Budget Proposals for The Year 2015-2016

BUDGET PROPOSALS FOR THE YEAR 2015-2016

By Syed Tauqeer Bukhari,President Rawalpindi Tax Bar Association

Budget Proposals 2015

INCOME TAX

SectionExisting ProvisionProposed amendmentRemarks
130Appointment of the Appellate Tribunal There shall be established an Appellate Tribunal to exercise the functions conferred on the Tribunal by this Ordinance. (2) The Appellate Tribunal shall consist of a chairperson and such other judicial and accountant members ++as are appointed by the Federal Government having regard to the needs of the Tribunal.++ (3) A person may be appointed as a judicial member of the Appellate Tribunal if the person (d) ----- (b) ----- (c) is an officer of Inland Revenue Service in BS-20 or above and is a law graduateSubsection (2) of section 130 may kindly be amended as under: (2) The Appellate Tribunal shall consist of a chairperson and such other judicial and accountant members ++as are appointed by the Chief Justice of concerned Hgh Court having regard to the need of the Tribunal.++ Subsection (3) clause (c) of section 130 may kindly be deleted:While framing the National Judicial Policy, mandate of Article 203 read with Article 175 of the Constitution was re-emphasized under the heading ++Independence of Judiciary in the following words:++ All special courts/tribunals under the administrative ++control of executive++ must be placed under the control and supervision of judiciary and all appointments postings should be made on the recommendation of the Chief Justice of the concerned High Court ++The clause 6 of National Judicial Policy is++ for affective judicial control over tribunals, the High Courts should should critically examine their judgments. The tribunals such as federal / Provincial Services Tribunals, environmental tribunals and Income Tax appellate tribunals are performing judicial functions thus these should work under the supervision of respective High Court. ++In this regard the federal government should amend the relevant laws++ to bring the judges and staff of the tribunal with in the purview of the respective High Court
207++Income tax authorties++ There shall be the following Income Tax authorities for the purposes of this Ordinance and ruls made thereunder, namely:- (a) Board : (d) Commissioner IR (Appeals);Subsection (1) clause (d) of section 207 may kindly be deletedCommissioner (Appeals) may kindly be deleted from the list of Income Tax authorities. For details please see remarks of section 208
208++Appointment of income tax authorities++ The Board may appoint as many Chief Commissioner Inland Revenue, Commissioners Inland Revenue, ++Commissioners Inland Revenue (Appeals).++Subsection (1) of section 208 may kindly bee amended and words ++Commissioner Inland Revenue (Appeals),++ may kindly be deletedThe Commissioner (Appeals) may kindly be ++appointed by the Chairman Appellate Tribunal with cosultation with Chief Justice of concerned High Court._______++ The Commissioner (Appeals) may kindly be a judicial officer having elevant qualification and tax laws experience. ++OR++ The Commisioner (Appeals) may kindly be appointed through FPSC as independent Tax adjudicator.
137(2) Where any tax is payable under an assessment order or an amended assessment order or any other order issued by the Commissioner under this Ordinance, a notice shall be served upon the taxpayer in the prescribed fom specifying the amount payble and thereupon the sum so specified ++shall be paid within [fifteen] days fom the date of service of the notice:++Subsection (2) of Section 137 may kindly be amended and words ++shall be paid within fifteen days from the date of service of the Commissioner++ ++Appeals Order passed under Section 129:,++ May kindly be substited15 days from the date of order of Commissioner (Appeals)
138++Recovery of tax out of property and through arrest of taxpayer++ (1) For the purpose of recovering any tax due by a taxpayer, the Commissioner may serve upon the taxpayer a notice in the prescribed form requiring him to pay the said amount within such time as may be specified in the notice.(1) For the purpose of recovering any tax due by a taxpayer, the Commissioner may serve upon the taxpayer a notice in the prescribed form ++after receiving the order of Appellate Tribunal under section 132++ rquiring him to pay the said amount within such time as may be specified in the notice.The attachment and sale of any movable or immovable property of the taxpayer, appointment of a receiver for the management of the movable immovable property of the taxpayer; and ++arrest of the taxpayer++ and his detention in prison for a period not exceeding ++six months++ are very harsh provision. The said provision of law may kindly be applied ++after exhausting minimum one independent forum.++
148++Reduction in the rate of Advance Tax on Imports under section 148 Manufacturers importing raw materials:++ Previously as per Clause (9A) of Part II of the Second Schedule of Income Tax Ordinance, manufacturers importing raw material for their own use were suject to collection of tax at source at the rate 3%. In Financial Year 2013 this was Increased to 5% and subsequently to 5.5% through the Finance Act, 2015.The rate of Advance Tax on imports under section 148 - Manufacturers importing raw materials needs to be reduced to 3%Manufacturers, whose raw materials are imported goods, are facing cash flow problems due to abnormal delays in getting their refunds, if any. The problem ges worse for companies who have huge brought forward losses, tax credits and are required to pay only Minimum Turnover Tax.
