FBR publishes stats on market tax filers: Karachi tops list

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The Federal Board of Revenue (FBR) has achieved a milestone through successful implementation of the track and trace system on the sugar industry during the ongoing crushing season.

The innovative digital monitoring system of sugar production has been implemented on 79 sugar mills, having 151 production lines nationwide.

It is pertinent to mention that Prime Minister Imran Khan had launched the track and trace system on November 23, 2021 for the sugar sector, said a statement issued by the Federal Board of Revenue on Saturday.

“Thereafter, no sugar bags are allowed to be removed from factory premises and sold in the market without tax stamps,” it said.

Owing to the transparent electronic monitoring of production, all sugar mills are liable to declare their actual crushing and production during the current crushing season.

As a result of this digital intervention, sugar mills produced record high sugar at 7.51 million tons (till March 24, 2022) against 5.63 million in the last crushing season, depicting an increase of 34%.

Likewise, the sales tax collection by the Federal Board of Revenue amounted to Rs26.5 billion in the first four months (December 2021 to March 2022) of the crushing season as opposed to Rs19.9 billion in the corresponding period of previous season. This shows an increase of Rs6.59 billion which translates to 33% growth.

In addition to this, the Inland Revenue Enforcement Network (IREN) squads of FBR, in a counter-evasion operation, conducted more than 60 raids in various markets throughout the country to ensure successful implementation of track and trace system.

During the operation, the unstamped bags were seized by FBR officials as per law and procedure, which were being sold without tax stamps.

Federal Minister for Finance and Revenue Shaukat Tarin has commended the tax collection authority for successful implementation of track and trace system which turned Pakistan into a sugar surplus country once again. Likewise, FBR Chairman Dr Muhammad Ashfaq Ahmed also appreciated the performance of track and trace system.

He further reiterated ensuring of implementation of the system on the tobacco sector over the next few months as well as on other important sectors like fertiliser, petroleum and cement.

It will result in digital monitoring of the large scale manufacturing and production of these key sectors.

“Besides, preventing revenue leakages, it will help in minimising human intervention and pave the way for a transparent and reliable tax compliance system across the country,” he concluded.

Published in The Express Tribune, March 27th, 2022.

 

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The Federal Board of Revenue has manipulated tax collection figures for the month of March in an attempt to show less revenue shortfall, bringing in question’s its performance that otherwise was largely dependent on higher imports.

The FBR also could not deliver on the previous government’s single largest initiative to integrate the 500,000 retail machines with the tax system and collect additional Rs50 billion in revenue. Till March, it could integrate less than 4,500 businesses that paid additional revenue of about Rs2.5 billion, according to the sources. FBR registered less than 3,900 retailers who integrated about 8,600 machines with the FBR system during the current fiscal year.

On March 31, the FBR issued a press release and claimed that it provisionally collected Rs575 billion in revenue, lifting the total collection to Rs4.382 trillion. However, The Express Tribune at that time reported that the actual taxes that were deposited in the kitty amounted to Rs561 billion and the figure could marginally improve on the back of book adjustments.

The reconciled figures showed that the tax collection in March remained Rs35 billion short of the monthly target and was still Rs6 billion less than what the FBR had claimed in its press release over two weeks ago.

It was the first time that the reconciled tax collection remained less than the provisionally released figures, giving credence to the reports that the FBR deliberately fudged the figures.

The Express Tribune had sent questions to the FBR spokesman five days ago and his responses were awaited till the filing of the story. The FBR spokesman had been requested to comment whether the FBR fudged the collection figures and who directed the authority to manipulate the numbers. The international financial institutions take strong exception to figure fudging, which also erodes policy makers, stakeholders and the government’s trust in the taxmen.

The FBR has not yet issued a statement to the media about the actual tax collection. It is not clear whether the FBR will present the manipulated or actual tax collection figures to the Prime Minister Shehbaz Sharif next week. The premier had directed the FBR to give a presentation on its performance with a focus on measures to end harassment of taxpayers.

The taxpayers have been making hue and cry against undue tax demand notices that the FBR is sending to them without following the due process. As a result, the tax amount stuck up in litigation has suddenly doubled to Rs3.6 trillion.

For the current fiscal year, the last government had set tax target at Rs5.829, which was increased to Rs6.1 trillion in January this year after the Rs360 billion mini-budget was introduced. The FBR now needs to collect Rs575 billion per month to hit the benchmark.

