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Business, Taxation
Federal Board of Revenue (FBR) is reviewing all fixed tax schemes for withdrawal of fixed regimes, which failed to achieve the desired results in coming budget (2017-18). It is learnt that the fixed tax schemes like scheme for developers and builders would be withdrawn in coming budget. The scheme under final tax regime (FTR) was traded at the cost of documentation of the economy. Large Builders and Developers groups got away without declaring their expenses and incomes.

Exemptions from withholding of income taxes were availed on the plea that their income is subject to FTR, which resulted in loss of valuable revenues which were earlier collected and deposited by withholding agents. In this regard, exercise is underway to identify all those fixed tax schemes where sectors/industries have not deposited the due amount of taxes as promised during 2016-17. According to sources, budget makers are examining a proposal to draft a Customs Amnesty Scheme for those importers where adjudication authorities have adjudicated cases and imposed fine on the importers under Customs Act 1969. The importers have contested the cases at the level of judicial fora like customs appellate tribunal or high court etc. The FBR will work the amount involved in such cases of litigation, which has been stuck-up in courts. If the budget makers think that some concessionary rate of tax be offered to importers, then such kind of Customs Amnesty Scheme would be finalised. In case policy makers agree with the scheme, it could be announced in budget or next fiscal year.

While new incentives for agriculture and domestic industries are being finalised, the sources said that the rate of sales tax would not be changed in the coming budget (2017-18). Sources said that some major changes in tax laws would be introduced for expanding the tax net, they added. Tax Reform Implementation Commission (TRIC) has recommended that without filing of income tax returns none of following should be allowed: Issuance/renewal of passport; commercial/industrial electricity, gas and water connection; three phase residential electricity connection; registration / transfer of property measuring 250 square yards/ 10 marlas for houses in rating areas and above 2000 square feet in Apartments/flats (exceptions for inheritance, gift within family) and purchase/sale/transfer of car/vehicle of 1000cc or above.

In this regard, exceptions from return filing may be given for non-residents not required to file return; education/medical purposes; dependent ladies/ Widows; pensioners; persons under 21 years age, in this case tax return of sponsor required; gift within family, spouse, children and disconnection of mobile connection if bill on all connection of a person exceeds Rs.24,000/36,000 per annum and return is not filed.

TRIC has also recommended a concept of “Self Employed Tax Preparer Scheme to Increase Tax Base”. The Tax Return Preparer Scheme (TPS) proposes to train nearly 2000 graduates across the country at the AIOU centres through distance learned. The cost of training will be borne by the FBR/ Income Tax Department. Graduates who complete the training successfully will be issued a certificate & a unique identification number which will authorise them under the Income Tax Ordinance, 2001 to work as self-employed Tax Return Preparers.

TPS will receive 3% of the tax paid on the returns prepared & filed for every new assesses in the 1st year (subject to a maximum of Rs1000/), 2% in the second year and 1% in the third year and Rs 250 for the returns prepared & filed for the old assesses who pay tax of at least Rs 1000 or more.

The major advantages of scheme would be that it would create self-employment opportunities for about 2000 youth in First phase. It would assist FBR in increasing the tax base of small and marginal tax payers and stop filers. This scheme will align with government objectives of creating self-employment opportunities. This scheme will reach out to taxpayers in small cities/villages and it will educate people in tax and impart technical knowledge, TRIC recommendation added.
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Taxation
The country”s seaports have been choked to their capacity to pile up more imported cargo containers as the goods transporters strike enters the fifth consecutive day, harbours sources said on Saturday. Over the last five days, imported cargo containers are being stockpiled at the harbours as transporters have refused to supply them out of the ports. The seaports have fallen short of space to allow more cargo to pile up until the existing stocks are transported, they said.

“Some 31,000 cargo containers have been piled up at all four terminals of the both seaports due to the goods transporters” strike,” Senior Vice Chairman, All Pakistan Customs Agent Association (APCAA), Arshad Jamal told Business Recorder, blaming the Sindh government for the chaos. He said that harbours have become congested to store more imported containers.

“Karachi Port is facing problems from dwindling space at yards from imported cargo congestion as transportations are unenviable to supply the containers from harbour to warehouses and upcountry,” an official of Karachi Port Trust told Business Recorder, hoping the situation will improve to end the seaport congestion with resumption of cargo transportations during the next week.

“Strike stands firm,” Spokesman for Pakistan Goods Transporters Alliance, Aga Jawad Raza told Business Recorder, saying that “there is progress on the issues resolution despite rounds of talks with the Sindh government ministers”. He said that the Sindh High Court has adjourned the hearing until May 20 with no verdict to reverse the ban decision.

