Transcript Slide 1

A. Qadir & Company
1
1
Presentation at the
Organized by
Karachi Tax Bar Association
by
Former President
Pakistan Tax Bar Association
On June 07, 2014
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Budget direction
Filer Versus Non-Filer
Enhancement of Tax Rates
Withdrawal of Concession/ Exemptions
Widening of Scope of withholding tax for Broadening
of Tax Base
Minimum Tax on certain persons
Concept of Alternative Corporate Tax
Rationalization of Taxation for Capital Market
Incentives for setting up of Industrial Undertaking &
Others
Appointment of Member of the Appellate Tribunal
Opting out of Final Tax Regime
Income Support Levy.
Create clear difference between taxpayer and nontaxpayer;
Broadening through introduction of new withholding
tax regime;
Plug Loopholes;
Share of Direct Taxation shall increase from 36.5% to
37.5%;
Withdrawal of concessions of over Rs. 100 Billion;
Exemptions to infrastructure related industrial
undertakings;
Exemptions to industrial undertakings set up with FDI;
Incentivize export and textile sectors; and
Rationalization of taxation for capital market.
Concept of filer and non filer has been
introduced by inserting new Clauses (23A) and
(35C) in Section 2 of the Ordinance; whereby it
has been defined as under:“Filer” means a taxpayer whose name appears in
the active taxpayers’ list issued by the Board
from time to time or is holder of a taxpayer’s
card; and
“Non-filer” means a person who is not a filer.
Nature of Receipt
Section
Existing
Rate
Proposed Rates
Filer
Non-Filer
Dividend
150
10%
10%
15%
Profit on debt not exceeding Rs.
500,000
151
10%
10%
10%
Profit on debt exceeding Rs.500,000
151
10%
10%
15%
Cash withdrawal
231A
0.3%
0.3%
0.5%
Registration of new locally
manufactured motor vehicle,
transfer of registration or ownership
of a private motor vehicle and sale
of motor car and jeep with engine
capacity below 850cc to 3000cc and
above
231B
Various
rates
Rs.
10,000/to
150,000
Various
rates
Rs.
10,000/to
250,000
Various
rates
Rs.
10,000/to
450,000
International first / business /club
class travel
236L
NIL
3%
6%
Nature of Receipt
Section
Existing
Rate
Proposed Rates
Filer
Non-Filer
Collection of advance tax from
other private motor cars
alongwith motor vehicle tax
with engine capacity from
850cc to 2000cc and above .
234
Various
rates
750/- to
8,000/-
Various
rates
Rs. 1,000/to
12,000/-
Various
rates
Rs. 1,000/to
24,000/-
Collection of advance tax
where motor vehicle
tax is collected in lump sum
234
7,500/to
80,000/-
10,000/- to
120,000/-
10,000/- to
240,000/-
Sale of immovable property
from seller
236C
0.5%
0.5%
1%
Purchase of immovable
property by buyer if
purchase value is more than Rs.
3 million
236K
NIL
1%
2%
Particulars
Sale of Goods
Rendering of or
providing of Services
Execution of Contract
Export Oriented Services
Commission or discount
on Petrol Pumps
Commission or Brokerage
other than Advertising
Commission paid to
Advertising Agents
Companies
Other Taxpayers
Existing Proposed Existing Proposed
Rate
Rate
Rate
Rate
4%
4.5%
3.5%
4%
8%
10%
6%
7%
7.5%
1%
12%
6.5 %
0.5%
10%
10%
12%
10%
12%
5%
7.5%
5%
7.5%
6%
0.5%
10%
7%
1%
12%
Mandatory to obtain National Tax Number
181AA has been proposed to be inserted in view of current
efforts of the Federal Government to enlarge the tax base of
the country and bring up the tax to GDP ratio. It is proposed
to be made mandatory for a person to obtain National Tax
Number first before getting new commercial or industrial
connection of electricity or natural gas. The new section
intends to impose embargo on processing of application and
providing of such connections.
We are of the view that FBR should revisit the procedural
requirements or SOP for issuance of NTN as the current
procedure already requires number of electricity meter and
last paid bill of electricity/utility along with application for
NTN.
Rice Exporters Association
Presently, the Rice Exporters Association of Pakistan
(REAP) is entitled to reduce rates of tax deduction
under Section 153(1)(a) of the Ordinance on sale of
rice to Utility Stores Corporation (USC) in accordance
with the specified agreements signed with the
Ministry of Food, Agriculture and Livestock. The
Finance Bill proposes to omit Clauses (13HH) and
(13HHH) of Part II of the Second Schedule in order to
withdraw the concession allowed to REAP. Now the
supplies of rice to USC by REAP will be subject to
withholding of tax at normal rates.
