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The Federal Board of Revenue (FBR) has said that every person paying royalty to a resident person would be required to deduct tax at the rate of 15 percent of the gross amount payable. According to an income tax circular issued by the FBR here on Wednesday, the FBR has explained the procedure for payment of royalty to resident persons.

The income from royalty is chargeable to tax under the head “Income from other sources.” However, in case of non-residents receiving Pakistan source royalty tax is separately imposed at the rate specified in Division IV of Part I of the First Schedule which is 15 percent of the gross amount of royalty. In the case of resident persons, income from royalty is made part of taxable income and taxed at the rates provided in Division I or II of Part I of the First Schedule. Prior to the Finance Act, 2019, there was no withholding tax on payment of royalty to resident persons. A new section 1538 has been introduced through the Finance Act, 2019 which requires every person paying royalty to a resident person to deduct tax at the rate of 15 percent of the gross amount payable. The tax deductible shall be adjustable against the income of the recipient of royalty, the FBR added.

Prior to the Finance Act, 2019, tax deductible under sub-section (1 A) of section 152 on payment to a non-resident on execution of contracts mentioned in clauses (a), (b) & (c) was final tax if the non-resident opted for the final tax regime. Through the Finance Act, 2019, tax deductible under sub-section (1A) has been made minimum tax. Similarly, tax deductible under sub-section (1AA) of section 152 on payment to a non-resident for insurance premium or re-insurance premium was final tax. The same has now been made minimum tax, the FBR circular added.

The Federal Board of Revenue (FBR) has clarified that the Commissioner has the power to conduct audit of banks under Section 177 of the Income Tax Ordinance 2001. According to the income tax circular 9 of 2019 issued by the FBR here on Tuesday, as per rule 9, the provisions of the Income Tax Ordinance not specifically dealt with in the rules in the Seventh Schedule shall apply, mutatis mutandis, to the banking company. As such, the Commissioner has the power to conduct audit of a banking company under Section 177.

However, for the removal of doubt, an explanation has been added after sub-rule (h) of rule 1 clarifying that nothing contained in the Seventh Schedule shall be so construed as to restrict power of Commissioner, while conducting audit of the income tax affairs under section 177, to call for record or such other information and documents as he may deem appropriate in order to examine accounts and records to conduct enquiry into expenditure, income, assets and liabilities of a banking company and all the provisions of the Ordinance shall be applicable accordingly.The FBR further clarified that the income, profits and gains and tax payable thereon of a banking company is computed as per rules in the Seventh Schedule. As per sub-rule (c) of rule 1, provisions for advances and off-balance sheet items shall be allowed up to a maximum of 1 percent of total advances and 5 percent of total advances for consumers and small and medium enterprises.

Through the Finance Act, 2019, the existing sub-rule (c) of rule 1 has been clarified for the removal of any doubt by adding an explanation that provision for advances and off balance sheet items at the rate of 1 percent or 5 percent, as the case may be, shall be exclusive of reversal of such provisions, and that reversal of bad debts classified as ‘doubtful’ or ‘loss’ are taxable as the respective provisions have been allowed.

Prior to the Finance Act, 2019, the amount of ‘bad debts’ classified as ‘doubtful’ or ‘loss’ were allowed as expense and ‘bad debts’ classified as ‘sub­ standard’ were not allowed as expense. Through the Finance Act, 2019, sub-rule (d) of rule 1 has been amended so that amount of ‘bad debt’ classified as ‘loss’ shall be allowed as expense and the amount of ‘bad debt’ classified as ‘sub-standard’ and ‘doubtful’ shall not be allowed as expense.The rate of tax on taxable income of a banking company is 35%. Through the Finance Act, 2019, a new rule 6C has been inserted in the Seventh Schedule which provides tax rate of 37.5 percent on taxable income from Federal Government Securities. As per this rule, the taxable income arising from additional income earned from additional investment in Federal Government securities for the tax year 2020 and onwards shall be taxed at the rate of 37.5%.

