PROPOSAL FOR FORMATION OF DEDICATED DIVISION AT FBR

1- Purpose of Dedicated Division Formation

Existing Structure:
FBR has a complex mechanism for exporters/business/trader facilitation, which is difficult for average user with limited technical capacity. Following systems are in place in FBR: IRIS, E-File Taxpayer Facilitation Portal, IRIS-ADX Application, Centralized Sales Tax & FED Assessment & Processing (CSTAP), Pay-Sys, Risk Management System (RMS), Sales Tax Return Automation System, WEBOC, One Customs Software.

Proposed Solution:
In addition to the existing structure which is not only confusing but non user-friendly as well, there are numerous issues faced by trader/business from initial registration to becoming a taxpayer with FBR. There is a need to establish a dedicated division to:

a) Facilitate the existing taxpayers largely paying 70% of the taxes per annum;
b) Support the foreign prospect companies to be registered in Pakistan to initiate new projects either through joint ventures or establishing their own existence

The proposed division will be reporting to Chairman FBR with user-friendly software and direct & easy communication for clients. The division will have:

a) Competent & suitable HR to be hired from the Market
b) Dedicated and user-friendly web portal having limited to no human interface
c) Digital walk-through for international companies for easy registration process in Pakistan d) Simplifications of procedures and forms
e) Random auditing mechanism through automated system.
f) FBR existing divisions of ‘Integrity Management Cell’ (IMC) for facilitation of taxpayers and unit named ‘Tax Information Processing Unit’ (TIPU) will also be integrated within this division.

2- Operating and maintenance cost

This division will be operating as an integral part of FBR for facilitation of large taxpayers/business. Since a certain percentage of FBR work will be undertaken by this division so FBR needs to allocate annual operating budget for this division, covering salaries of HR, maintenance, hosting and upgrading of software, connectivity, training and facilitation budget, communication and other operational expenses. The same audit requirements would be applicable on this division which is applicable for FBR.

With this new division having HR from the private sector, the employee retention may be an issue for FBR, keeping in view limited vertical growth and restricted remuneration packages under Finance Division for contractual employees. FBR may need to look into this issue and undertake legal amendments in its Act in order to establish this division as a sustainable model.

Budget 2020-21 Highlights

Here are budget 2020-21 highlights:

1- No new tax to give relief to people
2- Ahsas program to continue by increased budget
3- To improve tax collection
4- To decrease in govt. expenditure
5- To improve subsidy system
6- Poverty elevation program
7- Higher education budget increased
8- Measures taken to improve remittances
9- Kamyab Naujawan program budget introduced
10- To improve public services through E-governance
11- Artist welfare fund increase
12- Inflation to be decrease
13- FBI increase by 25%
14- To improve health services by ICT
15- To open smart schools
TAXES :
16- POS of retailer business to increase
17- 14% to 12% sales tax on retailers
18- Hotel minimum tax decrease to 0.5% July to September
19- Fixed tax scheme introduced for Small and medium businesses
20- Export rebate, to direct transfer in business bank accounts
21- Raw Material fully exempt from custom duty to respective nature of businesses having 20000 items
22- Custom duty of 200 items in tariff line decrease
23- PRD to decrease
24- Poor people benefits — corona—supplements etc to be exempted from duties and taxes
25- Custom official powers has been decreased
26- Inclusive of advance ruling methods in custom law
27- Unregistered sales tax person—CNIC condition from 50 thousand to one lakh
28- Covid 19 sales items exemption period increased
29- 237 sro for relief extended for further 3 months
30- 11th schedule of sales tax to improve
31- Increase in FED in all type of cigarettes and its articles increased to 100%
32- Caffine items FED from 13 to 25%
33- Double pick up FED to be taxed as other vehicles
34- 17% sales tax on potassium cholaride decrease

