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Tax Planning in Pakistan

Taxing nation’s savings: at what cost?

By Syed Asad Ali Shah

Budget 2022-23 is continuation of series of budgets for last several years that have been increasing tax rates and withdrawing exemptions, mostly raising the tax burden on the existing tax payers. Like all previous budgets, current one also aims to reduce the fiscal deficit that has remained in the range of 7 to 8% of the GDP during last two decades mainly through an attempt to increase revenue. However, in most cases, such approach has not worked in the past, as neither the revenue increased (in real terms) nor the deficit was contained.

One unique aspect of this budget is to do away rebates and allowances to retail investors for their investments in life & health insurance, voluntary pension schemes and mutual funds. Withdrawal of these rebates provided through sections 62 and 63 of the Income Tax Ordinance proposed by Finance Bill that will be voted upon by the National Assembly in next few days, tantamount to effectively taxing formal sectors that promote savings will be hugely counterproductive for the capital market, insurance and mutual fund sectors of the economy.

Chronic problems of Pakistan Economy

The above proposals, will further aggravate our economy’s deep-rooted problems briefly described below. 

  1. Rate of savings in Pakistan has remained very low, below 15% of the GDP, compared to other similar economies like Bangladesh & India, where rates of savings has remained between 28 to 30%. Due to paltry savings rate, the investment rates have also remained below 15%, as any additional investment has to be from borrowings or foreign direct investment, both of which have largely dried up owing to continuing fiscal and current account deficits and low investor confidence.
  1. Currently, Pakistan’s capital market is its lowest level, as the total market cap of all listed companies on PSX have fallen to only Rs. 7.1 trillion or around $ 34.6 billion, which means it is less than 10% of the GDP. At this level, both in absolute terms and as proportion of GDP, it has fallen to the lowest level that I can remember during the last 2 decades history.

Budget Proposals

Currently, under section 62 and 63 of the Income Tax Ordinance, 2001, individuals are entitled to certain tax credits for making investments in mutual funds, life & health insurance, and contributions to approved pension schemes, which results in reduction in their tax liabilities within certain specified threshold.  It is these rebates & tax credits that the Finance Bill, 2022 proposes to remove. Withdrawal of these small incentives / tax rebates to retail investors will not only be counterproductive for these formal sectors -Life & health insurance, voluntary pension schemes, mutual fund industry and capital market as whole- but will also undermine savings & investments levels, which are already the lowest in the world. Moreover, the proposed amendments, together with increase in tax rates for salaried individuals, will cause further increase in the tax liability of the salaried class.

Life insurance and Mutual Funds are instruments through which savings are mobilized from retail investors for investment in productive sectors, especially the capital market. It may be noted that we hardly have less than 300,000 investors in the capital market compared to nearly 50 million in India- just 0.6% of the number of investors in India- which highlights serious gaps in our investment ecosystem.

Considering Pakistan’s paltry rate of savings (one of the lowest in the world) and lowest penetration of life & health insurance – less than 0.6% compared to 3% in India and global average of 3.7%- & market cap of Mutual Fund industry of barely 1.3% compared to 15% in India & over 50% in the world, this is a highly regressive step for the economy as a whole & especially the formal sectors of the economy.

Impact on FBR Revenue

The Government has estimated a tax saving of Rs. 3.9 billion as a result of withdrawal of these tax savings, but ignored the adverse impact of these withdrawals due to reduction in tax liability owing to reduced profitability of insurance companies and mutual funds and consequent reduction in dividend distributions by these entities that are also taxable in the hands of recipients. It may be noted that the insurance companies are taxed at much higher rates and dividends from such companies and mutual funds are also taxed.

