Transcript Slide 1

BUDGET PROPOSAL 2009
ON INCOME TAX
The Income Tax Bar Association,
In Collaboration with
Pakistan Tax Bar Association, Karachi
April 25, 2009
Presented by:
Ali A. Rahim
Director
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TAX REFORMS

Bigger the Tax Base-Lesser the Rates
It is now well settled through studies that bigger the tax base is, the
lesser the rates of tax can be
Further, efforts must be made to bring more people into tax base.

Establishment of Research and Development Department
under the auspicious of Federal Board of Revenue (FBR) in
corroboration with Business Community, Professionals,
Tax Advisors and other Stake holders:
Area of studies-examples 



Undocumented economy
E-Commerce
Economic and Tax Factors
Contribution by different Sectors According to percentage of
G. D. P.
2
TAX REFORMS
(Contd…)
 Further, encouragement and Incentives be provided for
Savings and Investment
 New provision to be introduced for Tax Credit for
investments made in National Saving Schemes and quoted
and unquoted mutual funds to give incentives for savings
which will create investment and employment
 It is proposed that tax should be imposed on all segments
of the society. Exemptions and concessions to certain
classes of income or classes of persons be abolished.
 SME
It is proposed that reduced rates be Extended for Small
Company and Medium Enterprise (SME), and those
companies incorporated before July 01, 2005.
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TAX REFORMS
(Contd…)

CAPITAL GAINS
Capital gain on sale of properties should be reintroduced
by the provincial governments and collection of this tax
should be handled by the FBR and then transferred to the
Provinces.
Capital gain on sale of shares should only be exempted
subject to certain conditions.

