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June 18, 2021

OICCI for reviewing FBR powers on income concealment

 
June 18, 2021

ISLAMABAD: The Overseas Investors Chamber of Commerce and Industry (OICCI) has asked the government to reconsider the power of FBR officers for arresting and prosecuting people on suspicion of concealment of income and reinstate zero-rating regime for the dairy sector and withdraw increased taxation on the salaried class.

The OICCI, comprising over 200 multinational companies operating in Pakistan, has written a letter to Finance Minister Shaukat Tarin and FBR Chairman Asim Ahmed and stated that they appreciate that the proposed Finance Bill 2020-21 incorporated several bold measures towards ease of doing business and documentation of the economy, with noticeable emphasis on the enforcement of the tax-paying culture. “However, like any such effort, we recommend few critical areas, given below, which need to be reviewed and appropriately revised to ensure that tax compliant businesses contributing substantially to the economy are not encumbered. After a detailed review, our members have highlighted for your kind attention as we highly appreciate that the minimum tax rate (MTR) has been marginally reduced to 1.25% with a further lower rate for the oil refineries and fast-moving consumer goods (FMCG) sector. It is requested once again to consider the real business situation of regulated oil marketing companies and reduce MTR to 0.5% in line with the rate for oil refineries,” the letter read.

“We agree in principle with the intention of the law to penalise intentional tax evaders. However, based on the past experience, it is very likely that such powers to the field formation may be misused to harass the potential offenders. Moreover, to ensure the principles of natural justice and fair play, we request that such powers need to be exercised through a transparent mechanism duly authorised by a member FBR before taking the final action. We request once again to reinstate Clause 103C of Part I of Second Schedule of ITO, and amendment be made in Part IV of Second Schedule to provide exemption from withholding tax on inter-corporate dividends exempted under Clause 103C of Part I of Second Schedule of ITO.” To promote the documented dairy sector, the OICCI proposed reinstatement of zero rating of dairy sector. On the other hand, it proposed increasing the ST rate which will give further fillip to the undocumented dairy sector and reduce the market share of the tax compliant sector. “We fail to see the rationale for such a drastic action which is going to be highly negative not only for the organized dairy sector but also for the FBR revenue collections. In the interest of the health and revenue of the country, you are once again requested to reverse the decision and if possible grant zero rating to the sector.”

The letter stated the banking sector is currently subject to a higher income tax rate of 35% and a super tax of 4% which was supposed to be temporary as it has been removed for other taxpayers. “We request the FBR to review the overall tax rate for the banking sector in line with the corporate sector to 29% in total and there should be no super tax.” There are two proposals in the Finance Bill, which will increase the tax liability of the salaried class. The proposed withdrawal of the current exemption of medical allowance up to 10% of basic salary as well as medical expense reimbursement and proposal to tax payments representing profit on debt earned on contributions to Provident Fund exceeding Rs 500,000 and on the entire amount of interest in an approved Pension Fund at the rate of 10% as a separate block of income will be a body blow to the salaried class and needs to be reconsidered and withdrawn.

The WHT data is already available on the FBR portal in the form of PSIDs. The new requirement will increase the compliance task, and consequent cost, manifold and is contrary to the EODB policy of the government.

As a result of promulgation of WWF and WPPF laws by the provinces under the 18th Constitutional Amendment, the required changes to allow WWF and WPPF payments to the provinces as tax deductible expenses have been promulgated. However, such expenses incurred/contributions paid by trans-provincial entities have been specifically disallowed. It appears that the intent of the amendment is to enforce payment of WWF to the federation by trans-provincial entities. However, this will lead the taxpayer to suffer additional tax cost due to disagreement between federation and provinces on this matter which has been in limbo since the 18th Amendment was enacted over ten years ago. Most of the OICCI members are trans-provincial entities and get into trouble with such actions with the respective provincial authorities like SRB, PRA, etc.

These foreign investors have come to Pakistan and not to any specific province and should not be made to run from pillar to post on such issues when they are willing to pay their dues of WWF and WPPF to one authority. The withdrawal of exemption of sales tax on import of corn seeds whereas local supply is still exempted. This seems to be an oversight and the exemption needs to be restored.

The withdrawal of exemption currently available to export of technical services and proposing to tax it at 1% under the final tax regime and putting it at par with export of goods is likely to negatively impact the growing export of technical services. To promote philanthropy and healthcare, exemption may be given, from the operation of Section 148 of the ITO 2001, on import of pharmaceutical medicines and allow tax exemptions/tax credits where companies are offering free benefits to the society through Patient Access Programmes. Clause 18B of Part II of Second Schedule is proposed to be deleted, which is contrary to the stated aim of the government to promote Islamic banking.