Arshad Jamal lambasted the Sindh government for letting the chaos erupt with an inevitable strike by the goods transporters, saying that “the Sindh government has failed to develop an exclusive alternative route for the heavy traffic”. He said that the APCAA is filing a petition against the Sindh government on next Monday in the court for not establishing an alternative route for heavy traffic.

“The Sindh government has piled up billions of rupees from collecting an infrastructure cess imposed on transportation of import and export cargoes but spent not a single penny to develop routes for the heavy traffic,” he said ” Lyari Expressway is the exclusive alternative route, which stands shabby and incomplete to support the heavy traffic movements”.

He also asked the Sindh government to ban other heavy traffic including water tankers on the city”s roads. The Sindh government has banned only cargo carriers in the city according to the Sindh High Court orders and let the same size of vehicles ply on roads unchecked.

He said the country is losing billions due to transporters” strike, halting exports and stuck imported containers at the harbours. Arshad urged the federal government to relax custom duty to permit import of heavy vehicles meeting the globally environmental standards. “If the strike ends by this minute, cargo congestion will take one month to clear at harbours,” he said.

Transporters began their strike against the Sindh High Court”s orders banning the heavy traffic entry into the city around the clock. The goods transporters now seek a relief from the court. Exporters reckon at least Rs 6 billion of loss they face every day because of the strike that also slowed down supplies of essential commodities to the metropolis and elsewhere in the country.
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Taxation
A number of legal and procedural changes in federal tax laws are expected in coming budget (2017-18) under the exercise to simplify sales tax/excise laws including possible adjustment of Federal Excise Duty (FED) on accrual basis and concept of group taxation in the Sales Tax Act, 1990.

Sources said the Federal Board of Revenue (FBR) is considering various budget proposals of the Tax Reform Commission””s sub-committee for simplifying indirect tax laws. The FBR formed a committee for simplifying tax laws. Task and mandate of the committee was to suggest amendments to be considered in the forthcoming budget for 2017-18 in relevant laws to simplify (but not to make structural changes in) the existing laws relating to federal indirect taxes, without compromising the revenue of the government.

Within this limited time, the members of the sub-committee deliberated on various matters relating to indirect taxes, and based on that, submitted this initial report. Tax simplification is an ongoing process which evolves over time. Therefore, it was recommended to let this sub-committee work even after the current budget is announced towards other long-term issues for simplifying the indirect tax regime eg levy of sales tax on services on either origination or termination basis and single return with identification of provincial head of account and direct deposit of share of tax of each province, etc.

Following are the major amendments proposed in the existing tax laws and their rationale behind each proposal:

Present position of tax law: Group Taxation in Sales Tax: At present, there is no concept of Group Taxation in the Sales Tax Act, 1990 (STA) on the pattern allowed under the Income Tax Ordinance, 2001 (ITO). As a result, refund of one group company is not adjusted against ST liability of other group company. Further, intra-group transactions are also subjected to sales tax.

Proposed change: A new section to this effect should be incorporated in the STA whereby group companies, eligible for group taxation under income tax, can opt for sales tax under the concept of single fiscal unit. As a result, sales tax refund of one group company would be adjustable against the sales tax payable of another group company. Further, any intra group transactions will be considered as non-taxable / zero rated for Sales tax purposes thereby eliminating the duplication of sales tax on such transactions. It would also provide an ease to the tax authorities to examine the returns and claim on consolidated basis rather than carrying out such examinations for each of the entity on individual basis. The above concept is already part of VAT laws of various developed economies of EU.

Rationale for change: Sales tax refunds are not easy to obtain. Slow processing of sales tax refunds and their accumulation is resulting in an ever increasing cost to companies as well as for the Government. Since the FBR is legally bound to pay compensation for delay of refund. Adjustment of refund within group company would resolve the issue to certain extent, without any revenue loss. Further, the concept will be given preference of economic substance over legal form. Provisions relating to compulsory sales tax audit can be introduced for companies opting for group taxation for sales tax purposes.

Present position of tax law: Sales Tax on Advances: – Prior to amendment made in Section 2(44) of the STA through the Finance Act 2013, ST was levied at the time of actual delivery of goods regardless of time of payment. Subsequent to the amendment, sales tax is also being charged at the time of advance payment.

It is recommended that collection of sales tax on advances should either be completely done away with or restricted to those sectors where there is problem/ possibility of revenue leakage.