Foreign News Agencies
Presently, the payments to foreign news agencies, syndicate
services and non-resident contributors are exempt from
withholding of tax under Section 152 of the Ordinance. Though the
payment is exempt from withholding of tax at source, the Pakistansource income of aforesaid organizations is not exempt. It was
alleged by the tax authorities that due to exemption, their income
escaped to have been properly taxed. The Finance Bill proposes to
omit Clause (41B) of Part IV of the Second Schedule to bring the
aforesaid organizations or their local agents under tax net in order
to broaden the tax base.
Companies Operating Trading House
The Finance Bill has proposed to insert explanation to clarify that
exemption from the application of provision of section 153 is
available as a recipient and not as withholding agent.
Nature of Receipt/Transaction
Section
Rate of Tax
Filer
NonFiler
Contract signed by a Sportsperson
153(1)(c)
10%
10%
Director Fee
149 (3)(4)
20%
20%
Registration of new locally manufactured
motor vehicle, transfer of registration or
ownership of a private motor vehicle and
sale of motor vehicle and jeep with engine
capacity below 850cc to 3000cc and above.
231B
Various
rates
Rs.
10,000/to
250,000
Various
rates
Rs.
10,000/to
450,000
International first / business class travel
236L
3%
6%
Purchase of immovable property by buyer
if purchase value is more than Rs. 3 million
236K
1%
2%
Domestic Electricity Bill, exceeding monthly
bill of Rs.100,000/-
235A
7.5%
7.5%
Presently, under section 113 minimum tax at the rate of 1% of
the declared turnover is applicable to every company and
individual or association of persons having annual turnover of
Rs.50 million or more, where there is no tax payable or tax so
payable is less than the minimum tax computed at the rate of 1%
of the declared turnover. The taxpayers are also allowed to carry
forward minimum tax in next five years and set-off the same
against the normal income tax in that year(s).
The provisions of Clauses (7), (8), (9), (10), (12), (13), (14) and
(15) of Part III of the Second Schedule provides reduction of
minimum tax rates applicable to specified class of taxpayers. The
Finance Bill seeks to consolidate the minimum tax rate including
reduced rates in Division IX of Part I of the First Schedule to the
Ordinance for more clarity and easy referencing and omit the
aforesaid clauses.
The above consolidation has resulted in the following changes:Presently, the distributors of consumer goods including fast
moving consumer goods are entitled to a reduction of 80% of
minimum tax as computed under Section 113 of the Ordinance.
The said benefit appears to be withdrawn.
Presently, distributors of cigarettes manufactured in Pakistan are
entitled to reduction of 80% of minimum tax as computed under
Section 113 of the Ordinance. The words “manufactured in Pakistan”
have not been specified under the division, meaning thereby that
benefit is also extended to distributors of cigarettes including imported
cigarettes.
Moreover Certain exemptions from application of minimum tax provided
under clauses (11A), (16), (19) and (57) of Part IV of the Second Schedule to
the Ordinance and where a company declare gross loss before set-off of
depreciation will remain available to such taxpayers.
The law of Alternative Minimum Tax is prevailing in USA
and India. It is parallel computation of tax mechanism in
the same universe. It was believed through AMT by the
legislators that use of certain tax incentives by profitable
companies to either eliminate or substantially reduce
income taxes could be restricted. The Finance Bill seems
to borrow the same concept; whereby a company in
Pakistan, except insurance companies, companies
engaged in exploration and production of petroleum and
banking companies, would be subject to Alternative
Corporate Tax (“ACT”) at the rate of 17% on their
accounting income under section 113C subject to the
conditions laid down under the new section.
The definitions of “Accounting Income”, “Alternate
Corporate Tax” and “Corporate Tax” have been provided
to avoid confusion. The following classes of income shall
be excluded from the ambit of accounting income for the
purpose of ACT:•Exempt income;
•Capital gains on specified securities;
•Income subject to final taxation derived from
imports, dividends, supplies, contract receipts,
various specified services to exporters, exports, prize
& winnings and brokerage & commission; and
•Income subject to tax credit under section 65D and
65E.
•Tax credits in respect of extension, expansion, balancing,
modernization and replacement of the plant and machinery
shall be allowed against ACT.
•Expenses shall be apportioned for determining the
Accounting Income and amount treated as taxable income.
•The higher of corporate tax or ACT will be payable by the
company for a tax year; however, excess ACT for the year shall
be carried forward and adjusted against tax payable for
immediately succeeding ten years.
•The Commissioner is authorized to make adjustments to
compute Accounting Income as per historical accounting
pattern excluding share from associates recognized under
equity method of accounting after providing an opportunity
of being heard.
