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FBR to raise property valuations | The Express Tribune

22 June 2024
by admin

ISLAMABAD:

While hitting back at politicians for striking compromises with traders and keeping the tax body incapacitated, the Federal Board of Revenue (FBR) said on Friday that it would increase property valuations close to 90% of market prices to collect an additional Rs70 billion in the next fiscal year.

Out of the Rs70 billion, an amount of Rs30 billion will be the impact of increase in property valuations and the remaining Rs40 billion is estimated to be collected through a higher withholding tax on the revised valuations and the new withholding tax rates.

The statement about property valuation was made during a meeting of the Senate Standing Committee on Finance, where Pakistan Peoples’ Party (PPP) Senator Farooq H Naek supported the government’s proposal to slap 10% sales tax on newspapers.

“No one reads newspapers now and the government should tax them,” Naek said, adding that the government needed money therefore it should tax the newsprint.

The government has slapped 10% general sales tax (GST) in the budget, which may give revenues of only Rs400 million but it will adversely hit a struggling industry.

From July, the FBR would increase property valuations from the current average of 75% of market prices to 90%, said Mir Badsha Khan Wazir, Member Operations of the FBR, in the committee meeting.

The federal government determines property valuations in certain cities for collecting the withholding tax. Before the new budget, it was charging 3% income tax on the sale and purchase of property from the filers of tax returns. For non-filers, the rate was 6% on sale and 10.5% on purchase.

In the budget, the government not only increased tax rates for filers and non-filers but also introduced a third classification of late filers – a description that is aimed at facilitating the persistent non-filers to pay a lower tax rate and undertake a transaction.

There were heated arguments, allegations and counter-allegations during the committee meeting between the FBR officers, the members of the committee and the representatives of the private sector hurt by the wrong taxation policies.

“The way the government is increasing taxes on the salaried class, one day these people would be compelled to steal things,” remarked Senator Shibli Faraz, the leader of opposition in the Senate.

Faraz also hit out at the FBR and Finance Minister Muhammad Aurangzeb, saying “Pakistan’s problem is the bankers-turned-finance ministers, who know nothing about the economy”.

Faraz said that Aurangzeb was also a banker and he did not know much about the economy.

The leader of the opposition said that it was financially unviable to become a filer and the only survival mode was to remain a non-filer, as the current taxation policies did not reward honesty.

“Why did the government back down from the compulsory condition of Computerised National Identity Card (CNIC) after a few months,” questioned Amna Faez Bhatti, Member Policy Inland Revenue of the FBR.

She also questioned the meagre spending on the FBR by the successive governments. Her remarks echoed the frustration within the FBR about low spending on human resources and development, which was less than 1% of the total tax collection.

The Pakistan Tehreek-e-Insaf (PTI) government had withdrawn the condition of compulsory CNIC for daily purchases of over Rs50,000 aimed at documenting the economy in 2019.

However, many actions of the FBR are also contrary to the documentation drive, as it has increased the sales tax from 15% to 18% on sales made by the large retail shops integrated with the FBR.

“Only 5% of the retail sector is registered with the FBR and it is now again going after the 5% by completely ignoring the undocumented 95%,” said Ziad Bashir, the owner of retail brand IDEAS.

He said that there had been a constant increase in sales tax on the businesses integrated with the FBR and it had started hurting after the government earlier increased the tax rate from 9% to 12%.

However, the FBR’s member policy was of the view that the tax was being collected from the consumers and should not be a concern for the sellers – a point that was not accepted by a majority of the committee members and the stakeholders.

Compared to the zero tax contribution by the unregistered 95% retailers, the registered and integrated businesses pay about 60% in the shape of sales tax, income tax and super tax, said Bashir.

“When clothes can be bought from the unregistered buyers at much cheaper rates, then why would the shoppers bother about the fancy shops,” said Senator Mohsin Aziz of the PTI.