Rationale for change: Collection of sales tax on advances has no permanent tax advantage. Due to timing difference advantage presently accruing to the Government, the taxpayer has to bear unnecessary compliance cost and accounting issues resulting in unnecessary reconciliations, and also leads to discrepancies in CREST.

Present position of tax law: Rationalization in Time Limit for different Compliances/filings: Under different provisions/rules, a time period has been specified which can be increased to facilitate the taxpayers and avoid unnecessary process/compliance for obtaining extensions/condonations.

Proposed change: The time period for the following can be rationalised as under:

1. Claiming input tax within 6 months u/s 7 be increased to 1 year.

2. Filing of refund claim for unadjusted input tax u/s 10 read with relevant rules, can be reduced to 6 months, which should be optional.

3. Time period for filing refund claim u/s 66 can be increased from 1 year to 2 year.

4. Time limit for payment of input tax u/s 73 ( 180 days) can either be withdrawn as government now allow input tax once sales tax is paid by seller (under STRIVE).or time limit should be increased to at least 1 year.

5. Time limit for issuing debit/credit notes u/s 9, as provided under the rules, can be increased from 180 days to 1 year.

Rationale for change: Rationalisation in time periods will not only facilitate taxpayers but will also reduce unnecessary approvals/condonations, and interaction between taxpayers and tax officer.

Present status of tax law: Stay against demand till first appeal upon payment of 25 percent demand: In line with amendment made in section 140 of the ITO through FA 2016, a new provision may be introduced in section 48 of STA to allow stay against demand till first appeal, upon payment of 25% of demand. Section 37(3) of FEA, allows stay (till first appeal or six months which is earlier) upon payment 15 percent of demand. Section 37 (3) may also be aligned if required, accordingly.

Rationale for change: Reducing unnecessary litigation, facilitating the taxpayers, and alignment with income tax law.

Present status of tax law: Discharge of tax liability at subsequent stage:- It is now a settled principle that if any liability for short paid tax is subsequently discharged then the same cannot be recovered from the taxpayer again, as it would tantamount to double taxation. At present, there is no express provision in STA to that effect.

Proposed; it is suggested that subsection 4B be inserted in Section 11 as follows: “Where at the time of recovery of Sales Tax under sub-sections (1), (2), (3) or (4), it is established that the sales tax that was required to be paid or deducted has meanwhile been paid by that person or recovered from the supply chain, no recovery shall be made from the person who had initially failed to pay or deduct the sales tax or had paid or deducted short amount of sales tax without prejudice to any liability on account of default surcharge or penalty, if applicable”. Furthermore, where a tax is collected from a registered person, in respect of past tax liability, there should a mechanism probably through debit/credit notes whereby the registered person in next supply chain can adjust the same as input tax.

Rationale of the proposal: Recovery of tax should be restricted to cases where the sales tax in question remains unpaid. The proposed changes would not only simplify the process, but would also reduce litigation and increased tax revenues in long term. This is further in line with the underlying concept of neutrality of VAT. Sales tax being an indirect tax has to be ultimately passed on the end consumer without any additional burden on the persons in supply chain (except where they are subject to special tax regimes). In most of the cases, failure to charge sales tax (due to interpretational issues) eventually result in a direct cost to the seller without any recourse of recovery from the buyer hence increase in litigation. One can consider restricting the above benefits to the persons who are not otherwise found to be engaged in any tax fraud and who decides not to contest the matter in litigation.

Present status of tax law: Sales Tax Withholding rules/Anti-avoidance Provisions – After the introduction of STRIVE, input of sales tax is allowed after the FBR has secured sales tax from the supplier. Hence, there is no need to keep withholding provisions and certain anti-avoidance provisions in statute.

Proposal: It is recommended that Sales tax withholding should now be restricted to payment to unregistered persons with some minimum threshold. Further, withholding should be applicable at the time of payment (instead of present position requiring withholding at the time of accrual). Presently, Federal Sales Tax withholding provisions are not expressly applicable on services covered by FED (under sales tax mode). There is a difference of opinion on such matter which should be resolved by expressly making amendments in the Federal sales tax withholding rules to specify that withholding provisions are also applicable on all taxable services covered by FED law (to the extent of those services which are covered by Sales Tax mode).

Moreover, following anti- avoidance provisions may be withdrawn:

— Section 8 (1) (ca )–Goods or services in respect of which sales tax has

— Not been deposited in the Government treasury by the respective supplier.