The sources said that the trend of the first half of the month suggested that achieving this month’s target of Rs485 billion was also difficult. The Inland Revenue Service, which is required to collect Rs5.2 trillion out of the revised annual target, had attempted to pass its partial burden to the Customs. But the Customs authorities refused to accept the proposed Rs970 billion target while sticking to its Rs917 billion target, said the sources.

The FBR’s tax collection is largely driven by imports that contributed 52% in total collection. During the first nine months of the fiscal year, the sales tax collection at the domestic stage decreased by 8.9% despite double-digit inflation in the country, which speaks about inefficiency of the tax machinery.

POS initiative

Former finance minister Shaukat Tarin had announced In June last year that he would plug in 500,000 point of sales (POS) machines and fetch additional Rs50 billion in the current fiscal year. The FBR had secured punitive powers to seal those business premises that would not integrate with the tax system.

However, the data showed that the FBR could integrate hardly 4,500 more businesses that installed about 10,000 more machines, suggesting the Pakistan Tehreek-e-Insaf’s government’s biggest initiative failed due to poor performance of the FBR. The collection from these retailers amounted to Rs16 billion -up by only Rs2.5 billion in nine months. This shows that the FBR will, in no way, be near the additional collection goal of Rs50 billion.

This newspaper reported a few weeks ago that a new tax scam had surfaced in the FBR where tax authorities illegally allowed over Rs16 billion sales tax adjustments to hundreds of big retailers during the first five months of the fiscal year. Tax authorities failed to implement at least four orders that had disallowed 60% input tax adjustments for those large retailers who did not integrate with the tax system through POS.

Published in The Express Tribune, April 17th, 2022.

 

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The Supreme Court has ruled that a taxpayer cannot be asked to furnish record beyond a period of six years.

“We hold that a taxpayer is obliged to maintain the record under Section 174(3) of the Ordinance for a period of six years,” a five-page judgment authored by Justice Syed Mansoor Ali Shah read while rejecting the Federal Board of Revenue's (FBR) plea against a Lahore High Court order, which had set aside a notice to the taxpayer.

A three-judge bench of the apex court led by Chief Justice of Pakistan Umar Ata Bandial heard the matter.
“The taxpayer cannot be compelled to produce the record for a tax year beyond the period of six years as stipulated in Section 174(3) of the Ordinance,” the verdict added.

The court noted that reading of the ordinance and the rules envisaged that any proceedings against a taxpayer that were based on the tax records maintained by them should be initiated within a fixed timeframe.

The order read that Section 174 created an obligation on the taxpayer to maintain such accounts, documents and records as prescribed for a period of six years. The only exception in this case was of pending proceedings, where the taxpayer is obligated to maintain the record till the final decision of the proceedings

“The same provision protects the taxpayer from being asked to produce the record beyond the said period.”
The judgment read notices under sections 161 and 165 and Rule 44(4) could only be replied to on the basis of the record maintained by the taxpayer.

“[Therefore] a joint reading of sections 161 and 165 and Rule 44(4) and Section 174(3) and Rule 29 establishes that the tax department is under an obligation to be vigilant and efficient enough so as to proceed against a taxpayer within the statutory timeframe provided under Section 174(3).”

The court noted that though there was no specific limitation for issuance of notices under Section 161(1A) or 165(2B) or Rule 44(4), but these provisions could not be actualised or given effect to unless the record, available with the taxpayer, was examined and verified by the tax authorities. “Since the aforesaid provisions of law require taxpayer to maintain record for a period of six years, hence notices beyond a period of six years cannot be given effect to. As the taxpayer is under no legal obligation to maintain tax records after the said statutory period, any such notices demanding the taxpayer to furnish such information are inconsistent with the clear provisions of the ordinance and hence unlawful.”

The court also noted that a harmonised reading of the statute required that Section 174(3) and sections 161 and 165 and Rule 44(4) must complement each other so as to promote the purposes of the ordinance and equally protect and safeguard the rights of both the tax manager and the taxpayer “Therefore, even though notices under sections 161(1A) and 165(2B), and Rule 44(4) have no prescribed period of limitation, the statutory timeframe kicks in the minute the time period under Section 174(3) is exhausted rendering such notices ineffective and unenforceable, attracting no penal consequences for the taxpayer.”