148++Section 148 Exemption Cerificate++ The positive measure of issuance of exemption certificate on imports by commissioners was introduced in Finance Act, 2013.The positive measure of issuance of exemption certificate on imports by commissioners was introduced in Finance Act, 2013; however, these rules need to be revisited as under the Current set of rules, practically no exemptions have been granted. This is causing hardships in the form of income.In the past, this problem was taken care of by granting exemption certificates on yearly basis.
++Section 113: Minimum Tax++ Through Finance Act, 2013 the rate of minimum turnover tax under section 113 of the Income Tax Ordinance, 2001 has been increased to 1% from 0.5%.It is recommended that the Minimum Turnover Tax revert to 0.5%This will help companies better manage liquidity.
113++Minimum tax carry forward in case of loss in ealier periods section 113++ As per section 113(2)(c), where tax paid (minimum tax) under subsecion (1) exceeds the actual tax payable under Part 1, clause (1) of Division I, or Division II of the irst Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aoresaid part of the subsequent tax year.To address the ambiguity surrounding the adjustment of minimum tax by loss uffering companies (who have no corporate tax payable in view of loss), it is proposed as follows: Option 1 The following Explantion is proposed to be inserted Explantion:- For the removal of doubt, it is declared that the expressions the excess amount of tax apply to all cases where no tax is payable or paid for any reason whatsoever including any loss of income, profits or gains or set-off of losses or unabsorbed depreciation of earlier years, exemption from tax and allowances and deductions admissible under any provision of this Ordinance. OR Option 2 The following be substituted with existing section 113(2) (c): (c) where tax paid under subsecion 1(1) exceeds the actual tax payable under Part I, clause (1) of Division I, or Division II of the First Schedule or no tax is payable on account of losses, the excess amount of tax paid shall be carried forward for adjustment against tax liablity under the aforsaid Prt of the subsequent tax year:Following is an extract from the Finance Minister s budget speech of June 12, 200 whereby the carry forward period of Minimum Tax was increased fom 3 o 5 years. Quote The concept of minimum turnover tax payable by a resident company if the tax liability is nil or less than 0.5% due to losses or low income is considered as a disincentive for the companies incurring genuine losses in the initial years of bussiness or due to admissible depreciation. To help the newly established companies. It is proposed to allow carry forward of unadjusted amount of minimum tax for a period of5 years for adjustment against Future tax liability. If the amount is not adjusted in the said period of 5 years it would automatically lapse. Unquot In spite of clear intention of carry forward facilty of Minimum tax paid owing to loss, it has been argued by certain quarters that if minimum tax paid exceeds the actual tax payable, then it allows carrying forward the excess amount which is adjustable against future tax liability whilst where no tax is payable by the taxpayer due to bussiness loss or whatsoever reason, then minimum tax paid under this Section does not allow to carry forward against future tax liablity. This is unjust because the actual tax liability of most of the companies which have made huge investments have brought forward losses mainly on account of accelerated tax depreciation.
65E++Tax Credit Under 65E:-++ Tax Credit under section 65E is restricted to investment in plant and MachineryTax Credit Under 65E:- Tax credit under section 65E should also extend to investment in factory building and manufacturing related infrastructure.Expansion of plant or undertaking a new project involves investment in facory building and manufacturing related infrastructure and as such these types of investments should also be made eligible for tax relief.
65E65E(1) inter alia for the purpose of.- * (i)Expansion of the plant and machinery already installed therin; or65E(1) for the purpose of.- * (i)Extension expansion, balancing, modernization and replacment of the plant and machinery already installed therin.This amendment will further promote industrialization and new investment in the country
23++Intial Depreciation Allowance on Plant and Machinery under Section 23:++ Through the Finance Act, 2014, the rate of initial depreciation allowance on plant and machinery as prescribed under the Third Schedule to Income Tax Ordinance, 2001 has been reduced to 25% from 50%, effective tax year 2014. Further the rate of initial depreciation allowance on building has been reduced from 25% to 15% vide Finance Act, 2014.It is proposed that the Intial Depreciation Allowance rate be restoed to 50% for Plant as was the case prior to the Finance Act 2013. The Intial Depreciation Allowance for Building be restored to 25% as was the case prior to the Finance Act 2014.This will gear up investments in the Industrial sector resulting in Job creation and increased tax revenues for the Governments once the unit starts earning profits.
152(2A)++Non Issuance of Certificate of Exemption to Nonresidents under section 152(2A) problem:++ Up to 30 June 2012, the cases of non-resident companies were covered under section 153 of the Income Tax Ordinance, 2001. In subsection (4) of section 153 explict (clear) power was given to the Commissioner to issue the Certificate of Exemption. From 01 July 2012, by change in law the cases of non-resident companies were shifted from Section 153 to Section 152. Unfortunately, Section 152 does not grant any explict powers to the Commissioner to issue the Certificate of Exemption, as was available under subsection (4) section 153.