— Section 8 (1) (caa)–Purchase

— In respect of which a discrepancy is indicated by CREST or input tax of

— Which is not verifiable in the supply chain.

— Section 8 (1) (d)—Fake invoices Section 8 (A)—Joint and several liability of registered persons in supply chain where tax unpaid.

Rationale: Simplification of tax law, and withdrawal of unnecessary provisions in statute to avoid its misuse. To provide clarity on application of sales tax withholding on services covered by FED law.

Present status of tax law: Appeal Effect Order under the sales tax and FED law:- Presently provisions relating to appeal effect order, similar to section 124 of the Income Tax Ordinance, 2001, are not available under the STA and FEA. Further, provisions of section 124A of Income Tax also to be incorporated in Sales Tax and Federal Excise laws to make it mandatory for tax authorities to follow the Tribunal and high Court””s order irrespective of further appeal.

Proposal: Introduce enabling provisions in STA and FEA, in line with similar provision contained in ITO, to provide for processing appeal effect, and for following binding judgements of Appellate Tribunal and High court in taxpayer””s case by assessing authorities.

Rationale: To align/ simplify tax laws, reducing litigation, and for reflecting correct position of demand in the records of the FBR.

Present status of tax law: Adjustment of sales tax refund with income tax liability: – It has been seen that a registered person””s funds are stuck with the Inland Revenue in the form of sales tax refund and at the same time the taxpayer is required to pay income tax at the time of assessment of his income tax liability.

Present status of tax law: Condonation of time limit – In terms of Section 74 of the STA and section 43 of FEA, the Board and the Commissioner is allowed to condone the time where any timeline has been prescribed under any provision of the law. Moreover, Pursuant to Section 74/43 of STA/FEA, read with SRO 394(I)/2009/ 395(I)/2009, the Commissioner may condone 1 year lapse in any compliance related issue.

Proposal: A new provision may be introduced in sections 74/43 of STA/FEA, whereby a condonation shall be deemed to have been allowed, if the application is not approved within a period of 30 days. In case of rejection, taxpayer be allowed to file review application with CCIR. Moreover, powers given to Commissioner for condonation may be extended to two years from existing one year and a transparent web based mechanism be laid down for electronic processing, and follow-up/status of pending applications.

Rationale of the proposal: To avoid wastage of time and cost of the taxpayer.

Present position of tax law: Show cause notices- Presently detail/records are sought in the name of show cause notices under section 11 of STA/section 14 of FEA.

Proposal: Amendments are proposed in section 11/14 of STA FEA to the effect that no show cause notice shall be issued unless the definite information of tax evasion illegal input tax adjustment or refund etc is available with the tax officer through tax audit or otherwise.

Rationale of the proposal: To reduce misuse of show cause notices and litigation, resulting in increased revenue.

Present position of tax law: Multiple tax audit: – As per Section 25 of STA/section 46 of FEA, there can only be one audit per year However, in practice multiple audits are conducted under different names, ie, investigative audit, desk audit, audit for abnormal profile, etc, without following agreed/defined parameters and specified time frame. Audit observations are also not submitted within the prescribed time limit.

Present position of tax law: ””Further tax be part of output Tax – “Further Tax” has always been part of output tax in the past. However through the amendment made in Section 7 vide Finance Act 2014, ””Further Tax”” is now not part of output tax leading to higher mandatory payment pursuant to Section 8B. Moreover, it is not adjustable against overall liability of the registered withholding tax agents and is directly payable to the exchequer. Further Tax” should be treated as part of output tax.

Proposal: It is proposed that the expression “sold in retail” be inserted to the preamble of the rule 58S to read as under: (proposed insertion in italics). Option 1: “58S. Application.- The provisions of this Chapter shall apply to supplies of goods “sold in retail” specified in the following table……………”. OR Option 2: Insert an additional sub-rule under Rule 58T as below in To avoid piling up of refund and reduce the high cost of doing business in Pakistan for registered sector.

Present position of tax law: Rationalisation of extra tax regime: A. Several items have been removed from the Third Schedule vide SRO 895(I)/2013 and these items have now been included in the “Special Procedure for Payment of Extra Sales tax on Specified Goods” vide SRO 896(I)/2013.

Included therein are items which are consumed by Manufacturing Sector as Raw-Material which are now subject to Extra Tax @ 2 percent in addition to the normal 17 percent sales tax. Further as per section 8(1)(c) of the Sales Tax Act, 1990,the claim of this extra tax of 2% by way of input tax is prohibited.

