TAX NEWS APRIL 09, 2016

1.      Income tax demand: recovery proceedings to remain suspended, FBR told

April 11, 2016

Lahore High Court (LHC) issued directions to the Federal Board of Revenue''s (FBR) field formations that recovery proceedings of income tax demand shall remain suspended till first appeal filed by the petitioner is decided by the Commissioner Inland Revenue Appeals.

In a recently issued order by the LHC in favour of a cement manufacturing registered taxpayer, the court has directed that till the appeal filed by the petitioner was decided by the Commissioner Inland Revenue (Appeals-I), Lahore, the operation of the recovery notice for a demand of Rs 900,376,676/- will remain suspended.

A cement manufacturer registered taxpayer through Waheed Shahzad Butt Advocate has assailed the income tax recovery/demand while first appeal against the assessment order is pending adjudication before the concerned Commissioner Inland Revenue (Appeals) Lahore.

The petitioner stated "Recovery proceeding on the basis of demand notice issued under Section 137(2) of the Income Tax Ordinance, 2001 are contrary to the principles of fair play and natural justice as department is not competent to enforce recovery unless the order creating such demand has undergone the scrutiny of at least one independent judicial forum. It is settled law that unless the matter is decided by at least one independent forum out the hierarchy of revenue department (Inland Revenue Service), the recovery cannot be made. Assessment order framed by the department dated 29.02.2016 is void ab-initio having no effect in the eyes of law, therefore, attempt to recover the demand of tax on the basis of void piece of paper is highly unjust causing extreme mal-treatment with the petitioner. In the light of above stated facts, it is prayed that the High Court may direct the department not to recover void amount of tax through notice dated 29.02.2016 from the petitioner as long as the order of the First Appellate Authority is not served upon the petitioner. To further direct the Commissioner Inland Revenue (Appeals), Lahore to decide the stay application as well as main appeal on priority basis within reasonable time as provided under the law. LHC order states: "It is contended that the order was originally passed by the Additional Commissioner Inland Revenue, Lahore against the petitioner on 29.02.2016 creating a tax demand of Rs 900,376,676/-. Pursuant to this order, notice dated 29.02.2016 has also been issued to the petitioner for recovery of the impugned tax demand within 30 days. The petitioner filed appeal along with stay application before Commissioner Inland Revenue (Appeals-I), Lahore which is still pending adjudication. It is stated that till date appeal as well stay application of the petitioner has not been decided and the time given in the notice dated 29.02.2016 issued for recovery of the impugned tax demand has expired on 30.03.2016.

The Commissioner Inland Revenue (Appeals-I), Lahore is directed to decide the petitioner''s aforementioned appeal and/or stay application with a period of 30 days from the date of receipt of certified copy of this order. Till such time the appeal filed by the petitioner is decided, the operation of the impugned notice dated 29.02.2016 shall remain suspended. With this observation, this writ petition stands disposed of," LHC order added.

2.      Shahbaz launches scheme to promote tax culture

April 11, 2016

Punjab Chief Minister Shahbaz Sharif has formally launched 'Amanat Scheme' to promote tax culture in the province. In this regard, first ballot of the scheme was held under the Restaurant Invoice Monitoring System (RIMS), which was arranged by Punjab Revenue Authority at the Chief Minister's Office, here on Sunday.

Speaking at the event, Shahbaz said that Punjab government had introduced a unique scheme to promote tax culture in the province. He said that the lunch of the scheme on Tax Day was a positive step, which would result in promotion of tax culture.

He said that with the cooperation of the people, the new system would be promoted so that revenue generated through tax could be spent on provision of education, health, potable water and other facilities to the people.

The Chief Minister said it was a good omen that under this new system, more than 200,000 receipts had been deposited within a few days.

He said that citizens should discharge their responsibility and get prizes through receipts from restaurants.

Shahbaz said that 'Amanat scheme' was a transparent system and equipped with digital technology.

The Chief Minister said that all the resources were being spent on the provision of best services to the people.

On the successful launch of RIMS, Shahbaz congratulated the Finance Minister, Minister for Excise & Taxation, Chief Secretary, concerned secretaries, Secretary Information, DGPR, Chairman Punjab Information Technology Board, Chairman Punjab Revenue Authority and the whole team.

He said that their efforts are laudable due to which a latest system had been introduced in the province. He also thanked the people and restaurant owners who supported the new system.

The Chief Minister announced that under the restaurant invoice monitoring system, ballot of Amanat Scheme would be held every month but added that he would try to hold ballot twice a month.