The court noted that the respondent taxpayer was under an obligation to deduct tax from an amount to be paid to a recipient at the time and in the manner specified in Section 158 of the Ordinance.

“Section 165 read with Rule 44(4) of the rules requires a taxpayer, who deducts tax, to furnish a statement/reconciliation statement giving details of the amount of tax deducted and collected from a recipient. The said statement and reconciliation statement has to be prepared on the basis of the tax records maintained by the taxpayer under the law. A taxpayer, under the law, is to retain tax records under Section 174(3) of the Ordinance read with Rule 29(4) of the rules for a period of six years after the end of the tax year to which they relate [to].”

Express Tribune

 

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The Federal Board of Revenue (FBR) has collected Rs4.86 trillion in taxes during the first 10 months of current fiscal year, leaving itself with a task to collect another Rs1.24 trillion in just two months to achieve the revised annual target.

According to the provisional information, the FBR generated Rs4.86 trillion in taxes during July-April of current financial year (2021-22), showing an increase of nearly 29% over the collection made during the same period of previous fiscal year.

In absolute terms, the collection was Rs1.1 trillion more than the previous year.

The previous government of Pakistan Tehreek-e-Insaf (PTI) had agreed with the International Monetary Fund (IMF) to collect Rs6.1 trillion during the ongoing fiscal year and had also imposed Rs360 billion worth of new taxes in a mini-budget.

Tax authorities now need to collect Rs1.24 trillion during the May-June period for achieving the revised target at an average of Rs20.4 billion a day. The government of Prime Minister Shehbaz Sharif is facing an uphill task to strike balance between its political objectives and restoring the health of the economy.

The premier could not increase the prices of petroleum products from May 1 despite an understating reached between the new economic team and the IMF.

Sources told The Express Tribune that Finance Minister Miftah Ismail had assured the Fund that he would completely withdraw the subsidy on petrol from May 1 and would also reduce the subsidy on high-speed diesel by at least half.

Sources said that due to keeping prices unchanged, the government would have to give Rs51 billion in subsidy for May 1 to 15 period, which was so far the highest amount for any fortnight since March 1, when the previous government froze petroleum product prices due to political expediency. Any shortfall against the FBR’s revised target would also make the next year’s target challenging, as the IMF has asked Pakistan to fix the target at around Rs7 trillion for fiscal year 2022-23.

The FBR’s performance remained largely dependent on imports that contributed nearly 52% to the total tax collection, which again camouflaged the weaknesses in the domestic sales tax collection that remained negative. The FBR has missed its monthly targets in four out of the past five months.

The new government has changed the FBR chairman this week, bringing Asim Ahmed in place of Dr Ashfaq Ahmad. The outgoing chairman is at risk of being prosecuted on allegations of leaking tax details of a judge of the Supreme Court of Pakistan. Sources said that there were chances that a strong team may be installed at the FBR headquarters to take the matter forward. They said that the matter could be pursued once a presidential ordinance lapsed in two weeks that gave immunity from punishment for disclosing confidential information.

Year-to-date performance

Overall, the FBR collected 64%, or Rs3.11 trillion, in indirect taxes – general sales tax, customs duty and federal excise duty, which were the three main sources of indirect taxes. Similarly, Rs2.5 trillion, or 52%, of the total collection was at the import stage. The FBR collected Rs1.75 trillion in income tax in the first 10 months of current fiscal year, up Rs383 billion (or 28%) over the same period of previous year.

Over Rs236 billion worth of income tax was collected at the import stage. The share of income tax in total revenue stood at 36%.

The FBR recorded 29% growth in sales tax collection in the July-April period due to heavy reliance on import taxes. It collected Rs2.64 trillion in sales tax, up Rs468 billion.

The total increase in sales tax collection was once again lower than the jump in sales tax receipts at the import stage due to negative growth in domestic sales tax collection.

The FBR collected Rs596 billion in domestic sales tax compared with Rs668 billion in the previous year, a reduction of 10.8%.

Contrary to that, sales tax collection at the import stage stood at Rs1.46 trillion in the first 10 months of current fiscal year as against Rs927 billion in the previous year. There was an increase of Rs541 billion (or 58%) in sales tax collection at the import stage.

The federal excise duty collection amounted to Rs250 billion, which was higher by Rs33 billion than the corresponding period of previous year.

