TAXES AND JOBS UPDATES

PERSONS REMITTING AMOUNTS ABROAD ADVANCE TAX PROPOSAL REJECTED

Senate Standing Committee on Finance on Monday outrightly rejected Federal Board of Revenue's (FBR) proposal to impose advance tax on persons remitting amounts abroad through credit/debit/prepaid cards and give legal cover to the past actions of the Directorate General Intelligence and Intelligence Inland Revenue (IR).

While reviewing the Finance Bill 2018, a meeting of the finance committee presided over by Senator Farooq H Naek unanimously rejected FBR's proposal to tax persons remitting amounts abroad through credit or debit or prepaid cards. The Finance Bill 2018 proposed to insert a new section whereby banks are made liable to deduct taxes at 1% (3% for non-filer) on payments made through credit cards, debit cards and prepaid cards to non-resident persons. The taxes so deducted shall be adjustable.

Responding to queries of the members of the committee, Senior FBR Member Inland Revenue Policy Dr Muhammad Iqbal informed if a resident person makes payment of hotels and shopping, etc, aboard through credit or debit or prepaid cards, it would be subjected to tax. The rate is very low ie one percent. The withholding tax would be applicable to resident persons, who have credit/debit or prepaid cards issued by Pakistani banks and carry out transaction in any foreign country.

Under section (236Y) of the Income Tax Ordinance 2001, every banking company shall collect advance tax, at the time of transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a credit card transaction, a debit card transaction, or a prepaid card.

Terming the proposal high unjustified and irrational, all committee members unanimously rejected the proposal of the FBR. Senate Standing Committee on Finance has also rejected the FBR budgetary proposal to give legal cover to the actions of the Directorate General Intelligence and Intelligence IR.

Senator Mohsin Aziz informed the committee that the Directorate General Intelligence and Intelligence Inland Revenue (IR) is a very "dangerous" organization of the FBR. The Directorate of Intelligence IR has created harassment among the business community. Due to the I&I IR, the people are afraid to come into the tax net, he added.

Dr Muhammad Iqbal said that the agency had recovered Rs 6 billion from one party (businessman). "If we do not give legal cover to the actions of the directorate, the FBR may have to repay the amount to the concerned taxpayer," he added.

The Senate Standing Committee on Finance approved the proposal on the taxation of the commercial importers through Finance Bill 2018. Through Finance Bill 2018, the clause 56B was abolished wherein the commercial importers, who are subject to final taxation, have an option to file a statement under 115 (4) of the Income Tax Ordinance that will be treated as assessment under section 120 of the Income Tax Ordinance. Due to abolishment of the Section 56B, now the commercial importers have to file income tax return under the section 114 of Income Tax Ordinance 2001.

The senior FBR member Inland Revenue Policy informed the measure has been taken to check under-invoicing by the commercial importers. Without making any change in the rate of tax, only tax regime for the commercial importers has been changed. At present, the tax collected under section 148 of the Income Tax Ordinance, 2001 from commercial importers at the import stage is final tax, therefore, commercial importers are not required to file their return of income and compute their taxable income. This leads to under-invoicing, domestic transfer pricing and evasion of tax. Tax collected from commercial importers at the import stage shall now constitute minimum tax instead of final tax; therefore, commercial importers shall be required to file their returns of income depicting their taxable income(s). This measure is also a step towards gradual phasing out of the final tax regime, Dr Iqbal added.

Former Federal Secretary Finance Dr Waqar Masood appreciated the step of the FBR to check under-invoicing and making overall import situation better for the country. If the commercial importers continue to operate under the existing regime, the under-invoicing cannot be stopped at import stage, he added.

Regards,

Nadeem Butt - (FCA), FPFA, B.com

Chartered Accountant

Chairman LTBA - Tax Academy (2018-19 & 2017-18)

Member Publications Committee of ICAP (2017-18)

Member Practice Support Committee of NRC of ICAP (2017-18)

Member Finance,Taxation & Sales Tax Committee of LCCI (2017-18)

Vice Chairman LTBA - Tax Academy (2016-17)

Member (Special Invitees) Taxation Committee of LCCI (2012-13)

Audit and Tax adviser of all Pakistan Cottage Industry & Small Traders Association 

Principal of Institute of Taxation and Finance

20+ Years experience as Professional Author and Teacher of Taxation

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