Capital Gains on disposal of Securities including Debt
Securities
Holding period
Tax
Tax year 2015 Tax year 2015
year
2014
already
prescribed
proposed by
Finance Bill
Less than six months
10%
17.5%
12.5%
More than six months
but less than twelve
months.
8%
9.5%
12.5%
Twelve months or more
but less than twenty
four months
0%
0%
10%
Twenty four months or
more
0%
0%
0%
Exemptions of Income of Collective Investment Scheme or a REIT
Scheme
Presently any income derived by a Collective Investments Scheme or
REIT scheme is exempt from tax, if ninety percent of its accounting
profits for the year, as reduced by capital gains, whether realized or
unrealized, is distributed amongst the unit or certificate holders or
shareholders as the case may be.
Few of the Collective Investments Scheme distributed profits through
bonus shares which was disputed by the tax department and
exemption was denied.
The Bill proposes to insert proviso in Clause (99) of Part I of the
Second Schedule whereby for the purpose of determining distribution
of at least 90% of accounting income, the income distributed through
bonus shares, units or certificates as the case may be, shall not be
taken into account.
Taxability of Bonus Share
The scope of ‘income’ as defined in Section 2(29) has now been
extended to include ‘Bonus Shares’ issued by the companies.
The mechanism of tax collection has been proposed by inserting
new section 236M to the Ordinance as under:
Every person issuing bonus shares to a shareholder of the
company, shall collect tax at the rate of five per cent on the
value of the bonus shares determined on the basis of day-end
price on the first day of closure of books; and
The company issuing bonus shares shall make adequate
arrangements for collection of such tax and tax so collected
under this section shall be a final tax on the income of the
shareholder of the company arising from issuance of bonus
shares .
Withholding of tax on Capital Gain arises on disposal of
Securities from “Foreign Institutional Investors”.
Presently under section 100B Capital gains on disposal of
securities and tax thereon, is computed, determined,
collected and deposited by the NCCPL in accordance with the
rules laid down in the Eighth Schedule; other than the (a) a
mutual fund; (b) a banking company, a non-banking finance
company and an insurance company subject to tax under the
Fourth Schedule; (c) a modaraba; (d) a “foreign institutional
investor” being a person registered with NCCPL as a foreign
institutional investor; and (e) any other person or class of
persons notified by the Board.
The Bill now proposes to withdraw the exclusion of “foreign
institutional investor” from withholding of tax on Capital Gain
by the NCCPL.
Exemption to China Overseas Ports Holding Company Limited
Presently, exemption for income is provided to the entities namely,
Gwadar Free Zone Company Limited, PSA Gwadar International
Terminal Limited, Gwadar Marine Services Limited and PSA Gwadar
PTE Limited. We understand that the Gwadar port operations have
been acquired by China Overseas Ports Holding Company Limited.
Now, the Finance Bill proposes to extend the same exemption to
China Overseas Ports Holding Company Limited for the remaining
period by inserting Clause (126A) in Part I of the Second Schedule.
Fruit Processing or Preservation Unit
The Finance Bill propose to insert Clause (126H) to provide
exemption for profits and gains derived from a fruit processing or
preservation unit for a period of five years provided that such unit
is set up in Balochistan Province, Malakand Division, GilgitBaltistan and FATA between 01.07.2014 to 30.06.2017.
Industries Set-up with FDI
The Finance Bill propose to insert Clause (18A) to provide reduced
rate of tax at 20% for a company setting up an industrial
undertaking for a period of five years provided that it is set up
between the first day of July, 2014 to the thirtieth day of June,
2017 and Fifty percent of the cost of project including working
capital is through owner foreign direct investment.
Coal Mining Projects in Sindh
The Finance Bill proposes to insert Clause (132B) in Part I of Second
Schedule to provide exemption for profits and gains derived from
coal mining projects in Sindh, supplying coal exclusively to power
generation projects. The above projects are also proposed to be
exempt from levy of minimum tax under Section 113 of the
Ordinance as per proposed insertion in Clause (11A)(v) of Part IV of
the Second Schedule
Prior to the Finance Act, 2013 persons who have
exercised the powers of a District Judge or have
been an advocate of a High Court or were qualified
to be a Judge of a High Court and eligible to be
appointed as judicial member of the ATIR. However
the Finance Act, 2013 amended section 130 of the
Ordinance; whereby an officer of Inland Revenue
Services in BS-20 and is a law graduate can be
appointed as Judicial Member of the ATIR. The
ATIR is the last forum on finding of the facts of
matter of the appellant.
The tax bars, professional bodies like ICAP and ICMA, chambers,
experts and taxpayers agitated against this amendment and
pointed out that the said amendment is in violation of following
Para 5 of the National Judicial Policy, 2009.