At the end of the even, a Memorandum of Understanding was signed between Punjab Revenue Authority, Punjab Food Authority and Tourism Development Corporation. Under the MoU, majority of the affairs of restaurants and hotels would be monitored by Punjab Food Authority.

Besides, all the three institutions through department collaboration would ensure timely payment of tax, provision of food in accordance with hygiene principles and promotion of tourism industry and would also do joint certification for the restaurants.

Speaking on the occasion, Provincial Minister for Excise & Taxation Mujtaba Shuja ur Rehman said that progress and prosperity was no possible without increasing tax revenue.

"Punjab government has taken a lead by launching restaurant invoice monitoring system," he added.

Speaking on the occasion, Dr Ayesha Ghaus Pasha said that today was an important day in the history of Punjab, when new a tradition had been introduced for promoting tax culture in the province.

She said that increase in revenue was vital for the provision of health, education, public transport and other services to the citizens.

Punjab Revenue Authority Chairman Dr Raheel Siddiqui highlighted the features of the new system and Amanat Scheme.

During the ceremony, the lucky draw of the first ballot was conducted in a transparent manner and the Chief Minister also talked to the winners on telephone.

The Chief Minister also distributed shields among the restaurant owners included in the scheme.

3.      Taxes: FBR takes new measures to simplify procedures

April 11, 2016

The Federal Board of Revenue (FBR) has taken new measures to simplify procedures for paying taxes and to minimise contact between the taxpayers and the tax collectors. According to details issued by the FBR, major improvements have been made through better and more extensive use of information technology. Some major measures included Iris, Simplified Sales Tax Registration Module and other systems.

Inland Revenue Information System (Iris) for Income Tax and Sales Tax: Iris, a new web-based, integrated, end-to-end system which is highly configurable and customisable. It was conceived, designed and implemented to cover all business processes of income tax and sales tax, to replace 37 different systems. It consists of following modules and features that make it convenient for taxpayers to comply with different requirements of the law.

Simplified Income Tax Registration Module is a highly customisable and configurable system that facilitates prospective from anywhere in the world, at any time of the day, in minimum 5 minutes and maximum 20 minutes (depending on the type of taxpayer).

Personal Information (Mandatory): Personal information of Individual, AOP and Company is must including tax period of taxpayer (Calendar, financial and special). Following verifications are done to address fraudulent registrations as were being done in previous system.

CNIC Verification: CNIC is verified online through a Web-Service provided by Nadra.

Cell Verification: Cell is verified through two factor authentication by sending verification code on cell.

Email Verification: Email is verified through two-factor authentication by sending verification code on Email. Residential/Head office Address (Mandatory) Taxpayer has to add at least one property as residential/head office address. Tax can add more property addresses optionally. Business for individuals business is optional while for AOP and Company it is mandatory to mention nature of business/services. Person links with other persons and assets (on need basis) System provides dynamic way to link persons and assets with following capacities, ie Company and appoint any other person(s) as Director, Principal Officer, Legal Representatives etc.

Simplified Sales Tax Registration Module: Under sales tax law, manufacturer, retailers, importers, wholesalers, distributors and commercial exporters are liable to be registered. The registration system was not a risk-based system, with faulty verification mechanism. Iris provides following verifications and at different process levels.

For Sales Tax Registration: it is mandatory to first register for income tax with at least one business having at least one business activity marked as Sales Tax/FED. Individual or Focal Person of AOP/Company has to visit the FBR relevant field office to verify his/her thumb from Nadra and capture picture c. Once application is submitted, system provides mechanism to assess automatic and manual parameters through another Iris Module (Risk Management System). System register cases having Risk Score less than benchmark set by the FBR otherwise case are marked next level verification e. System provides mechanism to conduct physical verification and enable user to record decision based on physical verification. Based on Decision recorded, system either registers the case or case is rejected.

Income Tax Declaration Module Declaration is a highly configurable and complete end-to-end solution for Inland Revenue Services. Provides mechanism for online filing by Taxpayer, Taxpayer representative or internal FBR facilitation centre. Also provides mechanism for field office to file manually received returns. b. Provided standard version of calculation of taxes thereby facilitating it for the taxpayer to work out tax liability and eliminating calculation error and disputes of interpretation. Provides mechanism to revised returns within 60 days after filing without Commissioner approval and after 60 days, seeks for Commissioner Approval. Process Universal Self-Assessment Order (USAS) same day and updates Taxpayer ledger accordingly.