The customs duty collection increased to Rs792 billion, showing an increase of Rs197 billion (or 33%).

Published in The Express Tribune, May 1st, 2022.

 

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Pakistan received $35 billion worth of information from the Organisation for Economic Cooperation and Development (OECD) and nearly $30 billion treasure trove turned out to be not actionable amid complaints of misuse of data by the taxmen.

Sources told The Express Tribune that in certain cases where the information was not having any tax value due to any reason, some Pakistani accountholders faced unnecessary arm-twisting at the hands of tax officials.

After the start of the exchange of information by the OECD in 2018, Pakistani authorities received $35 billion worth of information, said the sources.

The Federal Board of Revenue (FBR)’s function is limited to just recovery of due taxes on the actionable amount at prevailing rates.

The $30 billion worth of information, or 86% of the total, was useless for tax collection purposes due to duplicate reporting of accounts ($13 billion), non-resident status of these Pakistanis ($2 billion), immunity given under tax amnesty schemes ($5 billion) or information was already declared in tax returns filed with the FBR (nearly $2 billion). Another $4 billion had also been reported in previous years.

The net actionable information was $5 billion in the case of over 4,000 accounts and the FBR’s job was limited to only recovery of taxes, not the amount from the accounts, the sources added.

Out of this sum, the FBR has so far taken action in $3.3 billion worth of cases and work on the remaining information is in progress.

Out of the $5 billion actionable information, nearly half was related to the year 2020-21, said the sources.

Former prime minister Imran Khan had promised to recover $200 billion worth of looted money. But during his time, the Directorate General of International Taxes remained a neglected wing in the FBR, which had no permanent director-general.

The last government had declared the “recovery of assets stashed abroad” a high priority and also set up the Asset Recovery Unit, which eventually became a problem for the previous government.

There are allegations that the previous FBR management illegally shared the OECD information with the government, which is used against a sitting judge of the Supreme Court.

Under the OECD protocols, the OECD information can only be used for the recovery of due taxes.

The FBR faced many problems in the administration of the OECD information, which also resulted in harassment of the offshore account holders, said FBR’s former chairman Shabbar Zaidi.

He said in many cases the accountholders were not required to share the information with the FBR due to their non-resident status.

The FBR’s data showed that the OECD shared about $2 billion worth of information of over 4,000 non-resident accounts, which did not have tax value for the FBR.

Shabbar Zaidi said that the taxpayers also faced problems at the hands of the FBR due to the taxmen’s lack of understanding of the complex issues such as the status of foreign trusts, declarations given by the settler or beneficiary of the accounts and differences in reporting time of declarations given by the taxpayers and the information shared by the OECD.

The FBR record showed that the OECD shared the information of 6,000 accounts having $5 billion that was already declared through the offshore tax amnesty schemes by the taxpayers.

There were also issues of unethical practices, which “I had raised with the former finance minister Shaukat Tarin who then immediately took action”, said Zaidi.

Sources having direct knowledge of the cases said that some FBR officials tried to extort money from some of those offshore account holders whose information was shared by the OECD but they were not required to pay taxes.

In one case, one family member who was a non-resident person got tax notices while his other family members who were resident Pakistanis remained untouched, the sources claimed.

Due to complaints of “malpractices with corrupt motives”, the Federal Tax Ombudsman (FTO) office had also taken a suo motu notice and launched a probe to determine why the FBR’s three field offices were unable to fully take benefit of the OECD information.

Pakistan had received the first batch of information from OECD in September 2018 - a month after the PTI came into power - but the agreement had been signed during the tenure of the Pakistan Muslim League-Nawaz (PML-N) government.

In 2018, the FBR had received around $9 billion worth of information but the actionable information was just $1.6 billion.

Published in The Express Tribune, May 10th, 2022.

 

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The previous government of Pakistan Tehreek-e-Insaf (PTI) gave away a record Rs1.76 trillion in tax exemptions to the affluent and foreign investors during the outgoing fiscal year, taking the total cost of such exemptions in four years to a whopping Rs5.2 trillion.

The Pakistan Economic Survey 2021-22 revealed that there was a 34%, or Rs443 billion, surge in the cost of tax exemptions in just one year despite the fact that the PTI government also withdrew around Rs300 billion in exemptions in January this year. It was the highest amount of concessions given in any fiscal year.