But the FBR’s member policy remained unmoved, arguing that in a country where the government was forced to impose 18% sales tax on the packaged milk, increasing the tax rate on branded shops by 3% should not be a matter of discussion.

Science & Environment

FBR likely to be tasked to collect up to…

16 May 2024
by admin

With the possibility of fixing the annual tax collection target of the Federal Bureau of Revenue’s (FBR) ranging between Rs11.2 to Rs 11.5 trillion for the next budget, the International Monetary Fund (IMF) has given two options for implementing a taxation model from Australia or India to harmonise the taxation system.

The IMF has been consistently conveying to Pakistan’s tax authorities to consider the two options to overhaul the General Sales Tax (GST), including moving towards the Australian model of centralised administration and rate-setting, together with a strict revenue-sharing formula that is independently designed and enforced.

The second option is to move to an India-style Cash Value Accumulation Test (CVAT), where federal and provincial authorities share administration and the right to tax, and interstate trade is subject to a third federal rate. The IMF has asked the FBR to introduce a single turnover-based registration threshold of Rs8.5 million (equivalent to $30,000) for all businesses.

The sales tax is hampered by several serious shortcomings and structural deficiencies which in particular include: (1) the bifurcation of the tax base between federal and provinces creates serious gaps in taxation and is the source of trade neutrality concerns; (2) within the limited tax base of goods, the federal government has further narrowed its tax base by having a generous list of exempt and preferential tax supplies; (3) the federal sales tax system for goods is hard to administer and comply with, given the extraordinarily large number of applicable tax rates. One implication is that resources must be applied toward dispute resolution with taxpayers on the rate at which a particular supply ought to be taxed.

The IMF has estimated that if all its recommendations are implemented in Pakistan’s Goods and Services Tax (GST), it could yield additional revenues of Rs1,300 billion or 1.3% of Gross Domestic Product (GDP) on an annual basis. The IMF asked for eliminating all zero-rating (Fifth Schedule) except for exports. It also asked to bring all other goods to the standard rate of 18 percent of GST.

The lender recommends restricting exemptions (Sixth Schedule) to only the supply of residential property (except the first sale) and bringing all other goods to the standard rate. This will also raise fuel taxation in line with the average of comparators in the region and emerging economies as the Fund has asked to impose 18 percent GST on petrol and diesel.

Top official sources said the government was giving the option of levying a carbon levy so that the revenues do not become part of the NFC Award and the Centre could only utilise the fetched revenues as non-tax revenues.

The IMF has further asked to remove reduced rates under the Eighth Schedule and bring goods to the standard rate, except food staples and vital education and health items to be taxed at a single reduced rate of 10 percent.

It recommends removing all compliance-related distortionary tax policy changes. This includes eliminating the minimum taxes and surtaxes, besides removing the Ninth and Tenth Schedules. The estimated yield from rationalising Sales Tax expenditures is 1.3 percent of GDP.

On the tax collection target, the IMF has pitched the FBR’s tax target in the range of Rs11.2 trillion for the next budget depending upon the ability of the government to take additional revenue measures in the next finance bill 2024-25.

On the other hand, the IMF is also analysing Islamabad’s capacity and capability of the Shehbaz Sharif-led regime to deliver on key commitments and promises after which the visiting IMF team would consider engaging in formal negotiation for clinching the fresh bailout package. This scribe sent out questions to both the IMF and Pakistani officials but both sides did not respond.

Science & Environment

IHC stays govt’s plan to block SIMs of non-filers…

14 May 2024
by admin

ISLAMABAD:

The Islamabad High Court (IHC) issued a stay order till May 27 on Tuesday preventing the government from blocking mobile phone SIMs of tax non-filers.

Chief Justice Aamer Farooq led the proceedings of the petition filed by a private mobile company.

Last week, the telecom operators after several deliberations with the Federal Board of Revenue (FBR) were reported to have agreed to initiate the manual blocking process of the SIMs of non-filers in small batches until their systems were fully equipped to automate it.

