Transcript Slide 1

Budget Proposal 2008
on Income Tax
The Income Tax Bar Association, Karachi
March 24, 2008
Presented by:
Ali A. Rahim
Director
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 CBR 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 to 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.
3
TAX REFORMS
(Contd…)

SME
It is proposed that reduced rates be Extended for Small
Company and Medium Enterprise (SME), and those
Companies Incorporated before July 01, 2005.

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.
4
IRRITANTS
 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)
(b)
(c)
(d)
(e)
(f)
Transfer of Properties
Transfer of Shares
Transfer of Vehicles any model or cc
Bank Documents
Travel Documents
Large Expenditures
5
IRRITANTS
(Contd…)
 Return forms which remained constant for a few years were
changed last year. This should not be changed for the next few
years, so that they become user friendly.
 Quarterly statements to be reintroduced instead of monthly.
 Filing of monthly or quarterly statements should only be done in
one zone.
6
IRRITANTS
(Contd…)
 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 there (3) years.
 Selection of cases for audit should be made on scientific basis,
after only cross verification with third party information.
7
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) as was done in Sub section (3) A
Minimum period, therefore, is suggested to also be
90 days.
RATIONALE To correspond the provisions with treaty provisions
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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
subsection (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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ORDINANCE TO OVERRIDE
OTHER LAWS
Section 3 & 54
ISSUE
Ordinance to Override other laws
PROPOSAL
Words “Subject to this Ordinance” be inserted at the
start of Section 3.
RATIONALE Contrary Provision by inserting Proviso to Section
54 has been made. As such additions of words
proposed are necessary to avoid doubt and
confusion. In our opinion Section 3 and amendment
made through proviso to Section 54 are contrary to
each other. It is therefore, proposed that either
Section 3 be deleted or in the alternate, the proviso
inserted in Section 54 be shifted and annexed with
Section 3.
10
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
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beginning of Section 6.
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…)
Section 15(2)
RATIONALE 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”
14
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
15
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.
16
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 N. T. N. 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 to
further increase documentation of the economy.
17
GROUP TAXATION
Section 59(AA)
ISSUE
This concepts were introduced in 2007, but was
subject to corporate governance requirements,
specified by SECP and rules to be framed by CBR.
PROPOSAL
One year has elapsed and yet the corporate
governance requirements and rules of the CBR has
not been enacted. Hence these should be urgently
enacted.
(Contd…)
18
GROUP RELIEF
Section 59(B)
ISSUE
This concept was introduced in 2004 and was
amended in 2007, that was subject to such
corporate governance requirements specified by
SECP and designated as companies entitled to
claim relief.
PROPOSAL
Even after such a long gap, the rules have not yet
been enacted. It is therefore proposed that the same
should be urgently enacted
19
INVESTMENT IN SHARES
Section 62
ISSUE
Increase in investment rebate.
PROPOSAL
It is proposed that the investment should be
increased to Rs. 500,000/-
RATIONALE To encourage investment
20
FAIR MARKET VALUE
Section 68
ISSUE
Discretion of the Commissioner
PROPOSAL
It is, proposed that suitable parameters for valuation
may be prescribed by the Central Board of Revenue
in the Income Tax Rules, 2002 and for the purposes
of Immovable properties, parameters defined under
Rule 228 of the income Tax Rules, 2002 be adopted
and corresponding amendment be made in Rule 228
accordingly.
21
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
22
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
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 of Region may also be introduced to
redress the grievance of taxpayers.
RATIONALE Principles of Natural Justice.
24
EXTENSION OF TIME FOR
FURNISHING RETURN & OTHER
STATEMENTS
(Contd…)
ISSUE
Section 119(6)
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. Therefore, even otherwise, once the
Commissioner grants time, it will be very harsh in
genuine cases
25
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”
26
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 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
27
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 ADR
Committee to be extended from 30 to 90 days
RATIONALE Reasonable period for effective decision making
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ALTERNATE DISPUTE
RESOLUTION
(Contd…)
ISSUE
PROPOSAL
Section 134A Read with Rule 231(c )(15)
-
Time limit for decision by 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.
RATIONALE Effective decision making
29
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.
30
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)
31
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 Commissioner of
Income Tax (Appeals)
RATIONALE No time frame prescribed
32
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 provision be brought in under
the Income Tax Ordinance, 2001.
RATIONALE
In our opinion, such statement is instrumental for
broadening the tax base
33
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: 34
REFUNDS
(Contd…)
“Sub Section (4)
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
35
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
36
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.
37
INCOME TAX PRACTIONER
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
(F. T. P.).
RATIONALE Since one window is being implemented for all
Federal Taxes, so the person can also represent in
Sales Tax and Federal Excise cases – Facilitation.
38
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/- Exemption be granted to Salaried Class
RATIONALE Relief to Salaried Class
39
ADVANCE – TAX ON
TELEPHONE
Section 236
ISSUE
Advance Tax on Telephones
PROPOSAL
The Controversy of Pay Phone Companies be
amicably resolved
RATIONALE Facilitation and resolving Disputes
40
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
41
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
42
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 who are burdened by cost of living,
specially since the rate of profit has also been
reduced.
PROPOSAL
They should be given special relief.
RATIONALE To give benefit to the senior citizens for reduction of
profit and effect of inflation.
43
RATE OF TAX – QUOTED
COMPANIES
First Schedule Part-I Division 1I
ISSUE
Applicable rate of tax
PROPOSAL
It is proposed that the rate of tax for quoted public
companies be reduced to 30% from 35%.
RATIONALE To encourage companies to be quoted on the stock
exchanges.
44
EXEMPTION – COMPUTER
TRAINING INSTITUTES
Clause 93-Part-I Second Schedule
ISSUE
Computer Training Institutions (Expired June 2005).
PROPOSAL
Period of Exemption be extended upto June 2010.
RATIONALE To promote Computer literacy
45
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
46
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