It is proposed that the expression “sold in retail” be inserted to the preamble of the rule 58S to read as under: (proposed insertion in italics). Option 1: “58S. Application.- The provisions of this Chapter shall apply to supplies of goods “sold in retail” specified in the following table……………”. OR Option 2: Insert an additional sub-rule under Rule 58T as below in the “Special Procedure for Payment of Extra Sales tax on Specified Goods”: “The purchases made by registered manufacturers, who acquire the specified goods to manufacture or produce taxable goods, shall not be subject to extra tax under this Chapter”.

Existing law: Extra tax is applicable @ 2% on various items tabulated in Rule 58S of the Special Procedure for Payment of Extra Sales tax on Specified Goods. Subsequent supply of items subjected to Extra Tax is exempt from the levy of sales tax as per Rule 58T(5). Extra Tax is collected to recover value addition tax on the whole supply chain at initial stage from manufacturers/importers.

Further tax @ 2 percent under section 3(1A) is applicable on supplies of goods to unregistered persons.

Proposal: Amendments be made in law to specifically exclude items subjected to Extra tax from the ambit of Further Tax.

Rationale: Extra Tax is collected to ensure collection of value addition of subsequent supply stage, therefore, levying further tax is an irritant and absurdity which needs rectification to streamline the VAT regime.

Existing law: Rationalisation of input tax: Clause (a) of section 8(1) restricts input tax adjustment on goods and services used for purpose other than for taxable supplies. Restriction in almost similar manner have also been provided in clauses (f) and (g) of section 8(1).

Proposal: To delete clauses (f) and (g) of section 8(1) of STA.

Rationale: Extra Tax is collected to ensure collection of value addition of subsequent supply stage, therefore, levying further tax is an irritant and absurdity which needs rectification to streamline the VAT regime.

Clause (a) of section 8(1) is sufficient to disallow input tax adjustment on goods/services used for purpose other than taxable supplies, therefore, additional conditions, being superfluous, should be deleted.

Present position: Provisions relating to income tax neutrality on transfer/disposal of business under various scenarios are covered under sections 95 to 97A of the Income Tax Ordinance, 2001. However, such provisions are not specifically provided under the Sales Tax Act, 1990. Although the concept is embedded in section 49 but there is always a chance of misinterpretation.

Proposed change: in order to avoid chances of misinterpretation, express provisions be added for providing sales tax neutrality on transfer of assets under Scheme of Amalgamation/transfer of assets as part of going concern.

Rationale: To align sales tax and income tax laws and to avoid unnecessary interpretational disputes between tax department and the taxpayers.

Present status: Federal Excise Duty (FED) on purchases is adjustable on payment basis rather than on accrual basis. Moreover, there is also a condition for adjustment that sales proceeds of goods including related FED are received through banking channel. For services (such as franchise) which are subject to lower rate of tax under FED, there is no corresponding adjustment against the output tax.

Proposal: Adjustment of FED should be allowed on accrual basis ie in the month in which purchase is made, in the same manner as it is allowed in the sales tax law. Condition of adjustment after receiving sale proceeds of goods should also be abolished. For franchise services, it may be made optional for the franchisees (in line with Sindh Sales Tax law) that if they want to opt for normal rate of payment they can do so with a corresponding adjustment against their output tax. As an alternative, all services presently subject to FED should be removed from the scope of FED and incorporated in ICT Sales Tax law so as to be subject to normal sales tax rate with corresponding input tax adjustment.

Rational: Condition of claiming FED on payment basis is inconsistent with the requirement of discharging FED liability on sale of goods on accrual basis ie in the month of sales/supply.

Present law: At present, there are various services which are taxable in Provincial Sales Tax law but not taxable in ICT Sales Tax law or there are different definitions or interpretations of certain entries.

Proposed change: The existing list of taxable services in ICT Sales Tax law should be updated to include all services which are otherwise taxable in different provinces. This will remove the arbitrage as certain services are capable of being transferred to ICT instead of Provinces. Further, certain headings of ICT Sales tax law need to be revised to keep them all encompassing. For instance, the services of Software and IT based system development consultants need to be aligned with the similar entry in Punjab law which is more extensive and cover all services of IT sector.

Rationale: Brings consistency in provincial laws of sales tax to remove the arbitrage and possibility of avoidance of tax by shifting certain activities to Islamabad from other provinces.

Existing law: It is an accepted principle of VAT around the world that export of services is subject to zero rating regime. However, no such concept is explicitly available in FED or ICT sales tax law.