Cumulatively, the previous government gave Rs5.2 trillion in tax exemptions during four years, which was equal to 87% of the estimated tax collection by the Federal Board of Revenue (FBR) in the outgoing fiscal year.

The last government also provided tax exemptions to the military’s commercial ventures.

These tax exemptions have been approved over the years and are protected under the tax laws. But no government, including the PTI, has been able to curtail the exemptions.

“The tax expenditure for fiscal year 2022 has been estimated at Rs1.757 trillion” on account of income tax, sales tax and customs duty concessions, the Economic Survey, which Finance Minister Miftah Ismail presented on Thursday, showed.

Responding to a question, Ismail said that he would on Friday announce the withdrawal of some of those exemptions in his budget speech.

The government may unveil a Rs9.45 trillion budget, which will be financed by taking Rs4.5 trillion in new debt.

The withdrawal of tax exemptions has remained part of every programme that Pakistan signed with the International Monetary Fund (IMF). Still, every successive government has not only managed to protect the affluent class but also added more names to the list of beneficiaries.

Under the IMF condition, the PTI government phased out corporate and sales tax exemptions but some of those were again introduced in the last budget when the IMF programme was stalled, showing the deceptive nature of policymakers.

The FBR is expected to collect Rs6 trillion in taxes in the current fiscal year and assuming that the government can recover the entire Rs1.76 trillion, the tax collection will reach Rs7.76 trillion. This would have reduced the borrowing requirement by the same amount.

Income tax

As against Rs448 billion worth of income tax exemptions given in the previous fiscal year, the FBR has estimated the cost of income tax exemptions this year at nearly Rs400 billion, according to the survey.

The Rs400 billion exemptions were equal to 23% of the total cost of exemptions given in the current fiscal year.

Around Rs10.6 billion worth of income tax exemptions were given on account of various allowances, Rs66 billion was given in tax credit and Rs233 billion exemptions were given on total income, according to the Economic Survey.

An amount of Rs3.3 billion was lost due to the reduction in tax liabilities while Rs61 billion was lost on account of exemptions from “specific provisions”. The FBR did not explain the specific provisions, as there was Rs58 billion, or 2,173%, increase under the head.

About Rs26 billion worth of income tax exemptions were given on account of miscellaneous exemptions, which the FBR also did not explain.

These income tax exemptions were also availed by the judges of superior courts, president of Pakistan, military generals, on the allowance of federal bureaucracy, income of pensioners and by the Fauji Foundation and Army Welfare Trust.

The IMF has demanded that Pakistan should withdraw the pension-related exemptions.

Sales tax

There was 75% increase in sales tax exemptions that grew from Rs578.5 billion a year ago to over Rs1 trillion. The constant increase in the sales tax exemptions despite withdrawing many of those raises questions over these calculations.

The share of sales tax exemptions was 48% in the total tax exemptions.



An amount of Rs11.3 billion was lost on account of exemptions on products which were protected under the Fifth Schedule of the Sales Tax Act. The Fifth Schedule relates to the zero-rated tax system.

There was a massive jump in exemptions given to importers that increased from Rs174 billion to Rs527 billion. In addition to that, Rs234 billion exemptions were given on local supplies, which was 50% more than the previous year.

The government charges reduced sales tax rates on various goods, which cost Rs169 billion in this fiscal year. These exemptions are given under the Eighth Schedule of the Sales Tax Act, which allows the imposition of lower than standard 17% sales tax.

Another Rs50 billion was lost due to low GST collection rates on mobile phone sales, showing 84% increase in just one year.

Customs duty

The cost of customs duty exemption increased to Rs343 billion against Rs288 billion in the previous year. There was an increase of Rs55 billion or nearly one-fifth over the previous year, according to the survey.

The government sustained Rs61 billion tax losses due to the concessions given to the automobile sector, oil and gas exploration sectors and the China-Pakistan Economic Corridor, up Rs6 billion or one-tenth.

Around Rs169 billion duties were lost under the Fifth Schedule of the Customs Act, which deals with the goods exempted from customs duties. This cost of exemptions was Rs31 billion more than the last year.

The Rs46 billion customs duty exemptions were given on account of low rates applicable to various bilateral free trade and preferential trade agreements. The amount was Rs12 billion higher than the previous year.