At present the retail investor base in mutual funds industry is over Rs. 340 billion in open end schemes and over Rs. 39 billion in pension schemes, and majority of these investments are made by salaried individuals for availing tax benefits. Similarly a huge sum of insurance premium is paid by individuals towards and health and life insurance, which also qualify for tax rebates. Given the high interest rate and growing market base of insurance sector as a result of better financial awareness, these sectors should register a growth of at least 20% if not more, and it will directly impact the profitability and corporate tax to be collected from the companies, if these changes are not made. However, in case the proposed withdrawals are enforced, it will adversely impact the business of these entities eroding their profitability, and consequently their tax liabilities. In fact, there is a risk that even the existing consumers who no longer enjoy the benefit from these tax rebates may withdraw their investments / discontinue their insurance policies. The resulting loss of tax revenue from these corporate sectors will certainly outweigh the tax benefit expected from these tax savings.

Another important aspect that needs consideration is huge amount of investment by insurance companies and mutual funds in the capital market and money market. As per the estimate given by Insurance Association of Pakistan, aggregate investment by insurance sector is Rs. 2 trillion. As substantial portion of this comes from Life & health insurance, it may be assumed that 60% or Rs. 1.2 trillion investment is from Life & health insurance. Similarly, Rs. 200 billion out of total assets of mutual fund industry of around Rs. 1.2 trillion is invested in equity market. A natural consequence of reduced investments from retail investors in insurance and mutual funds will be reduction in their growth or stagnancy of these sectors, which means reduced flow to capital and money markets. As a result, there is serious risk that the capital market, which is already at its lowest level, may further shrink, thereby increasing capital losses and eroding capital gains, which will also negatively impact FBR revenue from tax on capital gains. Considering all of these factors, it is more likely that the impact of these proposals on FBR revenue will be negative, as potential tax revenue from natural increase in companies profits, dividends and capital gains will be more than the increase in tax collection due to withdrawal of tax rebates.


While I am hopeful that aforementioned proposals that do not make any economic sense will be reversed, I am actually amazed that such an anti-savings step, which negates the government policy of promoting formal sectors of the economy, investments and savings was proposed in the budget. 

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Tax News and Social Trends

FBR Empowered To Disconnect Utility Connections of Non-Compliant Small Traders

The Senate standing committee on Finance and Revenue approved a fixed tax regime for small traders. Chairman FBR informed the committee that a fixed tax regime has been proposed for the small traders. The tax collection under this fixed tax regime would be done via electricity bills.

The committee was further apprised that small traders will pay a fixed amount of Rs. 3,000, Rs. 5,000 and Rs. 10,000 per month up to an electricity bill of Rs. 30,000, Rs. 50,000 and Rs. 100,000 respectively, and this will be considered as final discharge of their tax liability.

He further added that FBR has a data of 2.3 million commercial electricity connections and it is planning to use this data to collect taxes from small traders. The committee approved the proposal of FBR.

FBR team also informed the Committee that they have proposed to collect Rs. 50,000 per month for some special class traders including precious watches dealers and car dealers via their electricity bill on a monthly basis.

The committee recommended FBR to properly define the person or class of person in case of collecting Rs. 50,000 sales tax on the basis of their monthly electricity bill.

The committee also approved the proposal and empowered FBR to disconnect the electricity and gas connections of tier 1 retailers in case they fail to register for sales tax or even after registration if they fail to integrate with FBRs’ computerized system.

FBR also informed the committee that out of a total of 29,000 jewellers in the country, only 22 are registered and integrated with POS systems. All the jewellers fall in the category of tier-1 traders because of the precious and expensive products they were dealing in, even in small shops, and all would have to come into the sales tax net. It was decided during the meeting to bring all 29,000 jewellers into the compulsory general sales tax compliance through integrated Point of Sales.

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Tax News and Social Trends

Federal Budget 2022-23: Snapshot of Income and Sales Tax

The Federal Government presented the proposed budget for the fiscal year 2022-23 in the National Assembly on Friday, June 10, 2022. Federal Minister for Finance and Revenue, Mr. Miftah Ismail presented the budget along with Finance Bill 2022. PML (N) led coalition government has taken some tough structural measures. According to the Minister of Finance and Revenue, the Economic stability of Pakistan is the foremost priority. He also said we need to set a strong foundation of economic development that is based on sustainable growth.