On April 30, the FBR issued the Income Tax General Order (ITGO) to disable the mobile phone SIMs of 506,671 persons who were not appearing on the active taxpayer list but are liable to file the Income Tax Returns for Tax Year 2023 under the provisions of the Income Tax Ordinance.

Advocate Salman Akram Raja appeared in court on behalf of the private mobile company and argued that the amendment in the law violates the fundamental right to business freedom enshrined in Article 18 of the Constitution.

He further argued that the companies would face a loss of Rs1 billion annually if more than 500,000 SIMs were blocked.

Read FBR proposes charging non-filers Rs90 out of every Rs100 mobile recharge

On May 12, it was reported that telecom operators blocked mobile phone SIMs of over 3,500 non-filers of the 5,000 cards. The action came in line with the FBR’s Income Tax General Order (ITGO) — a move aimed at compelling 506,671 individuals to place on record their returns for 2023.

Earlier on May 7, the telecom industry penned a letter to the Ministry of IT & Telecom and the Pakistan Telecommunication Authority (PTA) stating that they are mandated to provide uninterrupted services to their customers, except in circumstances specified in the Telecom Act and relevant regulations.

While the intention of the Income Tax General Order (ITGO) may be to penalise non-compliant individuals or to encourage them to enter the tax net, the specific measure being adopted lacks proper consideration. Neither a legal analysis, guaranteed constitutional rights nor a cost-benefit review has been conducted by the Federal Board of Revenue (FBR) prior to passing and implementing the ITGO.

The industry further noted in the letter that rushing through this ITGO will adversely affect customers, impacting their ability to access essential services, now recognised as a right to life under various judgments of superior courts. It also undermines the rights and operational capacity of telecom operators who are fully compliant with tax obligations. Any delinquent individuals should instead be directly sanctioned without implicating and adversely affecting the telecom industry.

Science & Environment

Auctions of seized vehicles under scrutiny | The Express…

3 May 2024
by admin

ISLAMABAD:

Smuggled vehicles confiscated by the Customs Department, a subsidiary under the Federal Board of Revenue (FBR), are being auctioned at prices below the reserve price established for the auctions.

The startling revelation prompted the FBR to take notice of the auction of seized vehicles at less than the reserve price, despite objections raised in audits by the Directorate of Revenue Receipt Audit (DRRA) over the course of several years.

A document obtained by the Express Tribune shows that the Legal and Accounting Customs Wing of the FBR has written to the FBR, highlighting the persistent issue of auctioning smuggled vehicles below the reserve price. The problem is also evident in investigations and inquiries into several cases of such auctions.

Furthermore, the DRRA has been raising audit objections on this issue for years, yet it remains unresolved, causing persistent problems.

According to Customs General Order No 12 issued on June 15, 2002, for the auction of confiscated smuggled vehicles, auctions should start at the reserve price or higher bid. If bids in the first and second auctions don’t meet the reserve price, the concerned Deputy Collector and Assistant Collector may suggest reducing the reserve price based on the vehicle’s condition.

Despite this, Customs Field Formations argue that they accept the highest bid in auctions of seized vehicles under Customs Auction Rules issued on June 18, 2001, claiming they are not violating any rules.

However, the issue persists due to contradictions between Customs Rules and Customs General Order No 12. Field formations intentionally set reserve prices much higher than the market value to meet revenue targets, a move conflicting with relevant Customs General Order No 12.

In a communication to the FBR, the Customs Wing suggested amending Customs General Order No 12 to avoid auctioning confiscated smuggled vehicles below the minimum reserve price, preventing future audit issues and objections.

Published in The Express Tribune, May 4^th, 2024.

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Science & Environment

IT firm under FBR scrutiny | The Express Tribune

25 April 2024
by admin

ISLAMABAD:

The Federal Board of Revenue (FBR) has served an income tax audit notice to an information technology company on suspicion of evading taxes by claiming higher expenses and understating imports amid the government’s increased focus on plugging revenue leakages.