Withholding Tax Module: Withholding is one of the most important modules of Iris whereby each transaction will be reported by the Withholding Agent as and when it occurs, eliminating any chance of wrong calculation or wrong exemption. It would facilitate Withholding Agents (WA) to prepare their bulk statements in offline mode in a prescribed excel sheet which provides some basic data health validations, ie, Length of fields, mandatory fields etc. It also facilitate WA to upload excel sheets online, system provides data integrity checks while uploading and rejects or accepts sheets. In case of rejection, system provides reason against each row. It facilitates small Withholding Agents to Add/Edit transaction online. Provided single version of calculation considering time based standard rates, commissioner exemptions, general exemption and Active Taxpayer List (ATL) status. It also facilitates WA to correct, delete and manage files uploaded by different branches.

IT Exemption Certificate and Quota Management Module, is also a highly customisable and configurable system. Due to manual system of tax exemption, there was an evident problem in recording and reconciliation. Iris employs this module to address all these issues. It facilitates taxpayer to file online around 50 plus exemption applications including quota allocation for Raw Material and Machinery. Facilitates Tax Collector to pass orders on all online filed applications for any period, Accept/Reject Orders, Increase/decrease quota and set reduced rates for withholding purposes. It facilitates taxpayer to utilise raw material quota through automated applications and orders any time (24/7) removing dependency on Tax Collector. System integrates with WeBOC software used by the Customs department and send import data of exemptions to WeBOC instantly where this data is utilised to clear Taxpayer GDs on reduced rates.

Revenue Module of Iris was developed to facilitate tax payment through Alternate Delivery Channels (ADC) including internet banking, phone banking, ATM etc, FBR said.

Web Based One Customs (WeBOC) System of Goods Declaration and Clearance WeBOC is an indigenously developed, web-based computerised clearance system, providing end to end automated customs clearance of import and export goods. The system was developed jointly by the Pakistan Customs and PRAL, and was first implemented on trial basis at Port Muhammad Bin Qasim. Subsequently, WeBOC was further rolled out at other terminals and customs stations. Presently, WEBOC has over 45,000 registered users, ie businesses, government departments (Anti-Narcotic Force, Engineering Development Board, State Bank of Pakistan, Ministry of Climate Change, Railways, Income Tax Department, Provincial Motor Registering Authorities, and Commercial Banks etc). Presently, 30 percent import consignments are cleared immediately (Green channel-without any intervention), 49 percent on the basis of uploaded documents (Yellow channel) and 21 percent (Red channel - deemed high-risk goods). Importantly the system has brought about uniformity in customs clearances across the country. Its modules include Goods Declaration, Warehousing and module to handle Break-bulk, modules to handle Commercial Transit cargo for Afghanistan, Manufacturing Bonds, Reverse Transit and Clearances from Border Customs Stations. Basic features of WeBOC include: Paperless system -On-line manifest filing and Online payments,24/7 GD filing (web-based), Risk Management System (Green, Yellow, Red channels),Transparency (No surprises for trade, Less interaction with the Customs), All customs processes performed online by customs staff, Communication with the custodians of goods/port authorities through EDI, Online communication with traders and clearing agents, Examinations reduced from 100 percent to 30 percent, Importer's representative/clearing agent presence not required, assessment, based on examination reports and images First-in, First-out (FIFO) based assessment scheme, Online adjudication process, online decision support tools for customs and trade, stricter controls and checks (complete log of all activities), less demurrages, less clearing/handling charges.

4.      Concessionary regime: FBR briefs Dar on final plan

April 10, 2016

Finance Minister Ishaq Dar Saturday held a meeting with senior officials of the FBR to review progress on withdrawal of concessionary SROs/tax exemptions. Chairman FBR briefed the meeting about the third and final phasing out plan for withdrawal of concessionary regime under the head of Income Tax. Earlier last month a meeting held at FBR had discussed the phasing out plan in respect of sales tax, federal excise duty and customs.

The meeting was informed that in fiscal year 2014-15 Rs 105 billion worth of SROs and exemptions were withdrawn while in 2015-16 this amount stood at Rs 120 billion. The third and final phase would be implemented in the FY 2016-17. Dar appreciated FBR''s efforts for rollback of concessionary SROs and exemptions as envisaged by the government in 2013. The minister while appreciating the steps taken for revenue generation in the first nine months called upon the FBR officials to keep up the good efforts for even better results during the last quarter to meet the target set for FY 2015-16.

5.      Customs Dept prepares 'I Form Module' to regulate import business

April 10, 2016

More than one million import documents are issued every year in Pakistan and Customs Department in collaboration with SBP (State Bank of Pakistan) has prepared an 'I Form Module' to regulate the import business on the pattern of export related E-form, said Abdul Hayee Additional Director Customs Directorate of Reforms and Automation Karachi.