Salient features of the Finance Bill 2022 are as follows:

Income Tax

  • Minimum taxable limit for Salaried Individuals proposed to be increased from Rs. 600,000 to Rs. 1,200,000.  Tax impact on salaried individuals is mostly favorable and only the individuals drawing monthly salary in excess of Rs. 1.5 million (Rs. 18 million p.a.) will be impacted unfavorably.
  • Minimum taxable limit of Business Individuals and AOPs proposed to be increased from Rs. 400,000 to Rs. 600,000. The amendment will increase the tax impact for businesses having annual taxable income in excess of Rs. 1.2 million.
  • Maximum tax on Profit from Behbood Certificates reduced from 10% to 5%.
  • A ‘Final Tax’ of Rs. 3,000 to Rs. 10,000 to be collected from Small Retailers via electricity bills.
  • Resident Person having more than one immovable property worth more than Rs. 25 million to be taxed at 1% of Fair Market Value as Deemed Rental Income.
  • Capital Gain on Immovable Properties to be taxed at 15% for properties disposed of within one year. Rates to be reduced progressively for each year of holding. No capital gain where holding period exceeds 2 – 6 years depending on type of property.
  • Tax rate on Gain on Disposal of Capital Assets to be charged ranging from 2.5% to 15% depending on holding period. No tax applicable after 6 years.
  • Advance Tax on Sale of Property increased from 1% to 2% for filers and 2% to 5% for non-filers.
  • Advance Tax on Purchase of Property for non-filers increased from 2% to 3.5%.
  • Persons including Companies and AOPs earning income of more than Rs. 300 million to be levied an additional 2% Poverty Alleviation Tax.
  • Advance tax to be increased on Motor Vehicle of 1600 cc and above. Rate of additional advance tax on non-filers to be increased from 100% to 200%.
  • Withholding tax on international transactions via Debit / Credit Cards to be levied at 1% for filers and 2% for non-filers.
  • Effective Tax Rate on Banking Companies increased to 45% from 39% (including 4% Super Tax).
  • Scope of definition of Resident enhanced to include those Pakistanis who are not tax resident of any other country.
  • Tax Credits / Allowances on Health Insurance Premium, Investment in shares, mutual funds and Voluntary Pension Funds, and Profit on Debt proposed to be withdrawn.
  • Tax Credit for IT Export Services is proposed to be withdrawn and 0.25% tax to be levied on export proceeds.
  • Companies and AOPs required to file and update particulars of their beneficial owners.

Sales Tax

  • Sales Tax proposed to be Exempted on the following:
  • Imported and local supplies of Solar Panels.
  • Goods excluding electricity and gas supplied to Non-profit and welfare hospitals having 50 beds or more.
  • Agricultural Machinery and Seeds.
  • Further Tax to be charged on persons not appearing in Active Taxpayer List.
  • Mandatory requirement for obtaining CNIC from Buyer is proposed to be withdrawn.
  • Jewelers are now proposed to be included as Tier-1 retailers.
  • Listed companies are now proposed to adjust input tax not more than 90% of the output tax.

For further information regarding the budget 2022-2023, stay tuned with us. If you have any query regarding the budget and/or taxes, then you can feel free to contact us.    

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Pakistan's Tax Affairs

FBR to Incentivize IT industry

Chairman Federal Board of Revenue (FBR) Mr. Asim Riaz on Wednesday talked about giving some hope to the IT industry in the coming budget which is scheduled to be announced on Friday, June 10, 2022.  

While speaking at the signing ceremony of One Window Portal System by Special Technology Zone Authority (STZA), he said, “FBR is the top-tier revenue collection body of the Federal Government. Along with that, it has a strategic role in providing a sound business environment.” 

He further added that the STZA portal will engage local and international investors, and it would be integrated on a real-time basis with FBR and Customs Systems.  

Chairman FBR said the FBR was in line to facilitate all the necessary support required by STZA in this context. A functional working group has also been established, and a coalition with PRAL and PSW is currently underway.    

The purpose of STZA establishment was to operate as an autonomous body, but under the domain of cabinet body division. Its measures are to provide legislative and institutional support for Pakistan’s IT sector development.     

