Withholding Income and Sales

TaxAsif S. Kasbati, FCA & FCMA

Head of Group Taxation & Legal AffairsGatron Group of Companies

Ex-Director Tax ServicesA. F. Ferguson & Co.

KTBA – May 12, 2015

WITHHOLDING INCOME TAX

Part 1

FILERS & NON-FILERS OF TAX RETURNS [Section 2(23A) & (35C)]

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FA 2014 introduced the concept of recognizing a person as a Filer or a Non-Filer which are defined as follows:

(23A) “filer” means a taxpayer whose name appears in the active taxpayers’ list

issued by the Board from time to time or is holder of a taxpayer’s card”  (35C) “non-filer” means a person who is not a filer

Active Taxpayers List

Please click Rule 81B of the Income Tax Rules, 2002.

NINE - ATL Lists Till May 4, 2015

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Karachi Tax Bar Association Web:

http://www.karachitaxbar.com/active-tax-payers-list.html/•1st ATL.14/10/2014.ktba

•2nd ATL.17/12/2014.ktba

•4th ATL.29/01/2015.ktba

•5th ATL.16/02/2015.ktba

•6th ATL.16/03/2015.ktba

•7th ATL.21/03/2015.ktba

•8th ATL.11/04/2015.ktba

•9th ATL.15/04/2015.ktba

a) 

FILERS & NON-FILERS OF TAX RETURNS [Section 2(23A) & (35C)]

Significant distinction has been created between Filer and Non-Filer under the withholding tax provisions where higher rates/ amounts applicable for Non-Filers; details of which are as under:

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Description Section Import of goods 148Dividend 150Profit on Debt 151Services 153(1)(b)Cash withdrawals 231ARegistration or transfer of registration ofprivate motor vehicles

231B

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FILERS & NON-FILERS OF TAX RETURNS [Section 2(23A) & (35C)]

Description Section referenceMotor vehicles 234

Advance tax from seller of immovable property 236C

Advance tax from purchaser of immovableproperty

236K

sale of specified products to distributors, dealersand wholesalers

236G

Reconciliation - Rule 44(4)

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The Commissioner may require an employer to furnish a reconciliation of the amounts mentioned in the annual and monthly statements with the amounts mentioned in the return of income, statements, related annexes and other documents submitted from time to time.

Annual Statement is not specified in Section 165 – which only covers monthly

WHT from Salary – IT – 3

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Employee's NTN Tax Year 2 0 1 2

Employee's CNIC Employee No.

Employee's Name

Designation Posting City K a r a c h i

Department Section

Employer's NTN

I, the undersigned whose particulars are given above, solemnly declare that:

P I do not have any source of income other than the salary paid by the above mentioned employer

P

1 Mobile Phone Bill

2 Motor Vehicle Tax

3 Cash Withdraw al

4 Profit on debt

Tax Credits

Name of Employer

I am liable to file Wealth Statement as my total income is Rs. * 500,000 or more.

Following Mobile(s), Motor Vehcile(s), Bank Account(s) are in my name and the Electricity and Telephone connectionsmentioned below are installed at my residence. Tax credit as per details given below may please be granted, for whichevidences are attache

Sr. Category

Mobile/Vehicle/Bank Account/Electricity Consumer/Phone/CNIC Numbers Amount of Tax Credit Claimed1st 2nd 3rd

DECLARATION BY SALARIED PERSONSIT-3

To be submitted to the Employer by the Employee

I also have source(s) of income other than the salary paid by the above mentioned employer, and undertake to fileIncome Tax Return under the Income Tax Ordinance 2001.

* Wealth statement is required to be filed by every taxpayer filing return of income as per section 116(2), but not amended here

WHT from Salary – IT - 3

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Consumer Number

CNIC/NTN of Premises Owner

Name of Premises Ow ner

Phone Number

CNIC/NTN of Premises Owner

Name of Premises Ow ner

Note 1) Attach more sheets if more than three (3) numbers are to be stated in any category

2) For Government residences, w rite 99999-9999999-9 as CNIC of Ow ner

I, hereby solemnly declare that all the information given above is correct and complete to the best of my knowledge.