Tax payers may be given incentive if they give
documented bills for sales and supply, contracts or
services.
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TAX REFORMS
(Contd…)
 For automation and facilitation Common Tax Identification (CTI)
number to be introduced for Companies and Firms and CNIC
for Individuals.
 Efforts to be made for effective legislation of Regulations which
require mandatory incorporation of the above on all the
documents executed in any form, at any stage e.g.
(a) Transfer of Properties
(b) Transfer of Shares
(c) Transfer of Vehicles any model or cc
(d) Bank Documents
(e) Travel Documents
(f)
Large Expenditures
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IRRITANTS
 Return forms which remained constant for a few years were
changed year before tax. This should not be changed for the next
few years, so that they become user friendly.
 Quarterly statements should be reintroduced instead of monthly
statements.
 E-filing of returns and statements should not be made
mandatory.
 Jurisdiction for monitoring of tax on deductions be clearly made
and these should be checked once in three (3) years.
 Selection of cases for audit should be made on scientific basis,
after only cross verification with third party information.
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PERMANENT ESTABLISHMENT
Section 2(41)
ISSUE
The perusal of the definition shows that under
Sub-section (d) and (f) any services or any substantial
equipment installed or other assets or property
capable of activities giving rise to income has been
included
PROPOSAL
Since, the industrial growth has been promised by the
government. It would be appropriate that a minimum
period of suitable time be included in Sub-section (d)
and (f). A minimum period, therefore, is suggested to
also be 90 days.
RATIONALE
To correspond the provisions with treaty provisions
7
ROYALTY
Section 2(54) (g) & 37(5)
ISSUE
The consideration for the disposal of any property
or right referred to in Sub-clauses (a) through (e) are
included within the definition of term royalty. If the
definition of the capital assets as contained in
Sub-section (5) of section 37 is read, the disposal of
any property or right falls under the purview of
Sub-section (5) of section 37
PROPOSAL
It is, therefore, suggested that clause (g) of section
2(54) be deleted which is overlapping section 37(5).
RATIONALE
To avoid confusion and overlapping
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ROYALTY & FEE FOR
TECHNICAL SERVICES
Section 6 & Rules 18 & 19 of
the Income Tax Rules, 1982
ISSUE
Option under Rules 18 & 19 of the Income Tax Rules,
2002 read with section 6
PROPOSAL
The said concession should either be brought in
through an amendment in section 6 or it may be put
in Second Schedule, which is part of the statute itself
RATIONALE
The intention of the lawmaker appears to be to allow
the non-resident persons having a permanent
establishment in Pakistan to avail final tax basis
assessment as provided under section 6 read with
section 8. According to the rules of interpretation,
rule cannot override the main statute, the concession
given to the non-residents in the said rules is not
legally proper, this is despite the fact of usage of
words “Subject to the Ordinance” appearing in the
beginning of section 6.
9
TAXABILITY OF EMPLOYEES
CONTRIBUTE TO PROVIDENT FUND
Section 12, Sixth Schedule Part I Rules 3.
ISSUE
By virtue of an amendment made in Rule 3 of Part I
of the Sixth Schedule to the Income Tax Ordinance,
2001, any amount in excess of Rs. 100,000/- paid to
an employee by a Provident Fund is taxable in the
hands of the employee.
PROPOSAL
It is proposed that this additional burden on the
salaried class may be withdrawn.
RATIONALE
Since the salaried class is the most tax compliant
class of people and paying their due share of taxes
as applicable, they should not be further burdened.
10
INCOME FROM PROPERTY
Section 15(2)
ISSUE
Under this section, a charge is created on rent
received or rent receivable by a person in a tax year
other then the rent exempt from tax under this
Ordinance. Sub section (2) defines the term “Rent”
which means any amount received or receivable by
the owner of land or a building as consideration for
the use or occupation of, or the right to use or
occupy, the land or building and including forfeited
deposit paid under a contract for sale of land or a
building
PROPOSAL
It is suggested that in Sub-section (2), where-ever
the word “Or” has been used between the
expressions “The Land” “Building” said “Or” be
replaced by “And”
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INCOME FROM PROPERTY
(Contd…)
RATIONALE
Section 15(2)
Under the provisions of section 39 (1)(d), ground rent
has been specially dealt with arising out of the land
alone. Since the word “Or” has been used in
definition clause in between “Land” and “Building”,
it is suggested that according to the rules of
interpretation, it connotes disjunctive consideration.
It seems the intention of legislature is that if an
amount is received or receivable by the owner of
