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June 15, 2021

FBR proposes phasing out tax exemptions, salaried class privileges

ISLAMABAD: Chairman FBR Asim Ahmed said that they have proposed phasing out some income tax exemptions of the salaried class privileges in the budget 2021-22. “We are in the process of phasing out tax exemptions and bringing them into the normal tax regime. We also phased out a few more income tax exemptions related to employees’ privileges in the budget 2021-22. The FBR has not hiked tax rates but certain privileges will now be taxed,” he said while talking to The News here on Monday.

In this context, the FBR has abolished salaried class medical allowance estimated to provide tax incentive of Rs1.825 billion, which would now be withdrawn and taxed. The government has also granted sweeping powers to FBR to get assistance from abroad for recovering taxes and arresting tax evaders through Finance Bill 2021-22.

Under the Finance Bill 2021-22 tabled in the parliament, the FBR has proposed certain amendments in different clauses and sections of its laws to facilitate recovery of taxes on request of foreign jurisdiction, fixing tax rate on imported sugar, minimum tax in context of retailers and wholesalers and defining tax on two categories of SME, etc. The FBR has been empowered to arrest and prosecute under two clauses added section 203 ie A and B. Previously, the FBR had to seek permission of IRS judge for arresting and prosecution for concealment of taxes.

The FBR proposed amendments into Section 146C of Income Tax Ordinance and stated that the provisions of sections 138, 138A, 138B, 139, 140, 141, 142, 143, 144, 145, 146, 146A, and 146B shall mutatis mutandis apply in assistance of collection and recovery of taxes in pursuance of a request from a foreign jurisdiction under a tax treaty, a multilateral convention, an intergovernmental agreement or similar arrangement or mechanism.”

A new clause (9AA) allows collection of tax under section 148 on imported sugar at the rate of 0.25% as per quantity, quality, mode and manner prescribed by Ministry of Commerce. Another clause 9AB levies 0.25% tax on commercial import of the white sugar shall be collected from 26th January 2021 till 30th June, 2021. Similarly, 9AC allows tax collection at the same rate on importing raw sugar by sugar mills subject to quota allotment by Commerce Division from the 26th January, 2021 to 30th day of June, 2021 provided that the imports shall not exceed 50,000 metric tons per sugar mill.

Furthermore, the rate of minimum tax under sub-section (1) of section 113 for distributors, dealers, sub-dealers, wholesalers and retailers of fast moving consumer goods, fertilizer, locally manufactured mobile phones, sugar, electronics excluding imported mobile phones, cement and edible oil shall be 0.25% subject to the condition that beneficiaries of reduced rate are on the Active Taxpayers’ Lists. However, this benefit shall be available to only those Tier-1 retailers under Sales Tax Act, 1990 who are integrated and configured with Board or its computerized system for real time reporting of sales or receipts.

The Small and Medium Enterprises shall be required to register with FBR on its Iris web portal or SMEDA on its SME registration portal (SMERP). The SMEs will have in two categories and their tax shall be computed at the rates given in the table below, namely,

In category-1, where annual business turnover does not exceed Rs100 million, there will be 7.5% of taxable income. In category-2 where annual turnover exceeds Rupees 100 million but does not exceed Rupees 250 million, there will be 15% of taxable income. For category-1, 0.25% of gross turnover will be imposed and those in category-2, 0.5% of gross turnover is proposed to be imposed.

Besides, the SMEs who opt for taxation under normal law under rule 3 may be selected for tax audit through risk based parametric computer ballot under section 214C of the Ordinance if its tax to turnover ratio is below tax rates given in rule 4 of these rules. (2) The cases selected under sub-rule (1) of this rule shall not exceed 5% of the total population of SMEs whose tax to turnover ratio is below tax rates given in rule 4 of these rules. Such person shall pay a penalty of Rs10,000 period, the taxpayer may update their registration forms.