A banking company shall furnish a certificate from external auditor along with accounts while e-filing return of income certifying the amount of money invested in Federal Government securities in the preceding tax year, additional investments made for the tax year and mark-up income earned from the additional investments for the tax year. “Additional income earned” has been defined to mean mark-up income earned from additional investment in Federal Government securities by the bank for the tax year. The term,

“Additional Investments” has been defined to mean average investment made in the Federal Government securities by the bank during the tax year, in addition to average investments held during the tax year 2019. As per sub-rule (3) of rule 6C, the Commissioner may require the banking company to furnish details of the investments in the Federal Government securities so as to ascertain the applicability of enhanced rate of tax, the FBR added.

The Federal Board of Revenue (FBR) has said that persons whose names are not appearing in the Active Taxpayer List (ATL) will be subjected to 100 percent increased rate of tax. The FBR has explained the collection of tax, computation of income and tax payable of persons not appearing in the ATL [Section 100 BA, the Tenth Schedule] through an income tax circular issued here on Tuesday.

Prior to the Finance Act, 2019, a concept of non-filer existed in the Income Tax Ordinance whereby higher tax rates of withholding were prescribed for persons who were non­filers. Such non-filers could claim adjustment of the higher tax collected at the time of filing of income tax returns. The aim was to compel the non-filers to file their returns of income. However, it was observed that the non-filers, even though subjected to higher withholding rates, still had a propensity not to file their returns. This proved detrimental to the exercise of expansion or tax base. This was due to the absence of an explicit provision specifying a standard procedure for action against such persons.

Through the Finance Act, 2019, the concept of “non-filers” has been done away with and a new concept regarding persons not appearing in the active taxpayers’ list has been introduced. This concept is a major paradigm shift from the erstwhile non-filer higher tax regime is that it not only penalises those persons not appearing in the ATL but also introduces an effective mechanism for enforcing returns from such persons. In this regard, a new section 100BA has been introduced which provides that collection or deduction of advance income tax, computation of income and tax payable thereon shall be determined in accordance with the rules in the newly introduced “The Tenth Schedule” which envisages the entire path to be adopted by the Inland Revenue Department to enforce returns from persons who make financial transactions yet choose not to file their returns of income.The salient features of this scheme are as under:-

i. Persons whose names are not appearing in the ATL will be subjected to hundred percent increased rate of tax.

ii. Where a withholding agent is of the opinion that hundred percent increased tax is not required to be collected on the basis that the person was not required to file return, the withholding agent shall furnish a notice to the Commissioner having jurisdiction over withholding agent setting out the name, CNIC or NTN and address of the person not appearing in the ATL and the nature and amount of the transaction on which tax is required to be collected or deducted; and reason on the basis of which it is considered that the person was not required to file return or statement, as the case may be.

The Commissioner shall accept or reject the contention on the basis of existing law within thirty days. In case the Commissioner fails to respond within thirty days, permission shall be deemed to be granted not to deduct tax at hundred percent increased rates. Withholding agent shall however be responsible for any inaccurate furnishing of such information and penal action may be undertaken against diligent withholding agents.

Where the person’s tax has been deducted or collected at hundred percent increased rate and the person fails to file return of income for the year for which tax was deducted, the Commissioner shall make a Provisional Assessment within sixty days of the due date for filing of return by imputing income so that tax on imputed income is equal to the hundred percent increased tax deducted or collected from such person and the imputed income shall be treated as concealed income. However, the imputable income so calculated or concealed income so determined shall not absolve the person so assessed, from requirement of filing of wealth statement under sub­ section (1) of section 116, the nature and source of amounts subject to deduction or collection of tax under section 111, selection of audit under section 177 or 214C or subsequent amendment of assessment as provided in rule 8 and all the provisions of the Ordinance shall apply.The provisional assessment shall abate if the person files its return within forty five days of completion of provisional assessment. Where the return is not filed within forty five days of provisional assessment, it shall be treated as final assessment and the Commissioner shall initiate penalty proceedings for concealment of income, the FBR added.