Addressing a briefing on 'I-Form' at Faisalabad Chamber of Commerce and Industry (FCCI), he termed exporters and expatriate Pakistanis as the unsung heroes of the country who are earning precious foreign exchange for the country. He told that Customs and SBP have earlier introduced E-form to facilitate and regulate the export business. On the same pattern now, I Form module has been prepared for imports, he said and added that yet another objective of this form is to check multiple payments against a single import consignment. He said customs have detected some cases in which millions of dollars were paid against a single import consignment by preparing fake documents. He termed it anti-Pakistan act which is tantamount to erode the economic strength of Pakistan. He said that on the one hand, our patriotic exporters are earning foreign exchange while on the other hand a few black sheep are nullifying their efforts by sending out dollars through illegal means.

He claimed that "I form" will discourage these illegal practices. Abdul Hayee Sheikh said that Customs Department will arrange series of training sessions for the importers as well as customs clearing agents enabling them to pay their taxes and duties electronically through "I form". "If any specific organization intends to hold training session for its staff concerned, we are also prepared for it", he added.

Earlier, President FCCI Chaudhary Muhammad Nawaz said that the overall economy is improving because of the positive and prudent policies of the government. As per its promise, the government has ensured 24 hours gas and electricity supply to the industries. The inflation has also reduced to 2.48 percent from July-February, 2016 period. Similarly, our foreign exchange reserves have soared to US $20.5 billion dollars. Moreover, 8 percent increase is recorded in the import of machinery which will expedite the industrial growth in the country paving way to create new jobs for the unemployed youth.

Continuing Chaudhary Nawaz said that last year hundreds of imported containers were struck up at Faisalabad Dry Port. However, now the situation has returned to normal and import and export consignments are being handled efficiently. He welcomed the I Form Module of Customs Directorate and said that certainly it will facilitate the business community because of its speed and electronically handing along with other positive features.

Earlier Fazal Mehmood Director Policy Exchange Department of SBP Karachi and Muhammad Arshad Hussain Senior Manager Pakistan Revenue automation explained the salient features of I Form and said that this system has been devised only to make the payments electronically. "No other change has been made in the existing customs laws or procedures etc", he added.

6.      Code of Corporate Governance, listed company supervisory fee: Rs 0.5 million fee imposed for processing of every application for relaxation

April 10, 2016

The Securities and Exchange Commission of Pakistan (SECP) has imposed a fee of Rs 500,000 for processing of application for relaxation from the requirements of Code of Corporate Governance and listed company supervisory fee would be 10 percent of the total listing fee of stock exchange.

According to a notification issued by the SECP here Saturday, in exercise of the powers conferred by clause (g) of sub-section (1) of Section 21 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), read with sub-section (4) of Section 20 thereof, the Securities and Exchange Commission of Pakistan with the approval of the Securities and Exchange Policy Board, has specified the fees to be paid to the Commission for processing of application for relaxation from the requirements of Code of Corporate Governance and listed company supervisory fee.

Through another notification, the SECP has proposed that Companies (Easy Exit) Regulations, 2014 would now be applicable on the public sector companies as defined in Public Sector Companies (Corporate Governance) Rules, 2013. Earlier, the Companies (Easy Exit) Regulations, 2014 said that the Regulations shall apply to private and public non-listed companies including associations not for profit licensed under section 42 of the Companies Ordinance 1984, (XLVII of which are not carrying on business and are not in operation and desirous to strike their names register of companies in terms of section 439 of the said Ordinance but shall not apply to the following companies: Subsidiaries of listed companies; public sector companies as defined in Public Sector Companies (Corporate Governance) Rules, 2013; foreign companies; trade organisations licensed under the Trade Organisation Act, 2013, (II of 2013); companies which have liabilities outstanding in relation to any loan obtained from the banks or financial institutions, taxes, utility charges, or any obligations towards government departments or private parties; companies against which investigations, enquiries or inspections are either pending or are in the process of initiation or any matter/prosecution is pending before the court or any other competent authority; companies having dispute regarding management or shareholding; companies found involved in illegalities or fraudulent activities; housing and real estate development or real estate marketing companies and companies involved in soliciting public deposits and repayment thereof or delivery of promised goods or services there against is yet not completed.

According to the notification, the following draft amendment to the Companies (Easy Exit) Regulations, 2014, which are proposed to be made by Securities and Exchange Commission of Pakistan in exercise of the powers conferred by section 506A of the Companies Ordinance, 1984 (XLVII of 1984), are hereby published for the information of all persons likely to be affected thereby and notice is hereby given that comments, if any, received within fourteen days of the date of this notification shall be taken into consideration by the Commission.