Date : Signatures of Employee

a) Y=Yes, N=No

b)

Rs.

Credit Given by Employer

Date :

This Declaration is for Employer's record and should be maintained for at least 5-Years

This form can be donwloaded from FBR website www.fbr.gov.pk

Authorized Signatures

Ele

ctr

icity

Connsectio

ns

Tele

phone

Connectio

ns

Total Claim

To be Completed by the Employer

Declaration of the Employee regarding other source(s) of income w ill be recorded in Col-23 of Annual EmployerStatement mentioned in the box given in front of this statement as Y or N.

Tax Credit as given in front of this statement has been given to the aforementioned employee, as Tax Creditw ithin the Tax Period, after examining all the evidences provided w hich are found to be in accordance w ith theclaim and Income Tax Ordinance 2001.

E-Certificate Issues and resolutions

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KTBA views: Owing to the implementation of online procedure for application for Exemption Certificates, genuine taxpayers have been facing various issues in carrying out the procedure.

Following measure be taken to resolve the issues:

Option 1

1.Defer the implementation of online application for Exemption Certificate through IRIS till September 30, 2015.

2.Instruct PRAL to carry our discussion process with the stakeholders and publish instructions guide to make the process hassle free.

3.Accept manual applications till all the issues relating to the online application are resolved.

E-Certificate Issues and resolutions

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Option 2 (Issue wise suggested proposals)

a)manual data feeding of voluminous information relating to consignments to be imported results in wastage of time and cost associated with the human resource.

Recommendation

Taxpayers should be allowed to upload file as in the case of Sales Tax returns.

E-Certificate Issues and resolutions

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b) Online system restricts the taxpayer to apply for more than one application. Pendency in approval of any application results in piling of remaining applications.

Recommendation

Multiple application facility should be allowed in order to facilitate taxpayers

E-Certificate Issues and resolutions

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c) Delay / non approval (without any cogent justification) results in excess cost in the form of demurrage charges and piling of refunds.

Recommendation

Time limit of 5 days be prescribed and if already prescribed, be followed in letter and spirit. Moreover, online system should be geared up to send weekly report to the Chief Commissioner Inland Revenue highlighting the ageing analysis of pending applications for Exemption Certificates. Moreover, taxpayers should be provided with a compliant portal to report their grievances relating to the issues being faced while getting approval for Exemption certificates.

E-Certificate Issues and resolutions

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d) Tax Exempt entities have to apply for Exemption Certificate for each transaction

RecommendationEntities having their business income

exempt from tax (e.g power generation sector) should be provided with a blanket exemption certificate renewable each year upon filing of Income Tax return.

E-Certificate Issues and resolutions

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e) Exemption Certificates are being issued on the basis of value of goods intended to be imported. In case of difference between the declared value and assessed value, the Certificate already issued, is not accepted.

RecommendationIn order to facilitate taxpayer, we suggest

to link the exemption certificates with quantity of items being imported instead of the value as per invoice and L/C.

E-Certificate Issues and resolutions

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f) Application for EC, for payments u/s 153 read with SRO 586(I)/91, requires cumbersome exercise of providing details of every party from whom payment is to be received without deduction of tax. Application is to be submitted time and again, incase of transaction with any new parties subsequent to the issuance of first certificate.

E-Certificate Issues and resolutions

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Recommendation - A blanket EC be issued by specifying names of parties (known to the taxpayer at the time the application for Exemption Certificate is made) from whom payment is to be received. However, in order to properly track the usage of such application, the taxpayer should be made responsible for providing details of further parties from whom payment has been received under the blanket EC.