Proposed law: Enabling provisions should be introduced in both FED and ICT Sales tax law to provide zero rating/exemption on export of services subject to receipt of foreign exchange through official banking channels and subject to other reporting requirements of State Bank of Pakistan.

Brings consistency in provincial laws of sales tax to remove the arbitrage and possibility of avoidance of tax by shifting certain activities to Islamabad from other provinces.

Rationale: There are similar provisions in Punjab and Sindh sales tax law. The absence of such provisions in FED and ICT law is counterproductive for export related sectors situated in Islamabad particularly in IT Sector.
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Taxation
The Federal Board of Revenue (FBR) will continue with the policy of imposing regulatory duty (RD) on imported items in the upcoming budget (2017-18) under revenue generation measures. Sources told Business Recorder here on Friday that it has been principally agreed to maintain regulatory duty on many items under the government policy to generate additional revenue at import stage. During July-April 2016-17, the Customs department has shown the highest growth of over 25 percent in collection of Customs duty on imported items.

The imposition of regulatory duty would be used as a revenue generation measure in budget (2017-18). In last budget, regulatory duty was waived off on import of bead wire (PCT code 7217.3010). The regulatory duty levied through SRO 236(1)/2016 dated 21.03.2016 continued after June 30, 2016. Regulatory duty at 25% was levied on powdered milk (PCT code 04.02).

Similarly, regulatory duty at 25% was also levied on whey powder (PCT code 0404.1010). The regulatory duty at 5% was levied on import of woven fabric.Presently, a wide range of items are subjected to RD at 5, 10, 12.5 and 15 percent at the import stage. Different SROs governed regulatory duty like SRO 568(I)/2014 of June 26, 2014 which was amended from time to time with a view to facilitating import of steel products including billets, HRC, CRC, bars/rods, wire rods, pipes/tubes, aluminium alloy, aluminium waste and scrap, etc, to protect the local industry. Recently, the government had abolished regulatory duty and customs duty on import of items including cotton and manmade fibre falling under different Pakistan Customs Tariff (PCT) headings under the PM package for exporters.
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Business, Taxation
The Federal Board of Revenue (FBR) is considering policy issues on tobacco taxation whether merely a raise in Federal Excise Duty (FED) rate on cigarettes in budget (2017-18) would increase revenue from documented sector and decrease illicit trade of non-duty paid smuggled/counterfeit cigarettes.

Sources told Business Recorder here on Friday that the ongoing budget finalization exercise is seriously considering some policy issues on cigarettes. Firstly, it is being examined that heavy taxation on cigarettes is the only way to generate additional revenue from tobacco sector. Moreover, burdening the documented companies would result in increase in FED from this sector. However, the FED on cigarettes would be revised during the upcoming budget, sources added. Secondly, whether the FBR has ever asked the law enforcement agencies to give data of smuggled cigarettes confiscated by the LEAs?

Thirdly, whether the FBR has directly interacted with the tax authorities of Azad Jammu and Kashmir (AJK) to check why the manufacturers in Mardan have shifted their investment to AJK. When tax laws in Mardan and AJK are the same, what is the incentive available to the manufacturers of cigarettes in Mardan to move their entire setup to AJK. Without incentive of tax evasion, why manufacturers in Mardan have shifted their investment to AJK? Smuggled cigarettes are used by elite class and mostly available in markets of urban centers. Till now, no consolidated efforts have been seen to check these smuggled items.

Experts said that the widening price gap between the legal and tax evaded cigarettes is the key driver of demand for tax evaded cheap cigarettes widely available across the country. While legal cigarettes today sell for Rs 72 per pack, tax evaded cigarettes are easily available at an average price of Rs 25.

In recent months, the FBR has intensified its enforcement efforts against smuggled and local tax evaded cigarettes by setting up Tobacco Squads to conduct raids across the country, leading to unprecedented crackdown against these tax-evaded cigarettes. Despite commendable efforts of the Tobacco Squad against these illicit cigarettes, there appears to be no decline in their demand.

With reducing disposable household income in the country and excessive increases in legal cigarette prices, smokers have shifted their consumption from tax paid cigarettes to cheap tax evaded cigarettes. This implies that the total cigarette consumption has not reduced in Pakistan and rather remained stable due to the presence of cheap illicit cigarettes. According to a Nielsen report, Pakistan ranks fourth in Asia in terms of illicit cigarette consumption. As a result, the national exchequer continues to face a loss of up to Rs 45 billion annually that hinders the country’s socio-economic progress. Lack of a level playing field for the tax paying sector discourages both domestic and foreign investment that in turn adversely impacts economic growth, job creation and technology transfer in Pakistan. Growth in Illicit cigarette trade also puts the livelihood of more than 75,000 farmers and 400,000 retailers at stake.

