33 Oman.
34 Norway.
35 Nigeria
36 Netherlands.
37 Morocco
38 Mauritius
39 Malta
40 Malaysia.
41 Lebanon.
42 Libya
43 Korea
44 Kazakhstan
45 Kuwait
46 Jordan
47 Japan

Reference Link: https://taxsummaries.pwc.com/pakistan/individual/foreign-tax-relief-and-tax-treaties



FBR Tax Extension date up to 31st March 2021

tax extension

The Federal Board of Revenue announces the new date for tax extension last Wednesday for taxpayers to update their profiling up to 31st March 2021.

A new section 114A has been added into the Income-tax ordinance 2001 for taxpayers to update their profiles. As per Section 114A, it states:

Section 114A: Taxpayer’s profile.

(1) Subject to this Ordinance, the following persons shall furnish a profile, namely:-

(a) every person applying for registration under section 181;

(b) every person deriving income chargeable to tax under the head, “Income from business”;

(c) every person whose income is subject to final taxation;

(d) any non-profit organization as defined in clause (36) of section 2;

(e) any trust or welfare institution; or

(f) any other person prescribed by the Board.

(2) A taxpayer’s profile-

(a) shall be in the prescribed form and shall be accompanied by such annexures, statements, or documents as may be prescribed;

(b) shall fully state, in the specified form and manner, the relevant particulars of –

(i) bank accounts;

(ii) utility connections;

(iii) business premises including all manufacturing, storage or retail outlets operated or leased by the taxpayer;

(iv) types of businesses; and

(v) such other information as may be prescribed;

(c) shall be signed by the person being an individual, or the person’s representative where section 172 applies; and

(d) shall be filed electronically on the web prescribed by the Board.

(3) A taxpayer’s profile shall be furnished,-

(a) on or before the 31st day of December, 2020 in case of a person registered under section 181 before the 30th day of September, 2020; and

(b) within ninety days registration in case of a person not registered under section 181 before the 30th day of September, 2020.

(4) A taxpayer’s profile shall be updated within ninety days of change in any of the relevant particulars of information as mentioned in clause (b) of sub-section (2).

As per PkRevenue, this is the final date for tax extension, and after the deadline, the tax penalty will be imposed for late submission of tax.