The Federal Board of Revenue (FBR) has so far received historic number of 2.1 million income tax returns for the tax year 2018. According to a tweet of Fawad Chaudhary, Federal Minister for Science & Technology, here on Sunday night, “So far 2.1 million people have filed their tax returns, which is the highest in the FBR’s history. The FBR has projected a target to enhance these returns number to 4 million for the tax year 2019.”

The FBR has repeatedly extended the last date for filing of tax returns for tax year 2018 and last extension has been granted till August 2, 2019. An FBR official told Business Recorder that the number of returns filed in the tax year 2012 was 835,924 which increased to 1,577,964 in the tax year 2017. During these years, the tax law and consequently return form became more complex every year but the number of returns filed has increased. The increase in filing is due to penalty in the form of higher tax rates for non-filers introduced in tax year 2014 and probability of being caught due to data available in withholding statements, he added.

The FBR has already extended date for filing of income tax returns/statements for Association of Persons (AoPs) and individuals for the tax year 2018 to August 2, 2019. The date for filing of income tax returns/statements for TY18 was extended only in cases of individuals and AoPs whose returns were due on August 31, 2018 and September 30, 2018 and it was extended earlier up to June 30, 2019 and later was further extended up to August 2, 2019.

Similarly, the individuals, Association of Persons (AoPs) and companies who/which intend to revise their income tax returns for the Tax Year 2018 may file revised income tax returns/statements till August 2, 2019.

Federal Board of Revenue (FBR) chairman Shabbar Zaidi has said the board will send notices to around 100,000 non-filers who own a house bigger than 500 yards or a vehicle above 1000 cc. While speaking to the media on Sunday, he said the non-filers would be brought to the tax net and the date for filing taxes has been extended up to two months so that maximum people could file taxes.

Earlier on Thursday, the FBR refuted speculation pertaining to levying a heavy withholding tax on motorcycles or rickshaws. A day prior, rumours had surfaced that the FBR had implemented a withholding tax on the registration of motorcycles and rickshaws, hiking up bikes’ registration cost by Rs 3,400 to Rs 20,900.

In an explanatory statement, the FBR clarified that no withholding tax would be implemented on either motorcycles or rickshaws. The FBR member also noted that in efforts to increase tax collection, the body’s priority would not be to levy taxes on the poor.

The Federal Board of Revenue (FBR) Thursday finalised Fully Automated Sales Tax e-Refund (FASTER) procedure for five export-oriented sectors to promptly issue sales tax refunds to exporters by electronically Communicating Refund Payment Orders (RPOs) to the State Bank of Pakistan within 72 hours of submission of claim for onward advice to banks for credit into the claimants’ bank accounts. The FBR has drafted refund rules to refund claims for the Tax Period July 2019 and onwards, as filed by exporters of five export-oriented sectors, ie, textile, carpets, leather, sports goods and surgical instruments on account of export of goods.The refund claims of claimants for the tax periods prior to July 2019 will be processed under the rules as in force on 30th June 2019. Under the new procedure, the claims routed to ‘FASTER’ module shall be electronically processed. The data in the refund claim shall be scrutinised and verified by the system and the payable refund amount shall be determined on the basis of input consumed in exports or supplies. About timeframe of refund payment, the FBR specified that the refund payment order (RPO) of the amount found admissible shall be generated and the same shall be electronically communicated direct to the State Bank of Pakistan, within 72 hours of submission of claim, for onward advice to the respective banks for credit into the notified account of the claimant, new procedure said.