Similarly, Rs16 billion worth of concessions were given under Chapter 99 of the Customs Act and Rs51 billion exemptions were given on exports, according to the economic survey.



Published in The Express Tribune, June 10th, 2022.

 

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In the budget for the next financial year, it has been proposed to give FBR powers that in addition to disconnecting electricity and gas connections of consumers who do not file income tax returns, will also authorise it to deactivate mobile phone SIMs.

The federal government's Finance Bill 2022-23 empowers FBR to file annual income tax returns under Section 114B of the Income Tax Act and take action against active taxpayers who are not submitting returns as required under the law. “The FBR can take action against those people who are obliged to submit income tax returns but are not doing so.”

According to the Income Tax General Order issued under Sub-section 2 of Section 42 of the Income Tax Ordinance, the FBR will disable mobile phones or SIMs of those users who do not file returns. In addition, electricity and gas connections will also be disconnected.

Similarly, in the Income Tax General Order, the board or the commissioner having jurisdiction may order restoration of the mobile phone, mobile phone SIMs as well as electricity and gas connections if he is satisfied that the annual income tax return has been submitted.

In addition, no person shall be included in the general order under Sub-section (1) unless the following conditions have been fulfilled, ie notices have been issued under Sub-section (114) (a).

According to the said section of the Income Tax Ordinance, if the date of compliance has passed and the person has not filed the return, the law will come into force.

“Further action against anyone cannot be stopped under this law.”

The finance bill will be presented to the National Assembly for approval and after that it will be implemented from the next financial year – starting July 1, 2022.

Express Tribune

 

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The government is looking for new avenues to increase burden on the rich and may impose taxes on gifts, jack up rates for corporate and salaried sectors as well as allow unconditional import of gold to bring it into the tax ambit.

Other measures are also being considered to bridge gaps with the International Monetary Fund before the end of the month. The global lender still sees the government’s budget numbers unrealistic that require more taxation measures along with cuts in expenditures.

The Finance Bill 2022-23 that Miftah Ismail tabled in the National Assembly on June 10 may undergo some major changes to raise maximum taxes from the rich.

In addition to finding more sources of income to the satisfaction of the IMF, the government also wants to give a message to the less-privileged classes that the elite class is also paying more than usual annual tax contributions, according to the sources.

The IMF has not yet shared the draft of Memorandum for Economic and Financial Policies (MEFP) with Pakistan, which Finance Minister Miftah has hoped can be shared anytime. The MEFP becomes the base for a staff-level agreement on a set of measures needed to revive the programme and bring economic stability.

Where the government is set to enhance tax burden on the rich, it may partially reverse an earlier decision to increase income tax rate for commercial banks to 45% and instead bring it down to 42%, according to sources in the Federal Board of Revenue.

The FBR had proposed an increase in the cumulative income tax rate for the commercial banks to 42% from 39%, including super tax. But the federal cabinet had increased the rate to 45%, which Prime Minister Shehbaz Sharif has now agreed to lower to 42%.

One of the active proposals is to allow unconditional import of gold and start collecting taxes at the import and their domestic sales, according to the sources. The general import of gold is banned in Pakistan and the Import Policy Order links its imports with the condition that “importer shall arrange his own foreign exchange for the purpose”.

Due to this condition, almost all of the gold being sold in Pakistan is either smuggled or the recycled one is being sold by domestic households.

There are 29,000 registered jewellers in Pakistan but only 22 have installed point of sales machines that are interlinked with the FBR system. Almost every jeweller encourages the buyers to pay in cash to avoid the tax net.

Miftah wants to impose 2% customs duty and 2% adjustable income tax on the import of gold, according to the sources. He wants 3% sales tax on the retail stage of gold and silver. In addition to that, there is also a proposal to charge 1% withholding tax on sale of gold by the consumers at the jewellery shops.

If accepted, the move can help generate billions of rupees in taxes in addition to minimising smuggling.

There is a proposal to change the definition of relative in order to bring a major portion of the wealth that remains outside the tax net due to exchange of gifts that are exempted from tax.

The FBR has estimated the annual cost of gifts at around Rs1.2 trillion and a major portion of it can be taxed by limiting the definition of the relatives who can exchange tax-free gifts.

The gifts received from relatives, defined as “an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or a spouse of the individual or of any person” are exempted from taxation.