In order to set up technology zones, the STZA reserves an innovative and futuristic mandate including the IT sector across the country.  

This one-window portal consists of a digital system to facilitate STZA-bound licensed companies in the special technology zones. This opportunity will provide benefits to companies to get onboard digitally and integrate with different government and regulatory bodies.   

It is notable that the authority will play its pivotal role in promoting transparency, improving the ease of doing business, and will facilitate Foreign Direct Investment (FDI) in the country.     This one-stop portal is an important component of STZA’s overall long-term vision to develop a science and technology-based ecosystem through the development of specialized tech zones to boost technological development in the country. 

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Pakistan's Tax Affairs

Proposed Elimination of Minimum Tax Regime for Listed Companies

The Pakistan Stock Exchange (PSX) in its proposal to the FBR for the budget (2022-2023) stated that the Minimum tax regime should be eliminated for listed companies such companies are strongly compliant with specific documentation requirements of various statutes. In other countries, the minimum tax is only levied in cases where high-income taxpayers don’t pay any tax due to different tax exemptions available. 

According to PSX, the rationale behind this proposal is that application of the minimum tax on listed companies has resulted in discouraging the documentation of the economy. Listed companies have already significant documentation and regulatory requirements and they need to engage external auditors to audit their business affairs. The strict regulation already keeps them compliant with filing the income tax, and sales tax returns, paying quarterly advance taxes and fulfilling various other requirements which align their books of accounts with the statutory requirements and provide a comfort zone to the regulatory authorities and stakeholders over the reported numbers.

The imposition of minimum tax has a declining effect on the earnings of the listed companies despite lifting current and carry-forward losses.

 In a nutshell, an appropriate and relevant amendment is needed to be made to the Income Tax Ordinance 2001.

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Tax Planning in Pakistan Uncategorized

Say No To Extra Taxes

People in Pakistan pay taxes but the majority of them don’t know anything about it. They worry about being taxed differently but they don’t know about the different taxation metrics. Majority of the salaried individuals in Pakistan are unaware of how easily they can save taxes by getting adjustments from their employers and reduce their salary taxes. All employees are entitled to tax adjustments from their employers under the law.


Employers usually deduct income tax from your salary at source and submit it to FBR on your behalf but do not make any tax adjustment of the tax withheld under other heads by various agencies such as banks, telecom companies, educational institutions, airlines, electricity distribution companies, motor vehicle registration authorities, and many others.


It’s a golden opportunity for you as an employee of getting tax adjustments by submitting the relevant tax deduction document as a piece of evidence to your employer and reducing your tax by that amount. But remember to avail these adjustments you need to contact your employer before June so that these adjustments can be done in June payroll before year-end.
Tax deductions made by different agencies under Income Tax Ordinance, 2001 are;


Purchase and transfer of Immovable Property u/s 236K of Income Tax Ordinance, 2001;
When you are purchasing an immovable property, an advance tax is collected at the time of payment. In the case of filer, it is 1% of the property value and in case of non-filer the rate is doubled i.e. 2%. This is an advance tax and is adjustable against your tax liability.


Purchase of International and Domestic Air Ticket u/s 236L and 236B of Income Tax Ordinance, 2001;
When you purchase an international or domestic air ticket, airlines are directed by FBR to collect tax which is adjustable against your tax liability. Rate of tax collection is 5% in case of domestic ticket and Rs. 12,000 and 16,000 in case of international travelling for economy and business class respectively.

Educational Institution Fee u/s 236I of Income Tax Ordinance, 2001;
Educational institutions are directed by FBR to collect tax on the fee paid to them by the students. This tax is paid by the parents of the students, or Guardians and is adjustable against their income tax liability. Such tax is only applicable when fee is exceeding Rs. 200,000 per annum and parent / guardian is a non-filer.


Advance Tax on General and Life Insurance Premium u/s 236U of Income tax Ordinance, 2001;
As per FBR directions, insurance companies are directed to collect advance tax on General and Life insurance premium from a person who is non-filer. This is also adjustable against your income tax liability.
Electricity Bill of Domestic User u/s 235 of Income tax Ordinance, 2001;
Domestic electricity consumers whose monthly bill is Rs. 25,000 and above are required to pay advance tax at a rate of 7.5% which is collected on a monthly basis and can be adjusted against tax liability.