In case of refund claim of a commercial exporter, the payment of such refund shall be made after the realisation of export proceeds, the rules said. As per rules, the total amount of refund paid against the claims filed and processed shall not exceed the ceiling determined by the Board, in terms of percentage of value, or amount per unit of quantity, of goods exported, as deemed appropriate. After submission of refund claim, the same shall be processed by Risk Management System (RMS). Based on the parameters in RMS, a refund claim shall be routed to the processing module referred to as ‘FASTER’. The claims that do not fulfil RMS parameters for processing through ‘FASTER’ module shall be routed for processing.The FBR said that the data provided in the monthly return shall be treated as data in support of refund claim and no separate electronic data shall be required to be provided. The amount specified in column 29 of the return, as prescribed in the form STR-7, shall be considered as amount claimed, once the return has been submitted along with all prescribed annexes thereof.

Provided that the claimant will be able to submit his return without Annex-H and the same may be filed separately at any time but not later than one hundred and twenty days of submission of the return without Annex-H. The date of submission of Annex-H shall be considered as the date of filing of refund claim.

Provided further that the period of 120 days, as aforesaid, may be extended for a period not exceeding sixty days, by the Commissioner having jurisdiction, for reasons to be recorded in writing on the basis of an application made by the exporters.

The rules said that the part of the refund claim that is not verified or not found admissible shall be subjected to system validation checks every week and RPO shall be generated for the amount found valid during each validation check. After every validation process, the information regarding RPO generated, if any, as well as the objections shall be communicated by the system to the refund claimant and also to the concerned RTO or LTU for information. The RPO so generated shall be communicated to the State Bank of Pakistan for payment in the aforesaid manner. After eight validation checks, including the initial one, if any amount still remains un-cleared, the same shall then be processed under STARR module as referred to in Chapter V of the rules.The provisions relating to post-refund scrutiny, supportive documents, responsibility of claimants and action in respect of inadmissible claims, as in Chapter V, shall, mutatis mutandis, be applicable to refund claims filed and processed under this procedure.

Provided, however, that supportive documents shall only be presented by the claimant, if so required by the officer in-charge of post-refund scrutiny, with the approval of commissioner concerned, the draft refund rules added.


Karachi Tax Bar Association (KTBA) has requested the Federal Board of Revenue (FBR) to accept first biannual withholding tax statement for three/four months.

In a letter sent to the Member IR-Operation Seema Shakil, the KTBA sought a clarification in connection with the requirement of filing of the newly introduced biannual withholding tax statement, which had been made applicable via an amendment made in the Income Tax Ordinance, 2001 through the Finance Supplementary (2nd Amendment) Act, 2019.

It said that the Finance Supplementary (2nd Amendment) Act, 2019 was enforced from March 12, 2019. Accordingly, before the said amendment, the taxpayers had already filed their monthly withholding tax statement for the months of January and February 2019 and in some cases for March 2019 as well in order to avoid any potential penalty from the department.

KTBA therefore said that it would be technically not possible for them to upload the data for the above three months along with the data for the months of April, May and June 2019 and added that the CPRs for tax withheld/deposited during January to March 2019 would not be available again to be utilized, having already been used while filing the monthly withholding tax statement for January to March 2019.

Accordingly, even if the withholding tax data for the first three months is uploaded, it wouldn’t be submitted for the reason that the corresponding CPRs would not be available in the IRIS system, it maintained. The KTBA sought a clarification from the FBR on biannual withholding tax statement.

The Karachi tax office is said to have allowed inadmissible input tax of Rs 51.9 million claimed by an importer through fake invoices.

According to sources, the issue came on surface when the Directorate of Intelligence and Investigation, Inland Revenue, Hyderabad received credible information that a concern which was registered as importer and making supplies of imported goods to unregistered buyers in open market, declared supplies in their monthly sales tax returns to register buyers just to evade payment of further tax.

Sources said the Directorate in order to ascertain factual position carried out scrutiny of sales tax returns e-filed as well as imports made by the aforesaid importer.

They said that online scrutiny revealed that registered person made imports of items i.e. chickpea, mellan seed, coriander seed, bitumen, rubber waste scrape, white spirit & raw wool during the period 2017, 2018 and 2019 and declared fake sales to different registered buyers falling within jurisdiction of Karachi tax office.