“All Special Courts/Tribunals under the administrative control of
Executive must be placed under the control and supervision of
the judiciary”
The Honorable Supreme Court in Government of Baluchistan Vs
Azizullah Memon, PLD 1993 SC 31 has categorically held that
"Separation of judiciary from executive is the cornerstone of
independence of judiciary". This applies equally to ATIR. To
dispense fair justice and equity the FBR should consider not to
recommend both the Accountant and Judicial Members to
review its own revenue order.
The aforesaid issue of uncalled for amendments made through the
Finance Act, 2012 and 2013 was raised by the representative of
PTBA alongwith other Professional associations during the
last Tax Advisory Council meeting; wherein the Honourable Finance
Minister given his consent to incorporate the agreed proposal
made by the PTBA and other Professional associations. But once
again appropriate amendment could not be proposed in the above
section in the present Budget. The Senate of Pakistan in the current
session passed the following proposal through Services Tribunals
(Amendment) Act, 2014:“The Services Tribunal Bill seeks to bring appointments of tribunal
members in line with procedures followed for appointments to the
judiciary, making the tribunals financially autonomous and
empowering them to implement their decisions.”
We strongly feel that the same principle should be applied for the
ATIR and Customs Tribunal as well.
Class of Taxpayer /
Description of
Transaction
Minimum tax liability should not be less than
Tax Year 2014
Tax Year 2015
Other than
Companies
Companies
Commercial Importer
60% of tax collected
at import stage
Sale of Goods
70% of tax deducted
at source on such
sales
3.5% of the 4% of the gross
gross amount
amount of
of such sales
such sales
Exports and Indenting
commission
50% of tax collected
at the time of
realization of Export
and indenting
commission
proceeds
Not eligible to
opt out for
normal tax
regime
5.5% of the
value of
Imports
6% of the
value of
Imports
Not eligible to
opt out for
normal tax
regime
Class of Taxpayer
/ Description of
Transaction
Contracts
Services provided to
Exporter and Export
House
Petrol Pump
Operators
Commission Agents
Minimum tax liability should not be less than
Tax Year 2014
Tax Year 2015
Other than
Companies
Companies
Not eligible to opt
out for normal tax
regime
6% of Contract
Receipts
6.5% of Contract
Receipts
0.5% of the
Not eligible to opt 0.5% of the gross
gross amount of
out for normal tax amount of Services
Services
regime
Received
Received
10% of the
Not eligible to opt
10% of the
Commission or
out for normal tax
Commission or
Discount
regime
Discount Received
Received
Not eligible to opt
10% of
10% of Brokerage
out for normal tax
Brokerage or
or Commission
regime
Commission
The Finance Act 2013 introduced Income Support Levy Act, 2013 (ISL) effective
from tax year 2013. It was chargeable to the individuals @ 0.5% on net value
of moveable wealth exceeding Rs.1,000,000/- on the last date of the tax year
and was payable along with wealth statement. The aforesaid levy was
challenged on various grounds including the very purpose of the levy and
discriminatory in nature. The Hon’ble Sindh High Court while admitted the CP
D-3757/2013 for regular hearing, it has ordered that the respondents be
allowed to file their tax returns manually, without filing the ISL proforma and
payment thereof vide order dated 10 October 2013 .
Subsequent to the above order, the Hon’ble Sindh High Court on similar CPs
filed by other taxpayers vide its order dated 22 October 2013 admitted all the
aforesaid CPs and held that the interim order passed in C.P.D. No.3757 of 2013
on 10.10.2013 in the following terms shall also operate in the instant petitions
and shall also apply in the case of other taxpayers as well to maintain
uniformity and to avoid any confusion and inconvenience to the taxpayers at
large.
The impugned order was challenged by the FBR on the ground
that through an interim order the provisions of law (statute) to
which presumption of constitutionality is attached cannot be
rendered ineffective and nugatory, directly or indirectly placing
reliance on the judgment reported as PLD 1989 SC 61. The
Hon’ble Supreme Court of Pakistan suspended the operation of
the CP D-3757/2013. Since the Hon’ble Supreme Court of
Pakistan has not suspended the operation of the order dated 22
October 2013 being an “order in rem” which operates for all
taxpayers whether they have filed the CPs or not challenging the
levy of ISL; therefore it was viewed that an “order in rem” still
holds the field irrespective of the interim order of the Hon’ble
Supreme Court dated 20 November 2013.
It was also argued from number of professionals, financial and
mercantile associations to withdraw the aforesaid levy.
Therefore, the Bill now proposes to repealed the Income Support
Levy Act, 2013.