land & building, such amount would be treated as
rent. As such, rent of land is being specially and
separately dealt with under section 39.
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ACCRUAL BASIS OF ACCOUNTING
Section 34(5)
ISSUE
Where liabilities are not discharged within three
years.
PROPOSAL
It is, proposed that words used in Sub-section (5)
“Expenditure” be replaced by word “Trading
Liability”
13
STOCK IN TRADE
Section 35
ISSUE
Under this section, the concept of determination of
the cost of Stock in trade disposed of has been
introduced. Generally in the cases of companies, the
valuation has to be mandatorilly made on the basis
of International Accounting Standards.
PROPOSAL
It is, therefore, proposed that in section 35, whereever word “Person” has been used, words “Other
Than Companies” may be inserted.
RATIONALE
Conversance of Tax
Accounting Standards.
laws
with
International
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INCOME FROM OTHER SOURCES
Section 39(3)
ISSUE
Loan, advances, deposit for issuance of shares
and gifts otherwise than by a crossed cheque
drawn on a bank or through normal banking
channel from person holding NTN Card. However
practical difficulties arise in respect of payment
received as loan or gift from non-resident to
family members.
PROPOSAL
It is therefore, proposed that a proviso be added
for dispensing with the condition of NTN
(Certificate) for amounts received from abroad.
15
INCOME FROM OTHER SOURCES
(Contd…)
Section 39(3)
ISSUE
The world is moving very fast. The concept of
paper money is being replaced by plastic money.
The normal banking practices are now absorbing
concept of electronic banking. One may receive
loan, gift or advance through other mode of
transfers.
PROPOSAL
(a) It is, therefore, suggested that the condition
of holding an NTN should be abolished. Since all
bank accounts have CNIC's.
(b) Advance Rent received be included
Sub-section (4) subject to just and reasonable
restrictions.
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GROUP TAXATION
Section 59(AA)
ISSUE
This concepts were introduced in 2007, but was
subject to corporate governance requirements,
specified by Security Exchange Commissioner of
Pakistan (SECP) and rules to be framed by FBR.
PROPOSAL
Two years have elapsed and yet the corporate
governance requirements and rules of the FBR
have not been enacted. A draft rule has been now
circulated vide SRO 301(I)/2009 dated April 07,
2009 along with 98 other changes. We hope that
this will finally be adopted soon.
17
GROUP RELIEF
Section 59(B)
ISSUE
This concept was introduced in 2004 and was
amended in 2007, and was subject to such
corporate governance requirements specified by
SECP and designated as companies entitled to
claim relief.
PROPOSAL
Since a new draft rule has now been circulated
vide SRO 301(I)/2009 dated April 07, 2009 we are
optimistic that this will be enacted soon.
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INVESTMENT IN SHARES
Section 62
ISSUE
Increase in investment rebate.
PROPOSAL
It is proposed that the limit of investment should
be increased to Rs. 500,000/-
RATIONALE
To encourage investment for industrialization.
19
FAIR MARKET VALUE
Section 68
ISSUE
Discretion of the Commissioner
PROPOSAL
It is, proposed that suitable parameters for
valuation may be prescribed by the FBR in the
Income Tax Rules, 2002 and for the purposes of
Immovable properties, changes have been
suggested in SRO 301(I)/2009 dated April 07, 2009.
However, for the basis of valuation of constructed
properties the fair market value is to be determined
by the Commissioner of Income Tax. It is suggested
that the collector valuation should be accepted on
one side and the valuation table of the collector
should be substantially increased to being it in
close proximity to the actual market price.
RATIONALE
To eliminate the chance of encouraging corruption.
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NON-RECOGNITION RULES
Section 79(1) (D)
ISSUE
Under section 79(1) under clause (d) no gain or
loss shall be taken to arise where the asset is
compulsorily acquired under any law, but a
condition has been put that such gain or loss will
not be taken if consideration received is
reinvested by the recipient in any asset of a like
kind within one year of the disposal.
PROPOSAL
It is, proposed that words “Of A Like Kind” be
deleted.
The period for reinvestment i.e. one year is too
short. This may be increased to atleast three
years.
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NON-RECOGNITION RULES
(Contd…)
Section 79(2)
ISSUE
Sub-section (2) of section 79 stipulates that
provisions of section (1) shall not apply where
person is a non-resident. This seems to be
discriminatory and could cause unnecessary
hardship in the case of gift and transmission of
the asset to an executor or beneficiary on the
death of a person and distribution of assets to
non-resident members of an AOP or non-resident
shareholder in the case of a company, in the event
of liquidation of the company or dissolution of an
AOP.
PROPOSAL
It is, proposed that Sub-section (2) be deleted.
RATIONALE