Mobile, Telephone, and Internet bills u/s 236(1)(a) to (e) of Income Tax Ordinance, 2001;
Currently, Advance tax is collected at a rate of 15% from all telecom and internet users by telecom companies and Internet service providers. This advance tax is adjustable against income tax liability.

Motor Vehicle Registration Fee u/s 231B(1) of Income Tax Ordinance, 2001;
Advance tax is charged at the time of Motor Vehicle Registration or transfer of vehicle or sale of the vehicle and is adjustable against income tax liability.

Salaried individuals should contact their employers immediately before processing of payroll for June 2022 so that tax adjustment is made by the employers in a timely manner.

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Pakistan's Tax Affairs

FBR’s tax laws for SMEs are counter-productive

According to the recent article by Business Recorder published on May 18, 2022, Small-medium enterprises and self-employed individuals seem disappointed by the taxation policies of FBR. In the case of salaried individuals, annual taxable income of Rs. 75M and above are taxed at 35%. However, the SMEs and self-employed individuals are taxed at 35% over and above Rs. 6M of their annual taxable income.

The self-employed individuals include professionals like doctors, dentists, lawyers, engineers, accountants, beauticians, fashion designers, tailors, etc. They operate their private ventures as clinics, beauty salons, boutiques, shops, or businesses on sole-proprietorship or partnership.

The provincial governments have also imposed a sales tax rate of 13%-16% on the revenue generated from services. While the federal government has imposed a minimum fixed withholding tax rate of 7% on the revenue generated from these services.

These taxes are imposed upon revenue, and not the income generated from that revenue. The vendors have to pay taxes from their collections before accumulating the amount and managing other finances from that amount.

With that many taxation measures weighing upon the service providers, they have to bear the loss even if they don’t make any income for the year while paying the respective 13% GST and 7% Withholding Tax (WHT) from their savings.

Looking at the burden faced by the SMEs, the FBR has reduced the WHT to 3% from 7% on many services along with the continuation of 13%-16% sales tax. But it is still insufficient as it is getting continuously hard for the professionals to operate the services business profitably.

There is a huge disparity between the taxability of the salaried class and small-medium enterprises. The salaried class is taxed above the annual income of Rs. 600,000 whereas the self-employed class is taxed above an annual income of Rs. 400,000. The self-employed class pays 30% tax on income above 4-6Mn, a further 35% on income above that, and the salaried class pays 20% tax on income above 3.5-5Mn. 

If we add other tax metrics like 13-16% GST then the total tax proportions would be around 50%-70%, and they are barely left with minimum disposable income that would result in making a loss instead of striking a profit. Befiler provides tax consulting and advisory services. The services include NTN, STRN, GST, PST, Company registration, tax returns filing, withholding statement filing, US company formation, and much more. If you are looking for any consultancy and advisory services regarding taxation and compliance then we are just  one step away

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Befiler Revolutionizing the Tax Industry

Company Incorporation By a Non-US Resident:

The best way to expand your business to any offshore territory, for instance in the United States of America (USA) is to open up a company. You can easily open a company in USA, and still, be able to operate it as a non-resident.   

There are certain factors that you will need to focus on while incorporating your USA-based Company either as LLC or C-Corp. A few of them are incorporation, compliance, bank account opening, and meeting up the state and federal requirements so that after this you can legally initiate and operate your USA-based business.        

Globalization has led to the operation and management of multiple businesses across the globe. This provides sufficient opportunities for entrepreneurs to further scale their business and leverage their market reach.  

Meanwhile, the USA has a big market of businesses and an enabling business environment. You can enhance your business reliability, market access, and investments by incorporating your company into the USA.    

Which company to form LLC or C-Corp? 

Limited Liability Company (LLC):

LLC protects its members and owners from being held personally liable for the operations and debts of the business. The LLC equals the business structure of partnership or sole-proprietorship with the advantage of increased risk protection.    