It further stated that it was an engineered affair on the part of the aforesaid supplier as well as buyers as the nature of business (sold items) of the supplier was altogether different from that of buyers’ declaration of goods sold and there was no relevancy of goods declared by the supplier and goods declared by the buyers in sales summary.In view of the aforesaid facts, investigations under section 38 of the Sales Tax Act, 1990 may be initiated to verify authenticity of input tax claimed and if warranted illegal input tax Rs 51.93 million may be recovered besides the proceedings under section 21(2) and 21(4) may be initiated, if deemed appropriate and outcome of the exercise may be shared with the office, they said and added that the Directorate had also issued red alert for immediate action to safeguard the national exchequer.

The Federal Board of Revenue (FBR) on late Tuesday night upward revised values of immovable properties in 20 cities of the country to bring them in line with actual market rates. In this connection, the FBR has issued new values of immovable properties here on Tuesday.

The notifications will come into force with effect from July 24, 2019. The FBR issued notification for increasing valuation rate of properties for 20 cities. The valuation rates for residential, commercial, industrial and flats categories were issued at different rates.

The FBR officials said that the valuation rates have been increased on average from 50 percent to 85 percent. According to notifications issued by the FBR on late Tuesday night, the FBR notified valuation rates for 20 cities including Abbottabad, Bahwalpur, Faisalabad, Gujrat, Hyderabad, Islamabad, Jhang, Jhelum, Karachi, Lahore, Mardan, Multan, Peshawar, Quetta, Rawalpindi, Sahiwal, Sargodha, Gujranwala, Sukkur and Gwadar.

In case of Karachi, the FBR has divided the city into eight categories on the basis of residential plots, commercial plots, industrial category and flats category with different rates. For Islamabad, for per square yard size for residential area for immoveable property in D-12 the valuation rate will be Rs 53295, E-7 Rs 94500, E-11 Rs 41800, E-12 Rs 25262, F-6 Rs 93500, F-7 Rs 91700, F-88 Rs 88000, F-10 Rs 78100, F-11 Rs 74800, G-6 Rs 68220, G-7 Rs 62865, G-8 Rs 62865, G-9 Rs 62239, and G-13 Rs 51000. The valuation rates for flats, commercial and industrial areas with different rates were issued by the FBR. The FBR notification stated that the values in the table are in rupees; value is per square yard of the covered area of ground floor plus covered area for the additional floors; (ii) commercial property built up value is per square yard of the covered area of the ground floor plus covered area of the additional floors, if any; (hi) built up industrial property value is per square yard of the plot area per square foot; (V) the value in respect of a residential building consisting of more than one storey shall be increased by 25% for each additional storey i.e. value of each storey other than ground floor shall be calculated @ 25% of the value of the ground floor; (vi) a property which does not appear to fall in any of the categories shown in the Appendix below shall be deemed to fall in the adjacent lowest category of the Appendix; (vii) whether the land has been granted for more than one purpose, viz residential, commercial and industrial, the valuation in such a case shall be the mean/average prescribed rate; (viii) a flat means the covered residential tenement having separate property unit number/sub-property unit number; in residential, multi storey building, additional storey shall be charged if it consists of bed room and bath room; (ix) the rates for basements of built in commercial property in categories I, 11, III and IV shall be Rs 13,500 per square yard.

The Lahore Chamber of Commerce and Industry has urged the government to harmonize/unified labour taxes to facilitate the business community. While talking to a delegation of businessmen, LCCI President Almas Hyder said that number of taxes pertaining to industries and businesses can be reduced considerably by clubbing Employees Old Age Benefit Institution (EOBI), Punjab Employees Social Security Institution (PESSI), Workers’ Profit Participation Fund (WPPF) and Workers’ Welfare Fund (WWF).

The LCCI President also suggested that the responsibility of collection of taxes should be given to the Punjab Revenue Authority (PRA). Once this initiative is materialized, it would help separate tax collection from service provision. Consequently, different departments would no need to send their inspectors for tax collection and these departments could concentrate on delivery of service.