To eliminate discrimination.
22
FURNISHING OF RETURN AS
REPRESENTATIONS
Section 115(4)&172(3)(C)
ISSUE
Companies paying dividends to non-residents may
be treated as representative and asked to file
statements
under
section
115(4)
by
the
commissions.
PROPOSAL
It is proposed that such companies may not be
treated as “Representatives” for the purposes of
dividends declared if they file the statement under
section 165 (as is the case of salary income).
RATIONALE
To reduce burden on companies for filing returns as
representatives.
23
EXTENSION OF TIME FOR FURNISHING
RETURN & OTHER STATEMENTS
Section 119(2)
ISSUE
Application to the Commissioner.
PROPOSAL
It is proposed that right of representation before
the Director General may also be introduced to
redress the grievance of taxpayers, if the said
application is rejected by the Commissioner of
Income Tax.
RATIONALE
Principles of natural justice.
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EXTENSION OF TIME FOR FURNISHING
RETURN & OTHER STATEMENTS
(Contd…)
Section 119(6)
ISSUE
According to Sub-section (6) extension of time
granted under Sub-section (3) shall not for the
purpose of charge of additional tax under
Sub-section (1) of section 205 change the due date
for payment of Income Tax under section 137. The
interpretation of this Sub-section (6) plainly shows
that addition tax imposition shall not stop running.
PROPOSAL
It is, proposed that Sub-section (6) may kindly be
deleted.
RATIONALE
It is submitted that once extension is granted by
the Commissioner, it cannot be said that Taxpayer
has failed. Even otherwise, once the Commissioner
grants time, it will be very harsh in genuine cases.
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DECESION IN APPEAL BY
THE COMMINISSIONS
Section 129
ISSUE
Upto the year 2005 the Commissioner of Income
Tax (Appeals) [CIT(A)] had the power to set aside
orders framed by the assessing offices.
PROPOSAL
It is, proposed that this power to set aside the
appeal should be re-incorporated in the law.
RATIONALE
It has been noticed that to give relief, the CIT(A) is
required to examine evidences. However due to
paucity of time and with the staff that is posted
with the CIT(A) it is not possible for the CIT(A),
hence this power to set aside be re-incorporated in
the law.
26
DISPOSAL OF APPEALS BY
APPELLATE TRIBUNAL
Section 132(2)
ISSUE
Appeal can be dismissed in default
PROPOSAL
It is, proposed that said Sub-section (2) may
accordingly be amended in the following manner –
“The Appellate Tribunal shall afford an
opportunity of being heard to the parties and in
case of failure to attend the appeal by the person
filing the appeal, the tribunal may proceed exparte to decide the appeal on the basis of the
available record”
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DISPOSAL OF APPEALS BY
APPELLATE TRIBUNAL
(Contd…)
Section 132(2)
RATIONALE
In fiscal laws, and more particularly law governing
Income tax, it has been the practice to decide the
matters on merits, as Income Tax Appellate
Tribunal (ITAT) is the last fact finding authority and
by virtue of Sub-section (1) of section 132, the
decision of the Appellate Tribunal on an appeal
shall be final.
In our considered opinion, the language used in
Sub-section (2) is defective and needs suitable
amendment as it cannot be presumed that
legislature intended to cause injustice.
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ALTERNATE DISPUTE RESOLUTION
Section 134A Read with Rule 231(C)(6)
ISSUE
Time limit of 30 days for disposal
PROPOSAL
Period for disposal of application by
Committee to be extended from 30 to 90 days
RATIONALE
Reasonable period for effective decision making
ADR
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ALTERNATE DISPUTE RESOLUTION
(Contd…)
Section 134A Read with Rule 231(C)(15)
ISSUE
PROPOSAL
RATIONALE
-
Time limit for decision by Central Board of
Revenue (CBR)
-
Rejection of recommendation by CBR
-
Appropriate time limit for decision by CBR
preferably six months be incorporated
-
Cogent reasons for disagreement with
recommendation of the committee must be
given by FBR.
Effective decision making
30
STAY OF DEMAND
Section 137
ISSUE
Unrealistic and frivolous demands are created by
the tax authorities due to pressure on them.
PROPOSAL
Automatic stay of demand upto 85% for first stage
of appeal and 50% till the ITAT stage of appeal be
provided (as was provided in the Repealed
Ordinance, 1979).
RATIONALE
Principles of natural justice.
31
ADVANCE TAX
Section 147(4)&(4B)
Appropriate amendment be made to adjust - unadjusted
amount of tax of one quarter to another within the same tax
year (refer to the formula).
32
EXEMPTION CERTIFICATE
Section 153
ISSUE
Group companies which share common expenses
reimburse the same to the company that actually
pays the expenditure, after deduction of the relevant
tax.
PROPOSAL
It is, proposed that reimbursement of expenses,
between group companies should be exempted from
the deduction of tax.
RATIONALE
To reduce the cash flow burden and also the
process of refund.
33
EXEMPTION OR LOWER
RATE CERTIFICATE
Section 159
ISSUE