DRAFT AMENDMENT In the aforesaid Regulations.

(i). In regulation 1, sub-regulation (3), the clause (b) shall be omitted, it added.

7.      FBR freezes KWSB''s bank accounts to recover Rs one billion WHT

April 09, 2016

Federal Board of Revenue (FBR) has frozen bank accounts of Karachi Water & Sewerage Board (KWSB) to recover Withholding Tax (WHT) amounting to around Rs 1000 million; it was learnt here on Friday. According to sources, the KWSB, which was bound to collect WHT on its payments, had showed sheer negligence in 2014 and made no deduction on the payments of its contractors. Resultantly, the WHT is accumulated to around Rs 1000 million only for the year 2014.

Reacting on this, the Auditor General of Pakistan (AGP) has made an audit para against KWSB for not deducting WHT on the payments of its contractors and the same is also forwarded to the FBR for further action. Sources further said the Regional Tax Office (RTO)-III had been pursuing the case for months and the tax department had issued several notices to the KWSB for the recovery of pending dues. However, the KWSB always gave short of funds as an excuse to clear the pending dues that left the FBR with no option but to attach its bank accounts for recovery.

When contacted, an FBR official, who did not want to be named, confirmed the said action, saying that WHT on sales tax had been pending since 2014. He said that the action was taken on the recommendation of AGP, which had made an audit para against the payments of KWSB to its contractors. He said that department had frozen three bank accounts of KWSB and recovered only Rs 15 million and added that they were also contemplating to write a letter to the provincial finance secretary for deducting rest of the pending WHT at source. Meanwhile, Misbahuddin Fareed, MD KWSB was not available for comments.

8.      Computer industry: three leading vendors sent to judicial custody for 15 days

April 09, 2016

Special Judge Customs and Excise Islamabad Friday sent three leading vendors of computer industry to jail on 15 days judicial remand for their alleged involvement in massive sales tax evasion over and above Rs 1 billion. It is learnt that the directorate of intelligence IR Islamabad presented the accused before the customs judge for their remand.

The accused vendors tried their level best to get bail, but the court endorsed the viewpoint of Directorate General of Intelligence and Investigation Inland Revenue (IR) Islamabad. Computer vendors were also ready to submit undertaking for making payment. After hearing of both the sides, the court sent accused Saleem Zaveri, Shiekh Yaqoob and Atiq ur Rehman of Advance Business System to jail on 15 days judicial remand.

Sources conformed to this scribe that further arrest of computer vendors of Karachi and Lahore is expected in cases where they are directly involved in the scam. It is a major breakthrough of Directorate General of Intelligence and Investigation IR which successfully detected this high-profile case in computer industry.

According to sources, the case has been identified by the agency and arrests were made after completion of all legal formalities required under the law. The international case has been framed after collecting solid evidence which is presentable in any court of law. During the whole exercise, legal process has been duly followed.

Directorate of intelligence IR successfully completed investigation of a global scam of computer industry and its logical conclusion lead to detection of massive amount of evaded taxes and preventive measures would save revenue to the tune of billions per annum. The global investigation of the case would also bar other computer vendors from adopting the same techniques used to evade sales tax by creating dummy companies in Dubai. The detection of the scam would also improve contribution of sales tax from this sector by diverting smuggled imports to documented channels. The agency had deputed a team of experienced officers who were working day and night to analyse and verify data from various sources to unearth the modus operandi adopted by the tax evaders. The directorate has expanded the scope of investigation which would also be instrumental in improving sales tax collection of the FBR.

As a result of agency's efforts, the legal imports of computer and related equipment has shown enormous increase of Rs 5 billion (value) with increase of around Rs 1 billion in payment of duties and taxes in one year through improvement in legalised computer imports into the country. This international case of tax evasion has given a clear message to the entire computer industry to legalise their imports or face similar kind of criminal proceedings, in cases of tax evasion. The agency has also focused on analysis of data from Dubai and other sources to verify the authenticity of the level of tax evasion committed by the company.

The agency investigated company's offices in Dubai and analysed the trail of payments made from Pakistan to Dubai. The agency found that the computer products were massively under-invoiced in Dubai and then shipped to Pakistan, where the sales tax liability is understated. Interestingly, all products were not imported through legal channel and these were smuggled into Pakistan to evade sales tax. Moreover, the undocumented payment model enabled accused to cause loss to the national exchequer by declaring imports at lower rates. The company was involved in making payments to the computer manufacturers from Dubai via banking channel. However, most of payments from Pakistan to Dubai are sent through non-banking channels.