Roshan Digital Accounts scheme: Tax Laws Amendments Ord 2021 promulgated

ISLAMABAD: President Dr Arif Alvi has promulgated Tax Laws Amendments Ordinance 2021 to facilitate Roshan Digital Accounts for Non Resident Pakistanis, extending 4 percent Super Tax on banks beyond tax year 2021 for indefinite period, imposed Withholding Tax from Rs50,000 to Rs200,000 on different engine capacity on persons who sell locally manufactured cars within 90 days of delivery, offered tax exemption for electric vehicles and locally manufactured mobile devices.

The government claims that this ordinance was promulgated to facilitate businesses. It is not yet known about the revenue impact of these taxation measures but certain moves such as imposition of withholding tax and extending 4 percent Super Tax on banking sector would fetch revenues. However, facilitation measures would result in incurring tax losses. So tax experts believed that there is more incentives involved in it

“Yes, the president has signed and promulgated this ordinance. It is related to Roshan Digital Accounts scheme introduced by SBP, electric vehicles and manufacturing of mobile devices in Pakistan and some other issues,” Special Assistant to the PM on Revenues Dr Waqar Masood stated when The News asked him to get explanation on this ordinance.

Renowned tax expert Ashfaq Tola Sunday explained that the president promulgated the ordinance to make amendments to the Income Tax Ordinance, 2001(ITO), Sales Tax Act, 1990 (STA) and Federal Excise Act, 2005 (FED) and Customs Act from Feb 12, 2021.

Now through this ordinance, every motor vehicle registering authority of Excise and Taxation Department is required to collect advance tax in addition from the buyers of locally manufactured motor vehicles who subsequently sell it within 90 days of delivery of such vehicle whether prior to or after registration at the specified rates. This tax is adjustable and is applicable till June 30, 2021 only.

The government has imposed tax of Rs50,000 on the vehicles having engine capacity up to 1000cc; tax of Rs100,000 on engine capacity of 1000cc to 2000cc and tax of Rs200,000 has been imposed on vehicles having engine capacity of 2000cc and above.

According to Ashfaque Tola, this means the government has imposed withholding tax (Rs50,000-Rs 200,000) on persons who sell locally manufactured vehicles within 90 days of delivery of such vehicles even if they are registered.

Ashfaq Tola stated that the tax had been introduced to discourage the ‘On Money’ culture in Pakistan which has been a major factor in price hikes in car prices over the past years.

Through Tax Year 2020 onwards the tax was only applicable on

banking companies @ 4% till Tax year 2021. Now this tax has been extended for an indefinite period.

According to the ordinance, a new entry 71 is introduced in Eight Schedule whereby reduced rate of sales tax at 1% has been prescribed on locally manufactured or assembled electric vehicles (4 wheelers) on local supply till June 30, 2026 including small cars or SUVs with 50 kwh battery or below and light commercial vehicles (LCVs) with 150 kwh battery or below.

Under the ordinance, the value addition tax @3% at import stage has been exempted on the electric vehicles (4 wheelers) CKD kits for small cars or SUVs, with 50 kwh battery or below and light commercial vehicles (LCVs) with 150 kwh battery or below till June 30, 2026; electric vehicles (4 wheelers) small cars or SUVs with 50 kwh battery or below and light Commercial Vehicles (LCVs) with 150 kwh battery or below in CBU condition till June 30, 2026 and electric vehicles (2-3 wheelers and heavy commercial vehicles) in CBU condition till June 30, 2026.

Through Ordinance, the rate in case of importers of CKD kits of electric vehicles for small cars or SUVs with 50kwh battery or below and LCVs with 150 kwh battery or below is prescribed at one percent.

Section 152 prescribes rules for withholding of tax when payment is made to non-residents on account of royalty, fee for technical services, contract of construction services, contract for digital services, contract for advertisements, etc.

Now through the ordinance, every banking company maintaining a Foreign Currency Value Account (FCVA) or a non-resident Pakistani Rupee Value Account (NRVA) of a non-resident individual holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card shall deduct tax @10% on capital gain arising on the disposal of debt instruments and government securities and certificates (including Shariah compliant variant) invested through FCVA and NRVA, and this shall be final tax liability for such non-resident persons.

Any person responsible for registering, recording or attesting transfer of any immovable property, at the time of registering, recording or attesting the transfer, is required to collect from the seller or transferor advance tax at the rate of one percent. The advance tax collected is adjustable, however, where immovable property is acquired and disposed of within the same tax year, the tax collected under this section is minimum tax.

Under the ordinance, if the seller or transferor is a non-resident individual holding POC or NICOP or Computerized National ID Card, who had acquired the immovable property through a FCVA or a NRVA maintained with authorized banks in Pakistan shall be final tax in lieu of capital gains earned by the seller or transferor from the property so disposed of.

Ashfaq Tola explained that any person responsible for registering, recording or attesting transfer of any immovable property, is required at the time of registering, recording or attesting the transfer to collect from the purchaser or transferee advance tax at the rate 1% of fair market value. The advance tax collected shall is adjustable.