Grant of an exemption or lower rate certificate
PROPOSAL
It is, proposed that words “Within 15 Days” may be
inserted after the words “The Commissioner Shall”
in Sub-section (1).
The right of appeal be provided to challenge the
refusal of application before the CIT(A).
RATIONALE
No time frame prescribed.
34
STATEMENT REGARDING
IMMOVABLE PROPERTIES
Section 165
ISSUE
In the Repealed Ordinances, under the provisions
of section 143A every Registering Officer, Revenue
Officer or Other Officer appointed to register any
documents relating to property (other than
agricultural land) under the Registration Act, 1908
was required to furnish a statement regarding the
properties, the value of which was not less than
Rs.50,000/- registered with him during the
preceding financial year.
PROPOSAL
It is recommended that this provision be brought
in under the Income Tax Ordinance, 2001.
RATIONALE
In our opinion, such statement is instrumental for
broadening the tax base.
35
REFUNDS
Section 170
ISSUE
Refund applications and order thereon.
PROPOSAL
It is, proposed that following amendment be made
In clause (b) of Sub-section 2 word “And” be
deleted and clause (c) (prescribing time limit to file
Refund application) be deleted
Without Prejudice:
In case no order is passed by the Commissioner
on the said application,
It is, proposed that a provisio be added after
Sub-section (4) as under: 36
REFUNDS
(Contd…)
Section 170
“Provided that if no order is passed within the time
specified in this Sub-section, the application shall
be deemed to have been accepted and all the
provision of this Ordinance shall have effect
accordingly”
Without prejudice to above
Sub-section (5) is not in conformity with section
127, therefore, it is proposed that necessary
amendments be made.
RATIONALE
Good governance and to fill up lacunas.
37
PENALTY FOR NON-PAYMENT OF TAX
Section 183
ISSUE
Penalty for non-payment of tax (other then
penalty) has been imposed on the failure of
payment any tax due by the due date. A person is
liable for penalty at various rates of penalties
ranging for 5% to 100% of such tax due. No time
frame is provided for imposition of penalties
between each default.
PROPOSAL
It is proposed that a proviso be added to provide
the time frame between each event
“Proviso”
Provided that no penalty shall be imposed in case
of subsequent failure unless the time between
passing of each order is not less than 30 days.
RATIONALE
Curative amendment.
38
ADVANCE RULING
Section 206A
ISSUE
Advance ruling provisions to non-residents.
PROPOSAL
Appropriate amendment is proposed to widened
and extended the scope to other resident taxpayers
also.
39
INCOME TAX PRACTITIONER
Section 223(2)(F)
ISSUE
Appearance before tax authorities.
PROPOSAL
It is proposed that Income Tax Practitioner (ITP)
should be replaced with Federal Tax Practitioners
(FTP).
RATIONALE
Since one window is being implemented for all
Federal Taxes, “Inland Revenue” so the person can
also represent in Sales Tax and Federal Excise
cases–facilitation.
40
TAX WITHHOLDING ON CASH
WITHDRAWAL–INCREASE IN THRESHOLD
Section 231A
ISSUE
Cash Withdrawal from banks – tax withholding.
PROPOSAL
Threshold be increased from Rs. 25,000/- to
Rs. 50,000/-
RATIONALE
Relief for small Withdrawals.
41
RATE OF TAX - NON SALARY
First Schedule Part-I Division 1
ISSUE
Exemption limit.
PROPOSAL
Exemption should be increased to Rs. 250,000/-
RATIONALE
Relief to taxpayers.
42
RATE OF TAX - SALARY
First Schedule Part-I Division 1A
ISSUE
Exemption limit
Applicable rate of tax
PROPOSAL
Exemption should be increased to Rs. 300,000/It is proposed that the slabs should be readjusted
to provide relief to taxpayers.
RATIONALE
Relief to the salaried class.
43
EXEMPTION FOR WIDOWS
& SENIOR CITIZENS
New Clause Part- I Second Schedule
ISSUE
Behbood Certificates and Pensioners Benefit
Account can only be purchased by widows and
seniors citizens and are exempted for deduction of
tax but have to pay tax on filing of the annual
return.
PROPOSAL
They should be given special relief, by exempting
them from tax on these certificates and accounts.
RATIONALE
To give benefit to the senior citizens for reduction
of profit and effect of inflation.
44
RATE OF TAX – QUOTED COMPANIES
First Schedule Part-I Division II
ISSUE
Applicable rate of tax.
PROPOSAL
It is proposed that the rate of tax for quoted public
companies be presently reduced to 30% from 35%.
RATIONALE
To encourage companies to be quoted on the stock
exchanges.
45
EXEMPTION – COMPUTER
TRAINING INSTITUTES
Clause 93-Part-I Second Schedule
ISSUE
Computer
2005).
Training
Institutions
(expired
June
PROPOSAL
Period of Exemption be extended upto June 2010.
RATIONALE
To promote computer literacy.
46
MINOR CORRECTIVE AMENDMENTS
Deduction of Tax at Source

Clause (36A) of Part IV of Second Schedule to be made as
Part of Clause (59) of Part IV of Second Schedule
Charges – Rule 230

Due to availability of returns and statements through
internet Rule 230 to be deleted.
National Tax Number – Section 181 read with Rule 83

Substitution of Word Card with Certificate.
47
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