Like the sole-proprietor and partnership company owners, members of the LLC pay their taxes as per the proportion of their personal income. This is called a “pass-through taxation structure”. Many small business owners opt for LLCs for their simplicity and flexibility. 

Company Corporation (C-Corp): 

C-Corp is a type of tax classification which is available to both types of corporations including LLCs and corporations. C-Corp is not a type of business entity. Although it is more frequently used by corporations.  

C-Corp has no broader restrictions on shares ownership. There are no limitations to the total shareholders’ numbers. Businesses inside and outside of the US can also obtain ownership. C-Corp is considered to be the most suitable business framework for collecting huge amounts of capital from a bunch of investors.  

Pros and Cons of LLC Incorporation: 

Pros: 

1. Pass-through taxation. 

2. Limited Liability 

3. Fewer Regulations 

4. Greater Flexibility 

Cons: 

1. Can’t issue shares of stock 

2. Difficult to source investment 

3. Retention of earning is more difficult 

4. Owners pay self-employment tax 

Pros and Cons of C-Corp Incorporation: 

Pros: 

1. Limited Liability

2. Unlimited Shareholders 

3. Great for Equity Financing 

4. Lower maximum tax rate 

Cons: 

1. Double Taxation 

2. No personal write-offs 

3. Stricter rules and regulations 

4. More expensive 

Requirements in setting up a Corporation in the US: 

After deciding on forming a company from available options let’s discuss the few basic requirements needed during the procedure: 

Choosing a company name: 

There are a large variety of name selections available on the internet or you can propose your own desired name. But before selecting a name, double-check its availability.    

Hiring a registered agent: 

An agent is hired which could be a person or agency who must possess a physical address in the business hosting country. That designated entity must be available during office business hours and will comply with official legal and state documents for the company.    

Provision of important documents: 

You will need to provide the names, and addresses of the concerned people involved i.e. officers, directors, members, etc. 

Procedure after forming the corporation?  

After forming the company there are still some tasks left to be completed which we will discuss below: 

Arranging a US-based Business Address:

If you would like to receive commercial mail, customer mail, etc. to an address in the United States, or if any bank you contact requires a separate physical address in the United States (which is not the same as your registered agent), you need to arrange “mail forwarding” and/or “virtual office” service. 

U.S. bank account opening: 

You need to open up a U.S.-based bank account opening for non us resident if you want to transact in US$. Currently, the geopolitical situation around the globe has become uncertain to an extent that it leads to the exercising of strict compliance and regulatory laws. But nevertheless, there is hope as there are other various options available on the table that could turn the table and open up ways for easy proceeding. 

Selecting a State: 

During the procedure of forming the company, you will have to select a state in which your proposed company will be operated. For a conductive and enabling business environment, it is considered to select a state which has minimum tax rates. Delaware, Nevada, and Wyoming are popular choices for registering your proposed company as they are best known for being quite economical states. 

Conclusion: 

Registering a company on US soil is neither difficult nor a rocket science at all. Every entrepreneur residing outside the US has always been willing to set up his/her venture in the U.S. because of the big market and economy. Befiler provides LLC and C-Corp incorporation, EIN registration, US bank account opening, and federal and state tax filing services. Reach out to us through email ([email protected]) or Whatsapp in order to set up your business abroad while residing in Pakistan or elsewhere.

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Tax News and Social Trends

FBR’s measures to facilitate people

Primary source for a country to generate public revenue is by collecting taxes and fees with an aim to invest it in human capital and infrastructure of the country. The core objective of any tax collection authority is to optimize public revenue by making tax collection process easier and smarter. Federal Board of Revenue (FBR) being the primary tax collection authority in Pakistan is busy in doing the same by providing quality services to its taxpayers and making their life easier.

According to the progress report issued by Ministry of Finance, FBR has performed up to the mark by creating an enabling and accessing environment for the taxpayers. The measures taken by FBR in order to increase revenue is unprecedented in the history of Pakistan.