Now through Ordinance, if the buyer or transferee is a non-resident individual holding POC or NICOP or Computerized National ID Card who acquires the immovable property through a FCVA or NRVA maintained with authorized banks in Pakistan, the tax shall be final tax for such buyer.

Under the new Ordinance, incentive is given in the form of reduced rate to support voluntary registration. The rate of advance tax on sale to distributors, dealers or wholesalers of fertilizer is reduced to 0.25%, if they already are or get themselves registered under the Sales Tax Act, 1990 within 60 days of the promulgation of this Ordinance.

Currently, any profit on debt derived from foreign currency accounts held with authorized banks in Pakistan, or certificate of investment issued by investment banks in accordance with Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan, by citizens of Pakistan and foreign nationals residing abroad, foreign association of persons, companies registered and operating abroad and foreign nationals residing in Pakistan is exempt from tax.

Now through Ordinance such exemption has been restricted to only non-resident individuals, non-resident association of person and non- resident companies.

Presently, any profit on debt derived from a rupee account held with a scheduled bank in Pakistan by a citizen of Pakistan residing abroad, where the deposits in the said account are made exclusively from foreign exchange remitted into the said account is exempt from tax.

Now through the ordinance such exemption has been restricted to only non-resident individual holding a POC or NICOP or CNIC. The restriction of above exemptions to only non-residents is discriminatory against residents.

The provisions of Section 100BA and rule 1 of the Tenth Schedule i.e. double rate of tax on non-filer, have been made not applicable on non-resident individual holding POC, or NICOP or CNIC maintaining a FCVA or NRVA.

As per new Ordinance, exemption of tax is given on any income derived by Islamic Naya Pakistan Certificates Company Limited (INPCCL). Presently, the rate of tax to be deducted under sub-section (2) of section 152, in respect of payments from profit on debt payable to a non-resident person, having no permanent establishment in Pakistan, is 10% of the gross amount paid. The tax deducted on profit on debt from debt instrument, government securities including treasury bills and Pakistan Investment Bonds is final tax on profit on debt payable to a non-resident person having no permanent establishment in Pakistan and the investments are exclusively made through a special Rupee Convertible Account maintained with a Bank in Pakistan.

Now, through the ordinance, changes have been made whereby this advance tax will not apply if exemption from total income under Clause 78 and 79 of Part 1 is availed.

Under the Tax Laws Amendment Ordinance 2021, the rate of tax to be deducted under section 151 have been reduced to 10% (from 15%) from the profit on debt instruments, whether conventional or Shariah compliant, issued by federal government under the Public Debt Act, 1944 or its wholly owned special purpose company, purchased by a resident citizen of Pakistan who has already declared foreign assets to the FBR through FCVA maintained with authorized banks in Pakistan under the foreign exchange regulation issued by the State Bank of Pakistan. The tax so deducted will be final tax.

Currently, the rate of tax under clause (a) of sub-section (1) of section 153 in case of dealers and sub-dealers of sugar, cement and edible oil, as recipient of the payment, is 0.25% of the gross amount of payments.

Under the newly promulgated ordinance, wholesaler and retailers of fast moving consumer goods, fertilizer, sugar, cement and edible oil, have also been added in the above category as recipient of the payment. However, the benefit of reduced rate shall be available to those dealers, sub-dealers, wholesalers and retailers of above sectors who already are or get themselves registered under the Sales Tax Act, 1990 within 60 days of promulgation of the ordinance.

Currently, the rate of minimum tax under sub-section (1) of section 113 in case of dealers and sub-dealers of sugar, cement and edible oil is 0.25% subject to the condition that the names of such dealers and sub- dealers are appearing on the active taxpayers’ lists issued under the provisions of the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001.

Now, wholesalers and retailers of fast moving consumers goods, fertilizer, sugar, cement and edible oil have also been included in the above category. However, the benefit of reduced rate shall be available to those dealers, sub-dealers, wholesalers and retailers of above sectors who already are or get themselves registered under the Sales Tax Act, 1990 within 60 days of promulgation of this Ordinance.

Currently, the provisions of section 236P are not applicable to a non-resident rupee account repatriable (NRAR) or a foreign currency account maintained with a banking company in Pakistan of a non-resident individual investing in a debt instrument, whether conventional or Shariah compliant, issued by the Federal Government under the Public Debt Act, 1944. Now changes have been made whereby, the provisions of section 231A and 231AA and 236P are not applicable to the holders of FCVA or NRPRVA in respect of these account only.

He explained that the section 114 prescribes list of persons who are required to file return of income including every person whose income for the year is subject to final taxation under any provision of ITO [Section 114(1)(ae)]. Currently, the provisions of clause (ae) of sub-section (1) of section 114 and section 181 shall not apply to a non-resident individual solely by reason of profit on debt earned from a debt instrument, whether conventional or Shariah compliant, issued by the Federal Government under the Public Debt Act, 1944 and purchased exclusively through a bank account maintained abroad, NRAR or a foreign currency account maintained with a banking company in Pakistan.

According to the new amendment, the provisions of clause (ae) of sub-section (1) of section 114 and section 181 are not applicable to a non-resident individual holding Pakistan Origin Card, or National ID for Overseas Pakistanis (NICOP) or CNIC maintaining a FCVA or NRVA.