The definition had been relaxed last year when it was still broad but limited to “grandparents, parents, spouse, brother, sister, son or a daughter”. Now, the proposal is to limit the definition of the relative to only husband, wife and children.

However, some senior cabinet members of Prime Minister Shehbaz were against changing the definition, the sources said.

According to another proposal, the income tax rate for both salaried and business individuals can be steeply increased for those who earn over Rs1 million a month. There are hardly 12,000 people who have declared their monthly income of over Rs1 million with the FBR.

The sources said that the FBR was again considering the proposal to levy windfall tax for certain sectors by increasing their corporate income tax rate from current 29% to 32% and in some cases to 35%. The sectors that are on the radar of the government are steel, food, edible oil, automobile, gas and exploration firms, oil refineries as well as marketing companies.

As an alternative, the minimum income tax rate for these sectors could be increased to 1.5% against the standard rate of 1.25%. In some cases, the rate is even lower than the standard rate that could also be increased further. The FBR collects roughly Rs140 billion a year as minimum tax on turnover. Majority of the companies declare losses to evade taxes.

The government has committed with the Asian Development Bank and the World Bank to gradually phase out the minimum turnover tax, which is incapacitating the government to increase the standard minimum tax rate.

The corporate tax rate is 29% and if the FBR increases it by 1%, it will generate extra Rs8 billion a year. The chances of increasing the corporate tax rate across the board remain low, although the FBR has undertaken an exercise.

The FBR authorities also proposed to introduce slabs in case of newly introduced 2% Poverty Alleviation Tax over Rs300 million in incomes, but Finance Minister Miftah rejected the proposal.

Express Tribune

 

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The Federal Board of Revenue (FBR) has recommended the imposition of a 5% tax on bonus shares issued by companies and on their undistributed profits in the next budget. This proposal would primarily affect family-owned companies but would benefit minority shareholders.

Sources told The Express Tribune that the FBR is contemplating the reinstatement of two old tax measures that were previously dropped for various reasons. These measures involve levying a 5% income tax on bonus shares issued by companies instead of paying dividends to shareholders.

If approved by the finance minister and later by the prime minister, the bonus tax proposal would provide a dual benefit to the tax authorities. If companies pay dividends, the FBR would receive a 15% tax, and if companies opt to issue bonus shares, the FBR would still collect a 5% tax. Finance Minister Ishaq Dar will begin reviewing and either accepting or rejecting taxation proposals soon, as the budget announcement is only five days away.

The government had previously imposed a tax on bonus shares in 2014 through sections 236M and 236N of the Income Tax Ordinance. At that time, then-Finance Minister Ishaq Dar stated that the 5% income tax on bonus shares was introduced to close loopholes used by companies to evade taxes.

For the upcoming fiscal year, the government is considering a tax collection target of Rs9.2 trillion, indicating a preference for extracting revenue from existing taxpayers rather than broadening the tax base.

Sources also revealed that the FBR has finalised a proposal to reinstate section 5A of the Income Tax Ordinance, which addresses the tax on undistributed profits. This tax had been removed by the previous government. The FBR is contemplating a 5% income tax on the undistributed profits of companies, according to the sources.

This proposal serves as an alternative to the Reform and Revenue Mobilisation Commission’s (RRMC) suggestion to impose a 5% to 7.5% tax on the undistributed reserves of companies, which is a more comprehensive approach. However, the business community and the FBR have opposed the RRMC proposal, leading the tax authorities to consider reviving the old section 5A.

During a meeting with the finance minister on Saturday, the Pakistan Business Council (PBC) expressed opposition to the proposal of a 5% tax on undistributed reserves, citing liquidity concerns and the cost of funding working capital.

The PBC also opposed ending the final tax regime for exporters and insisted that exporters should not be subjected to the minimum tax regime. Under the minimum tax regime, exporters would be required to fully document themselves, which they currently avoid by remaining in the final regime.

The Tola Commission had proposed income tax rates of 5% for listed companies and 7.5% for non-listed companies, to be levied on the distributable reserves of such companies. The Tola Commission estimated an annual revenue impact of Rs338 billion based on a total value of Rs5.44 trillion in company reserves. The report also projected an additional revenue of Rs141 billion from listed companies that have not paid dividends in the past three years, with reserves totalling Rs2.8 trillion. Similarly, non-listed companies have reserves valued at Rs2.6 trillion, and the FBR could potentially generate an additional annual revenue of Rs197 billion at a rate of 7.5%.