While enforcement action is needed to continue to act as a deterrent, other fiscal and regulatory measures need to be explored to discourage the consumption of illicit cigarettes. The challenge of illicit cigarette trade in Pakistan is too big to be overcome only by an enhanced enforcement drive. While the enforcement network can manage to tackle supply side of the problem, efforts need to be made to ensure that the demand for illegal cigarettes is reduced.

Under pressure from WHO Framework Convention on Tobacco Control (WHOFCTC), the government has imposed high excise tax increases to raise the price of cigarettes over the past few years. It was assumed that this step would boost government revenues and curb smoking incidence. However, this tax policy needs serious consideration taking into account economic realities in the country. Persistent increase in taxes has actually decreased the weighted average price of cigarettes and had the unintended consequence of encouraging illicit cigarette trade. As affordability becomes an issue, consumers have switched to the more affordable, illicit substitutes such as Dubai and Swiss International that are readily available for as low as Rs 12 per pack. This selling price is significantly below the minimum applicable tax of around Rs 43 per pack, but there has been no action from Ministry of Health. Consequently, the government’s revenue collection has been hit badly and it will most likely fall short by almost 40 percent of the target revenue from tobacco sector for the current fiscal year, experts added.
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Business
Anti Smuggling Organisation (ASO) of Model Collectorate of Customs (MCC), preventive claimed on Friday to have thwarted an attempt to bring huge quantity of Iranian smuggled diesel into the country via sea route. According to customs officials, the action was taken on a tipoff, which revealed that some unscrupulous elements were planning to transport said contraband commodity to Pakistan via sea route.

Reacting on this information, a team was constituted. After strict surveillance, the team spotted a launch namely Al-Khaleej in an open sea. The ASO team recovered 65000 liters of Iranian smuggled diesel from the boat and taken three persons namely Naeem Bux, Asa Bilal and Lal Muhammad Baloch into custody. The custom officials told that this was the biggest seizure of ASO during last three months. Consequent upon recovery, a case has been registered against the detained persons. Further investigation was underway.
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Taxation
Chairman Federal Board of Revenue (FBR) has directed the regional tax offices to facilitate the taxpayers and dispose of pending audit cases at the earliest, said sources. It may be noted that the number of cases selected for audit is around 8000 in the region.

Chairman FBR has assured of resolving the audit issues by the fiscal year 2018-19, as revision of the audit policy in line with the problems faced by the taxpayers would start next fiscal year. Particularly the issues like repeated selection of a taxpayer for audit, nil filing and the audit of commercial importers would be addressed in new policy, he added.

In his meeting with the representatives from Lahore Tax Bar Association (LTBA) on Friday at the regional FBR office, he has also required a representation from the LTBA for review and a likely conclusion of the Final Tax Regime (FTR), salary and property income cases after certain verifications, they added.

Moreover, he has assured of evolving a mechanism regarding suspended Sales Tax cases, saying that all such cases would be supervised by the Chief Commissioners. Regarding glitches in the automatic process of cases under PRAL, he said all technical problems would be solved soon. Chairman FBR advised them to bring issues relating to PRAL into the knowledge of Member Information Technology (IT) with a copy in his name.

Sources quoted Chairman FBR as saying that he was in the process of detailed discussion on these issues with relevant Members of the Board. They said the Chairman FBR was considering reactivating the office of Additional Commissioner in new law, which was removed in tax reforms held in the past.

Sources said the LTBA also took up the issuance of demand notices by certain commissioners for payment of penalties in advance and warned of reduction in number of income tax returns next year in case if such coercive measures are not checked immediately. The LTBA representatives also pointed out that the regional tax officers were referring the disputed tax cases to tax inspectors and auditors, which was a clear negation of the law. Chairman FBR took strong exception of this practice and assured of taking strong action in case any complaint of such nature emerges again, as no inspector or auditor was authorized to conduct hearing of disputes.

The LTBA delegation also pinpointed that the disgruntled businessmen were extremely disappointed over the state of affairs and many of them were planning either to reduce the size or pack their businesses once and for all. They said the suspension of business on account of a disputed sales tax invoice; the aggrieved party cannot issue an invoice and ultimately either results into closure of business or opens up a window for corruption.