The Ministry of Finance highlighted the measures which have been taken by the Inland Revenue and few of them given as follows:

Track and Trace System:

A track and trace system has been introduced which will cater multiple sectors including tobacco, sugar, cement, beverage, fertilizer. The purpose of this system is to increase and optimize tax revenue, decrease fabrication, avoiding goods smuggling through robust implementation on national level and electronic control system by affixing tax stamps to various products at the production stage.  By implementation of track and trace system FBR will have a strong control over supply chain infrastructure of the manufactured goods.

Point of Sales (POS):

POS is an online invoicing system, it digitizes the economic transactions, and it also caters to the growing needs of digital economy. It is a real-time information and data processing system that connects the tier-1 retailers with FBR database through internet. The purpose of the system is to ensure that the sales are reported in real-time to the FBR and are subjected to monthly filing of sales tax returns.         

Automated Issuance of refunds:

For the convenience of taxpayers, a centralized automatic reimbursement system has been introduced which does not require manual application and verification. It issues refunds directly to taxpayers’ bank accounts without the need for face-to-face discussions with tax authorities. Steps have also been taken to activate the legal framework by enacting relevant provisions in tax laws.

Single Sales Tax Portal/Return:

FBR has launched the One-Stop Sales Tax Portal. Sales tax returns for December 2021 were filed in January 2022 under this new portal. While pursuing its vision of facilitating taxpayers and ensuring the ease of doing business through automation, digitization, and minimizing human interaction with taxpayers. This facility will allow taxpayers to file a monthly sales tax return instead of multiple returns on different portals. This will significantly reduce compliance time and costs. The system will automatically distribute tax payments to sales tax authorities along with the input tax adjustment, eliminating the need for payment reconciliation and transfer.

E-hearing:

Online hearings are designed to provide free tax administration, which results in reduced compliance costs and save taxpayers’ valuable time. Provision of E-hearing is covered under section 227E of the Income Tax Ordinance, 2001.

E-filing of appeal:

An online appeals procedure has been made available to taxpayers. However, there was a lack of legal provision to allow this, as introduced by section 127 of the Income Tax Ordinance 2001.

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Pakistan's Tax Affairs

Reviving Sicked Industrial Sectors through granting Tax Incentives

On last Friday the Federal Board of Revenue (FBR) revised the incentives allowed for renewal of poorly governed and managed industrial sectors.

An SRO has been issued Circular No. 13 of 2022 by the FBR on 07-04-2022, to put weight and emphasize the amendments made in the Income Tax Ordinance 2001, which was put up via Income Tax (Amendment) Ordinance 2022.

The FBR added that, to kickstart renewing of the ill-fated industrial sectors, a new section 59C has been inducted in the Income Tax Ordinance 2001, which becomes Income Tax Amendment Ordinance 2022. Through the description of this ordinance, the acquiring company would be allowed to adjust their concurrent year losses and put ahead examined business losses while excluding the capital loss of the acquired company incurring the rouged industrial sector through acquisition of its majority share capital.         

The acquiring company would be able to adjust their said losses until the tax year 2026 and for a time period of up to three years.      

In case of failure to renew the ill-fated industrial sector till 2026, it will include the acquiring company to reroute the adjustment of losses in the previous three years and present income to be taxed which was sidelined due to loses adjustments of the acquiring company in the tax year 2027.

Referring to the subjective conditions in sub-section (2) of the section 59C of the Income Tax Amendment Ordinance 2022, the acquiring company is entitled to adjust above mentioned sort of loses in the context of share capital acquired.      

If there is any leftover of loss remained intact by the acquired company till the end of tax year 2026 then it will not available to the acquired company for furtherly setting off the losses in the tax year 2027 against their own income, although in accordance with the section 57 of the ordinance the acquired company can carry forward its losses.  

Only the acquired company can benefit from this section, other than this amalgamation or merger companies can not be benefitted from this section.

In this section, for ill-fated industrial sectors, their losses for adjustments are available in this scheme. 

Maximizing the production is the antidote for renewing the ill-fated industrial sector and that capacity should be adopted before getting the company sicked.