35- 14% sales tax decrease to 12% of big retailers
36- Wastage to fixed in manufacturing business
37- 12 schedule sales tax of VAT—manufacturers no sales tax
38- Cement sector decrease from 2 to 1.75 per kilo
39- If Appeal than reference can be made to following years
40- ADRC law to be change
41- STAY provision to be made in ADRC
42- FED law to be enhanced
43- Sales tax act 9th schedule mobile phone manufacture decrease in sales tax
44- E Audit / video link introduced for audit
45- Online sharing of assess data introduced
46- WHT Regime to delete 9 sectors (Education and marriage hall etc)
47- Commercial importer and manufacturer importing on raw material and machinery from 5.5 top 2% and 1%
48- Machinery examination certificate abolished
49- Aop and individual allowed expenditure to be claimed against property Income
50- Foreign remittances transfer from one bank to another – no tax on that
51- Tax Refund procedure – now changed – one centralized system introduced
52- 152 WHT of non resident for Hajj Companies
53- Advance tax abolished under section 231b and 234 on rickshaw and cars
54- Advance tax payment threshold increased
55- Exemption certificate through automation system
56- Schedule 12 Exemption certificate for advance tax to be produced by person who had already paid advance tax
57- RIET residential properties CGT period extended
58- Free Zone benefits also to be given modern developers
59- To simple law and business only for PE tax deduction to be made
60- Tax deduction under section 235 now fully adjustable
61- Inclusion in Active tax payer list, proper enquiry to be conducted
62- Automatic return process system to be introduce for any error in return if any
63- For and increase in data base and WHT 236V to be introduce
64- Non resident and resident tax should be same
65- Purchase and leased vehicle threshold to be same
66- Depreciation to be as per best international practice
67- NPO status per 2nd schedule section 100C condition to be strictly followed and only those NPO be there who benefits the community in general
68- 10% tax to be paid while filing appeal
69- Auto system advance tax to introduce through IRIS by 5th of every advance tax due date
70- CGT on Immoveable property decrease from 5 years to 4 years
71- Non Resident- royalty, fees etc to be decrease

72- FTR to be filed with section 114
73- Appeal fees increased
74- Section 165 WHT for bio annual now to be filed by 3 months instead of 6 months
75- Immoveable taxation CGT from 8 to 4 years and every year decrease by 25%

Further refer to salient features and brief of budget.
Courtesy :
Adnan Saeed Advocate High Court
A S Law Associates

‘Business activities to continue till May 31 as per notified timings’

Business activities all over Sindh will continue till May 31 as per the directives of the Supreme Court of Pakistan, said Minister for Information Syed Nasir Shah in a statement issued here on Thursday.

The federal government, in consultation with all the provincial governments, has imposed a lockdown till May 31. The Supreme Court, hearing a suo motu case (No. 01 of 2020) on May 18 had given directions that the business activities would continue to operate on all days till May 31.

The National Coordination Committee is scheduled to meet under the prime minister within the next two days to decide on what to do regarding the lockdown. Therefore, till May 31, the business activities would continue to operate as usual as per the timings ordered by the Sindh government through a home department’s notification.

Source: The News

Documenting economy: FBR urged to use data of bourse, the property market

Pakistan Business Council (PBC) has asked the Federal Board of Revenue (FBR) to use stock market/property data and the National Database and Registration Authority (Nadra) information for documenting the economy and providing a level-playing field to the domestic manufacturing from the next fiscal year.

According to the budget proposals of the PBC for 2020-21, the FBR has got access to financial data in various forms including the monthly statements submitted by withholding tax agents of the various withholding deductions made by them.

This can be a start to bringing new taxpayers in the net.

In addition, the FBR has also collected data about tax paid by non-filers on property and on gains made in the stock market.

The information as per statement filed under Section 165A and the NADRA records are also available.

This can be a start to bringing new taxpayers in the net, the PBC added.

The number of taxpayers needs to be increased; the narrow taxpayer base is leading to greater pressure on the existing taxpayers.

An increase in the tax base will reduce the FBR’s ever increasing reliance on existing taxpayers, it proposed.