++SALES TAX++

Sr.Existing SituationPoposed ChangeRationale for Change
8B8B. Adjustable input tax.- Restriction of Input Sales Tax at 90% of Output Sales Tax In view of amendment by S.R.O 154 dated February 28, 2013 in S.R.O 1125 dated December 31, 2011, zero rating concept for sales tax has been converted into a reduced sales tax rate regime. Consquently, those who were ealier covered in S.R.O 647(I)/2007 dated June 27, 2007, entry No.7 (given below) cannot now adjust input tax in excess of 90% of output tax. 7. Person Making zero-rated Supplies provided value of such supplies exceeds 50% of value of all taxable supplies in a tax period. This is impacting some of the taxpayer who have moved from the zero rated to the reduced rate regime as they are currently allowed to adjust only 90% of their input sales tax as per Section 8B of the Sales TaxOption 1: FBR to issue clarifictraion letter for the word zero-rated mentioned at serial No.7 of the S.R.O 647 of 2007 includes Reduced rate supplies as well. . Option 2: Serial No. 7 of the S.R.O. 647 of 2007 to 7. Person making zero-rated or reduced-rated supplies provided value of such supplies in aggregate exceeds 50% of value of all taxable supplies in a tax period.Allow taxpayers to claim input sales tax credit at an early date, in order to avoid blockage of funds leading to unnecessary refunds
Change in Slaes Tax withholding Rules, 2007: The above Rules are applicable when a registered when a registered person maks payment to Registered well as Unregistered taxpayers.It is recommended that STWH rules may be withdrawn for all registered taxpayers whilst making payment to Registered person.(a) Core reason behind its introduction was to gather data of potential tax payers and minimize undocumented economy. The purpose of these section was not to generate more revenue. (b) To the best of our knoledge, FBR has not taken benefit from any STWH from registered parties (c) Withholding tax from unregistered persons is shown in bulk in the return so the idea of broadening th tax base has not been served. (d) These Rules are not applicable for unregistered person (as a payer) and applicable to registered person. Hence discouraging Registration. (e) STWH has increased the workload of registred person, as on the one hand they have to issue certificate as a deducting authority and on the other hand, have to follow-up for certificate as a facing authority.
8A 8(1) (ca)Section 8A and 8(1)(ca) Joint and several liabilty of Registered persons in supply chain where tax unpaid.- Where a registered person receiving a taxable supply from another registered person is in the knowledge or has reasonable grounds to suspect that some or all of the tax payable in respect of that supply or any previous or subsequent supply of the goods supplied would go unpaid, such person as well as the person making the taxable supply shall be jointly and severally liable for payment of such unpaid amount of tax:Bothe these provisions should be omitted.FBR s portal responsible for disallowing a registered person to claim input tax in respect of vendor registered with sales tax which has become blacklisted/inactive. If the FBR s portal does not restrict input tax being claimed with respect to a particular supplier, it is deemed to be understood that the person is an eligible vendor. The subsequent responsibility is of FBR s Enforcement and Collection unit and not of the taxpayer being a customer.
Input sales tax to be allowed to Sales Registered Persons on Building Materials, Office Equipment, Office Furniture, Vehicle and other goods and services used for bussiness purpose. Input sales tax on above items are restricted by virtue of clauses 1 (h) & (i) of section 8 introduced through Finance Act, 2014 and earlier through S.R.O. 490(I)/2004. In order to promote purchases from documented sector and encourage sales tax registration, the same should be allowed Adequate protection is already there in the law to avoid misuse of input sales tax on above items not related to taxable supplies vide disallowance under clause (f) and (g) of section 8, therby, only allowing input sales tax for registered taxpayers using vehicles for their taxable activity.Clause I (h) & (i) of section 8 should be deleted. Further, in Clauses (a), (e), (f), (g) and (h) to S.R.O. 490(I)/2004 Should be deleted.The documented sector will get some relief and benefit over undocumented Sector. Further, undocumented sector will be encouraged to get their bussiness registered under sales tax and avail the benefit for these items. This is demonstrable when concept of Filer and Non-Filer was introduced in Finance Act, 2014.

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