Part 2 - INDIRECT TAXES

Federal and Provincial Withholding Sales Tax

List of Taxable Services (2nd Schedule of respective Laws)

Exemption and Reduced rates

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CONCEPT in SST and PST

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Services have been specified in 1st Schedule

Services chargeable to Sales Tax are listed in 2nd Sch. of SST Act and PST Act

The general rate is 15% in Sindh and 16% in Punjab except Telecom services which is subject 19.5%

CONCEPT in SST and PST

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Withholding Sales Tax is envisaged on acquiring taxable services falling under the Second Schedule

Other services are not subject to WHT

MECHANISM FOR FST, SST AND PST

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Mechanism for Sales Tax withholding on receipt of advertisement as well as Goods / other services from unregistered persons:

Illustration

Description

RupeesFST

SST PSTGoods

Advertisement

(Taxable services from unregistered person)        Value of taxable goods/services including sales tax

1,000 1,000 1,000 1,000

Sales tax to be withheld @ 17% / 15% /16%:   

FST-Goods (Rs 1,000 X 1% ÷ 117%)** / 1% directlyFST Advertisement - (Rs 1,000 X 16% ÷ 116%)

**8.55 138

 

SST (Rs 1,000 X 15% ÷ 115%)    130PST (Rs 1,000 X 16% ÷ 116%)        138 Balance amount payable to unregistered seller / service provider

991.45 862 870 862

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Mechanism for Sales Tax withholding on receipt of advertisement services from registered persons:

Description FST SST PSTValue of advertisement services excluding sales tax

1,000 1,000 1,000

Sales tax chargeable @ 17% / 15% / 16%

170 150 160

Sales tax to be deducted by the withholding agents

170 150 160

Balance amount payable to the service provider

870 850 840

MECHANISM FOR FST, SST AND PST

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Goods purchased from / Services provided by registered persons – Companies and other than companies

Description

FST SST PST

Wholesaler, dealer

(including petroleum dealers) or distributor

OtherCompany as well as Others

CompanyCo not in ATL and Others

Value excluding sales tax 1,000 1,000 1,000 1,000 1,000

Sales tax chargeable @ 17% / 15% / 16% 170 170 150 160 160

Sales tax to be deducted by the withholding agents (1/10th / 1/5th of Sales Tax Charged)

17 34 30 N/A* 160

Balance amount payable to the service provider

1,153 1,136 1,120 1,160 1,000

* Subject to ATL

MECHANISM FOR FST, SST AND PST

CERTIFICATE

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A certificate of tax deduction under SST / PST is also required to be furnished to the service provider as per Rule (3)11 / 11 on Form SSTW-06 / Form ‘B’

FST: Format of Certificate is not yet prescribed

Exemptions and

Reduced rates

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Contractual execution of work or furnishing supplies - 9809.0000

KTBA understands that the above classification is considered too wide, vague and unwarranted as it virtually covers every facet of business. On the basis of this entry, entire 2nd Schedule becomes redundant.

As such, the entry be deleted from the Second Schedule.

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Contractual execution of work or furnishing supplies - 9809.0000

1. Exemption

If both the following conditions are met:

(a) total value of such work or supplies does not exceed Rs. 50M in a financial year and

(b) the value of service component of such contractual execution of work or furnishing supplies also does not exceed Rs. 10M

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SST issues & KTBA views – 9809.0000(Letter dated November 27, 2013)(a) Services forming part of a composite contract is taxable only if the same fall under the “taxable services” listed in the Second Schedule and embedded in contract for execution of work or furnishing supplies

(b) Value to each contract with Contractee (and not all contracts of a Contractor) is to be considered for the levy of SST; otherwise it will result in withholding tax issues, as the Contractee may not be aware of the value of other contracts of the Contractor

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SST issues & KTBA views – 9809.0000(Letter dated November 27, 2013)

(c) Value to each contract entered into by the Contractor is to be considered separately

(d) Exemption threshold is applicable on the basis of work performed in any financial year

SYNCHRONIZATION of 7 Indirect tax laws - to possible extent

1.FST and Rules

2.FED and all related Rules

3.Sindh, Punjab, KPK Acts and Rules thereof

4.Balochistan and Islamabad Service Laws

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DRAFT NOTIFICATIONNotifications are generally being issued without first issuing the Draft for the same, for comments by the Stakeholders.

It is recommended that prior to issuing Notifications, the Draft Notifications be issued for comments by the Stakeholders and final notification be issued after atleast 15 days.

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“When you get Rajjab, pray to get Shabban and Ramzan”

Hadis Crux__________________________________

“Rajjab brings good Winds, Shabban brings Clouds and Ramzan brings Rain”

Anonymous Scholar

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Q&A Session

Thank You &

Allah bless your goodselves