Chairman FBR assured the LTBA delegation of no further raid for stock checking would take place without approval from the Chief Commissioner. He also said there would be no suspension of business without the approval of the Commissioner and intimation to the Chief Commissioner and no audit inspector would be allowed to conduct hearing of disputed cases. He urged the LTBA to bring in his notice in case a Chief Commissioner fails to take action against violation of these instructions. President LTBA Chaudhry Qamar-uz-Zaman Mohal led a delegation comprising of ex-presidents including Rashid Rehman Mir, Naeem Shah, Rana Munir Hussain, Farhan Shehzad and Chaudhry Manzoor besides a senior member Tufail Asghar and other members of the Bar.
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Taxation
Federal Board of Revenue (FBR) Chairman Dr Muhammad Irshad has said the number of filers has been gradually increasing since this government came into power. The number of filers jumped from 0.7 million in 2013 to 1.4 million during the current fiscal year. The tax rate is also being reduced one percent annually during the present regime.

FBR chairman stated this while speaking at a meeting with the office-bearers of Lahore Chamber of Commerce and Industry (LCCI) on Friday. He said that filers would be facilitated and nobody would be allowed to tease or harass them as they are backbone of the economy. Chief Commissioner RTO-II Lahore Khawaja Adnan Zahir, Chief Commissioner LTU Lahore Zulqernain Tirmzi, Chief Commissioner CRTO Lahore Syed Nadeem Rizvi, Chief Collector Customs Lahore Zeba Hai and, Commissioner Zone-VII CRTO Lahore Mahmood Jafri, FBR Foundation Islamabad Saleem Ranjha also spoke on the occasion.

He said that refunds of Rs 57 billion have already been given while issue of remaining would be resolved soon. He said that there is no tax on input or output in zero rated regime while government is giving maximum facilities to the export-oriented industry.

He said that there would be no surprise inspection of the business premises. Concerned businessmen would be informed well before the time and all work would be done in friendly atmosphere. He urged the businessmen to cooperate with the department for pending audit cases. He said that forthcoming budget is well consulted and based on the theme of revival of the economy.

FBR chairman urged LCCI to forward its proposals regarding two percent withholding tax on non-filers, poultry sector, establishment of National Revenue Authority and Appellant Tribunal to the FBR for consideration. He also announced that no surprise visits of business premises would be conducted as he wants to establish friendly relations with the traders. He said the growth of private sector would help increase revenue.

Dr Muhammad Irshad promised to facilitate them to the maximum and said, “We are friends therefore we should not see each other as rivals or hostile as our objective is same”. Misunderstanding is the major reason of problems therefore regular liaison with the business community is being ensured to tackle this issue, he said and suggested formation of an advisory committee having representatives from public and private sectors.

LCCI President Abdul Basit highlighted the areas where the trade and industry expects relief from the FBR. He said that the policies should be aimed at widening the tax net rather than taxing the already taxed. There is a strong need for long-term planning and consistency in policies. He said tax returns and other documents are modified each year which creates confusion.

He said that increasing tax revenues and decreasing number of tax filers is an ample proof of the fact that the FBR is putting additional burden to the existing taxpayers. He further said that share of industry in tax collection is around 76 percent that is dwindling the competitive edge of the industry and affecting the exports. LCCI members are paying tax in Sindh and than in Punjab for same consignment that is double taxation. LCCI has given suggestion to the Punjab Revenue Authority (PRA) to give authority to a single agency for tax collection. Federal government should also form a National Revenue Authority to collect all taxes once in a year. It would reduce frequency of the taxes and protect business community from the officials of various departments. Abdul Basit said that there should be independent tribunal for tax related cases and decision on appeal should be made within 90 days. Furthermore, no recovery should be made before the decision of tribunal.

He said that stuck-up refunds should be released within 60 days and in case of delay, concerned department should pay markup on KIBOR rates. He said that adjustment of sales tax deducted in gas and electricity bills of zero-rated sectors is not working properly.

He said that there is no tax on agriculture sector of Pakistan while tax is imposed on livestock that is also a sub-sector of agriculture. He said that poultry feed costs 70 percent of the total input of this sector. He suggested that to increase the exports of poultry, around 62 percent duty should be withdrawn on raw material being used in burger patty and nuggets etc. LCCI president said that food sector should also be given zero-rated facility to get due share in global Halal trade of $300 billion. He said that duty on those raw materials should be abolished that are not being produced in Pakistan. He said that 6.5 percent duty on acrylic raw material should also be withdrawn. He also expressed views on the issues of raids at business premises and bank account attachment.
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