The FBR has requested records and books of accounts from M/s Pronet Private Limited under Section 177 of the Income Tax Ordinance, suspecting tax evasion during the tax year 2023, according to senior FBR officials. They stated that the company’s books need scrutiny after tax authorities found glaring inconsistencies in income tax returns filed over the past seven years.

The company’s records were obtained through intervention from the FBR headquarters, as it emerged that the Karachi field tax office was aiding tax evasion.

Sources revealed that the field office dealt with tax notices regarding short deductions of millions of rupees in withholding taxes, settling at a few hundred thousand for tax years 2016 to 2022. These notices were quietly settled in 2022.

Sources revealed that the FBR headquarters decided to conduct an income tax audit of the company for the tax year 2023 to ascertain the facts of the case. They mentioned that the actual amount of tax evasion will be determined only after the audit, but the initial desk audit suggested a significant amount.

Finance Minister Muhammad Aurangzeb stated on Tuesday that the government would work on a two-pronged strategy to enhance the low tax-to-GDP ratio. He urged improving tax enforcement to collect due taxes from existing taxpayers and broadening the tax base.

Prime Minister Shehbaz Sharif suspended a senior tax officer on Tuesday after an FBR counsel obtained a short adjournment in a case where a company had obtained a stay order against an audit notice issued in February last year.

The Supreme Court of Pakistan has instructed the high courts not to grant stay orders to taxpayers without first hearing the FBR. This increases the FBR’s prospects of completing tax audits without intervention from the courts.

The FBR spokesman did not respond to questions about the auditing of M/s Pronet Private Limited.

However, in a background briefing, a senior FBR official confirmed to The Express Tribune that the FBR has served an income tax notice to the firm under Section 177.

Another FBR official suggested that the company has significantly understated its profits over the past seven years. Pronet is engaged in the business of providing electronic equipment, computers, telecommunication equipment, and software.

The FBR has audited the company’s withholding tax deductions in the past. However, it is the first time that the FBR has decided to open the company’s books to see the complete details.

According to sources, the FBR cannot go back beyond six years, and the tax year 2018 will be time-barred by the end of next month.

The firm declared taxable income of Rs146.6 million for the tax year 2023. As per the income returns, the company claimed project expenses of Rs93.3 million, which prima facie are incommensurate with the revenue and projects in hand, and thus need to be examined with documentary evidence and tax deduction details, according to the sources.

For the tax year 2023, the company’s records suggest it should have paid a minimum tax of Rs50.4 million, but it showed only Rs43.6 million chargeable tax. The company has paid less minimum income tax than the legal requirement, they added.

The company claimed it collected Rs3.13 million in withholding taxes at the import stage, which suggests Rs57 million worth of imports last year when worked back at the rate of 5.5%. However, the company showed only Rs38.3 million in imports in the annual returns.

Similarly, the company showed liabilities of Rs292.9 million in the 2023 returns, but no such liability was there in the previous year. The entry, being strange, requires verification during the audit to appreciate the true facts of the case, according to the FBR sources.

The company claimed an aggregate of Rs288.5 million as administrative expenses and finance costs, equal to 67.40% of the gross profit of Rs427.9 million, according to FBR sources, which seems to be the biggest inconsistency.

In the tax year 2022, the company declared a profit of Rs155.3 million and paid Rs167.5 million in taxes. However, it claimed another Rs156.8 million as project expenses. In 2021, the company declared Rs125.8 million in profit and paid Rs43.8 million in profit. Yet, it again claimed Rs355.5 million as project expenses for the year.

For tax year 2021, the FBR’s view in March last year was that the company needed to pay Rs47.6 million. After examining books under Section 161, it charged only an additional Rs198,132.

The company claimed Rs473 million in project expenses in 2020, resulting in declared profits of Rs78.6 million. In 2019, Pronet claimed to have earned Rs190.5 million profit but showed Rs340.3 million in project expenses.