However, the FBR is not in favour of this proposal and instead suggests restoring the tax on undistributed profits at a rate of 5%.

Following a report by The Express Tribune on the RRMC proposal, companies with significant reserves started issuing bonus shares. The Securities and Exchange Commission of Pakistan (SECP) is estimated to earn at least Rs500 million in fees, averaging 0.5% of the increased authorised capital of these companies. These companies are increasing their capital levels to avoid the tax.

To counter this strategy, sources say, the FBR intends to impose a 5% tax on the issuance of bonus shares, which is expected to generate significant revenue.

Until 2019, the government imposed a 5% tax if a company did not distribute at least 20% of its after-tax profits in cash within six months of the end of the tax year.

This is not the first time a proposal has been made to tax undistributed reserves of a company. Similar impositions were previously attempted twice under sections 12(9A) of the repealed Income Tax Ordinance 1979 and section 5A of the 2001 ordinance, as noted by Shabbar Zaidi, former Chairman of the FBR.



However, previous impositions were limited to listed companies, unlike the current proposal to tax undistributed reserves of the entire corporate sector.

The government has been striving to alleviate concerns among the business community, which is worried about increasing default risks and the adverse impact of import restrictions.

During discussions with various business bodies, Dar “reassured” the nation that Pakistan will not default and promised that the government has planned reforms for the country’s “long-term improvement”.

The finance minister emphasised that the government’s objective is to overcome the crisis. He acknowledged the “unprecedented delay” in reaching a staff-level agreement with the International Monetary Fund (IMF) despite Pakistan having fulfilled nearly all the requirements.

Furthermore, he acknowledged that the tough economic decisions made by the government have placed a significant burden on the business community and the general public.

He strongly criticised those who predict the consequences of default, stating, “Some people like to give dates that Pakistan will default on so and so date — they should be ashamed.”

Miftah Ismail, his predecessor, recently stated that without the IMF’s support, Pakistan may default by October this year.

 

[BouncerGuy]

LTO Karachi recovers Rs31 billion by freezing bank accounts

In an aggressive and highly effective move, the Large Taxpayers Office (LTO) Karachi has recovered a record-breaking Rs31 billion in outstanding taxes by freezing the bank accounts of major defaulters.

This significant recovery is part of an intensified drive aimed at enhancing compliance among large taxpayers in Karachi, Pakistan’s financial hub.

According to officials at the Federal Board of Revenue (FBR), the LTO Karachi, which is responsible for handling high-volume and high-value taxpayers, executed the recovery actions over the past few days. The crackdown targeted various corporate entities, including a prominent State-Owned Enterprise (SOE), as well as private sector players across marine, housing, and energy sectors.

Sources revealed that the LTO Karachi resorted to freezing bank accounts after repeated reluctance from companies to fulfill their tax obligations. One notable recovery stemmed from a company’s failure to pay Rs14.5 billion in advance tax due on June 15. In accordance with Section 147 of the Income Tax Ordinance, 2001, the LTO Karachi assessed the company’s turnover and determined the outstanding amount. After non-compliance, the office directed the company’s banks to debit the required sum from its accounts.

In another case, LTO Karachi recovered Rs12 billion from a different corporate entity using the same account attachment method. Additional recoveries were made from several other companies, all of which had failed to pay advance taxes based on their turnover, as required under Section 147.

Section 147 mandates quarterly advance tax payments on the following schedule:

• September quarter: by September 25

• December quarter: by December 25

• March quarter: by March 25

• June quarter: by June 15

Failure to comply with these deadlines empowers the FBR, through LTO Karachi, to take coercive measures, including account attachments.

Moreover, officials noted that recoveries were also made under Section 137(2) of the Income Tax Ordinance. This provision allows the tax authority to serve a notice for any payable amount under an assessment order. Once the notice is served, the amount must be paid within 30 days.

The Rs31 billion recovery stands as one of the largest in recent years and underscores the determination of LTO Karachi to ensure maximum tax compliance from large corporate taxpayers.

LTO Karachi recovers Rs31 billion by freezing bank accounts

Karachi, June 27, 2025 – In an aggressive and highly effective move, the LTO Karachi has recovered a record-breaking Rs31 billion in

pkrevenue.com