The monthly sales declared by commercial importers should be matched with sales declared in annual income tax return as well as the credit entries in all business bank accounts.

In case of any discrepancy, reconciliation with justifiable reasons should be submitted by the commercial importers.

Online CREST system must be amended in a way to trace sales along with value addition, thereon of person to whom supplies were made by the commercial importers.

The PBC has proposed that the concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy.

Though large amounts are being collected from non-filers, no effort has been made to increase the tax base.

Non-filers for the most part have built the cost of this government levy into pricing and passed it on to their customers.

The withholding tax regime should be simplified by reducing the number of rates significantly.

The current withholding tax guide available on the FBR website is a 76-page document, clearly shows the complexity of the regime from compliance and ease of doing business.

There needs to be a significant distinction in the withholding income tax rates charged from non-filers vs the rates for filers.

Across the board, massive under-invoicing and dumping of imported products have been increasing.

Information regarding values at which various custom check posts clear import consignments is not publicly available.

This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues, it proposed.

In order to broaden the tax base and to achieve an increase in overall tax collection without burdening existing taxpayers, the policy to increase the tax on non-filers/unregistered persons should be implemented specifically in the following cases:

a) unregistered industrial/commercial entities (not having STRN) having bill amount in excess of Rs20,000 per month, extra sales tax should be increased from five percent to 20 percent.

b) After collection of extra tax as referred above for a continuous period of six months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.

c) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs2.4 million and directing provisionally registered persons to obtain permanent registration.

In case of non-compliance, utility companies be directed to disconnect utility connections.

d) Moreover, in order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies.

In case of failure to provide NTN, electricity connection should be disconnected.

Considering the fact that all industrial/commercial connections will be linked with the NTN, the tax department will then be in a better position to assess the electricity consumed by commercial/industrial users and corroborate the same with amount of sales/production etc. reported in sales tax/income tax return.

e) In order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with them.

Thereafter, such commercial/industrial consumers without NTN should be charged advance income tax at 30 percent (from existing 12 percent) on their utility bills.

Those with NTN but non-filer status be charged at 20 percent WHT.

f) Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs1.2 million per year or levy advance income tax withholding of 20 percent.

g) All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers, so that exempt income is also reported and wealth is reconciled.

h) Withholding tax on international business class tickets under Section 236L is same Rs16,000 for filer and non-filer, it should be increased to Rs50,000 for non-filers.

i) Withholding tax at five percent or Rs20,000, whichever is higher, is applicable under Section 236D on all functions organized by filers as well as non-filers. Rate of withholding be increased for non-filers to Rs100,000 as minimum and no WHT from the filer, PBS added.

News Sources: https://www.brecorder.com/2020/05/28/600647/documenting-economy-fbr-urged-to-use-data-of-bourse-property-market/

Turkey spared EU tax blacklist…

Turkey has survived being included in the EU’s terrorist tax list, the media said on Thursday, despite failing to fulfill its obligations, Brussels is under pressure to avoid tensions with Ankara. The EU’s 27 member states will add the Cayman Islands, sources said, which is the first British overseas site to join the black list since Brexit.
Panama is yet to return to that black list of tax havens, with Seychelles and Palau being added. The list will be confirmed by EU finance ministers at a meeting in Brussels next Tuesday.
Although Turkey is failing to comply, a EU source said the country had “escaped from bad labor”. Turkey was in the process of introducing an automatic exchange of tax information with EU member states in 2019, but was “given more time for political reasons”, the source said, without further comment.
The EU is relying on Turkey to reduce the migration from war-stricken Syria, but relations have deteriorated since the political purges led by President Recep Tayyip Erdogan after an attempted coup in 2016. including the Panama Papers and LuxLeaks, forcing Brussels to do more to counter the tax cuts by multinationals and the rich.
EU member states cannot be on that list and the countries named are subject to limited restrictions, which include eliminating them without European aid or development funding. The black list of the EU currently includes eight countries or areas of law: American Samoa, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, the American and Vanuatu Islands.