In 2018, the company declared Rs82.2 million in profit and paid Rs30.4 million in taxes. Yet, it declared Rs288.4 million project expenses. For the tax year 2018, the FBR served a notice for payment of Rs8 million, but the company made a payment of Rs172,806 on June 22, 2022.

The FBR served a tax notice to Pronet in April 2022 on short payment of withholding tax and demanded millions of rupees for tax year 2017. However, the FBR eventually settled at a meager payment of Rs179,913, according to the record.

In 2017, the company declared Rs121 million in profits and paid Rs41.5 million in taxes, while Pronet declared Rs280.7 million in project expenses for that year.

In 2016, the company declared Rs77 million in profits and paid Rs29.2 million in taxes. However, it showed Rs197 million as project expenses. For the tax year 2016, the FBR had initially raised a demand of Rs47.1 million but settled at Rs162,622.

The document date for the payment of small amounts of taxes for tax years 2016 and 2017 was the same – April 27, 2022.

Published in The Express Tribune, April 26^th, 2024.

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Science & Environment

PM directs hiring of foreign consultant for FBR |…

5 March 2024
by admin

ISLAMABAD:

Prime Minister Shehbaz Sharif, on Tuesday, directed the hiring of a foreign consultant to modernise the Federal Board of Revenue (FBR), indicating a departure from the previously approved restructuring plan. This decision emerged during the PM’s first comprehensive meeting on the administrative affairs of the FBR. The PM stressed the urgent need to engage international consultants and suggested securing a waiver of international competitive bidding from the Public Procurement Regulatory Authority, if necessary, according to officials.

This move suggests that the Pakistan Muslim League-Nawaz (PML-N) government may not implement the FBR restructuring plan approved by the previous caretaker government.

Former Finance Minister Dr Shamshad Akhtar virtually attended the meeting and presented her plan. Dr Akhtar may again give a presentation to the PM on Wednesday (today) regarding her restructuring plan.

The foreign consultant will be hired to modernise and digitise the FBR, aiming to eliminate physical contact between tax officials and taxpayers. However, this decision also raises questions about the viability of two foreign loans worth $700 million obtained from the World Bank and the Asian Development Bank for domestic revenue mobilisation and FBR modernisation.

Government officials stated that the PM also expressed displeasure over the non-implementation of his eight-month-old orders to install scanners for monitoring various manufacturing units, particularly in the tobacco industry. The PM was informed that there were no funds available for procuring the scanners.

In the meeting, the former finance minister claimed that the FBR did not request funds, but the tax machinery did seek an increase in salaries.

The PM also instructed the hiring of competent individuals from the market to oversee the track and trace system, designed to address underreporting by tobacco manufacturers, beverage producers, sugar companies, and cement manufacturers.

The FBR has long been a contentious issue, and Tuesday’s meeting was no exception. The interim government exacerbated problems in the FBR rather than resolving them. The PM declared digitisation of the FBR as his top priority, stressing its critical importance for Pakistan. He also directed the enforcement of the digital invoicing initiative.

The International Monetary Fund has also called for a substantial increase in tax revenues, with a focus on expanding the tax net to include retailers and wholesalers. So far, its focus has remained on the salaried class and formal sector. FBR Chairman Amjad Zubair Tiwana briefed the PM on initiatives taken to combat corruption in the tax machinery, highlighting how digitisation of the FBR would help address corruption issues.

The FBR chairman mentioned that this fiscal year, they aim to bring an additional 1.5 million taxpayers into the fold. Legislation has been enacted for digitising invoicing, which the prime minister directed was for immediate implementation.

So far, the FBR has received fewer than four million income tax returns, about 35% less than the comparative period. Last tax year, nearly six million individuals and entities filed returns.

The PM commended the FBR for achieving the eight-month revenue target of Rs5.830 trillion. However, the FBR missed targets in the last months, and overall target achievement was possible only due to better performance in the first half of the fiscal year.