ICAP for documenting farm income, imposing digital tax
Retailers, agriculture sector paid only Rs8 billion in taxes in last fiscal year
Retailers, agriculture sector paid only Rs8 billion in taxes in last fiscal year. PHOTO: FILE
ISLAMABAD:
The Institute of Chartered Accountants of Pakistan (ICAP) has proposed that the government should document agriculture income and impose 30% digital income tax on tech giants which are making profits in Pakistan, but are not paying taxes.
ICAP President Jafar Husain and ICAP Committee on Fiscal Laws Chairman Ashfaq Yousuf Tola presented the budget proposals for tax year 2019-20 at a press conference.
“There is a serious need for imposing taxes on agriculture income in a more transparent and documented manner,” said Tola. He added that retailers and the agriculture sector, which contributes nearly 40% to the national output, paid only Rs8 billion in taxes in the last fiscal year.
Taxes on agricultural income may remain with the provinces but under the constitution, there was no bar on the federal government in documenting the agricultural income, he pointed out.
Agricultural assets and income earned from them should be identified as those could be used for under-reporting and mis-declaration, he added. ICAP suggested that digital tax could initially be introduced at a rate of 30% on the advertisement income of non-resident companies having no establishments in Pakistan.
“These companies are not adequately taxed as they are not established within the country,” said Tola. “This will also encourage local software service providers to get registered and earn from local ICAP for documenting farm income, imposing digital taxadvertisements.”
The ICAP also advocated the introduction of environmental taxes.
It proposed that higher taxes should be levied on non-renewable and polluting inputs and outputs such as coal, automobile, chlorine, phosphate detergents, chemical pesticides, chemical fertilisers, lead acid batteries, plastics, etc.
As an incentive, the organisations taking measures to preserve the environment may be termed eligible for tax credit.
ICAP said final taxation should be based on income parity. All presumptive and fixed tax schemes should be abolished and all such sectors should be brought under the uniform tax regime to promote the culture of income-based taxation.
For the rationalisation and simplification of taxes, only one type of tax regime should be applicable between the Alternative Corporate Tax and Minimum Tax.
ICAP recommended simplifying the tax regime for the NGOs as certain requirements were creating direct hurdles in the way of welfare activities involving capital expenditure to be incurred over a period exceeding one year.
It said alternatively, the limit of spending in a year on charitable and welfare activities from receipts during that year, currently set at minimum 75%, could be analysed over at least three years to account for expenditures which were inevitably spread over a period exceeding one year.
Tola highlighted that Pakistan’s tax-to-GDP ratio was the main impediment in the way of economic development, which compelled governments to take short-term tax measures. “At present, there is overdependence on indirect taxes,” he pointed out. “There is a dire need for administrative reforms and formulating long-term strategic policies.”
He was of the view that ICAP proposals for the 2019-20 budget were focused on ease of doing business, tax reforms, harmonisation of tax laws and broadening of tax base.
Key recommendations
The ICAP proposed that the income tax and sales tax regime should be separated for small and medium enterprises (SMEs) and retailers. It also proposed that the SMEs should be excluded from the list of withholding tax agents.
Owing to a large size of the informal economy, the ICAP recommended the government to reduce the condition of 90% of supplies to the registered persons to 75%.
In order to promote industrialisation in the country, it was suggested that exemption from tax collection on the import of plant and machinery and spare parts by a newly established manufacturing company or for expansion by the existing company be allowed for at least five years.
ICAP proposed that for the larger benefit of investors and taxpayers, the powers of tax officers should be restricted to specific parties and transactions already identified by the tax authorities for investigation, instead of allowing a mere fishing enquiry.
ICMAP, ICAP, ACCA certificates now equal to MCom
It recommended that rates of withholding tax for non-residents having no permanent establishments in Pakistan should be reduced and they should not be required to file income tax returns.
The separate withholding tax rates for the non-filers, prescribed for non-residents having no permanent establishments, should be omitted. In order to reduce the sales tax refund backlog, ICAP urged the Federal Board of Revenue to allow adjustment in the sales tax refund with income tax liability. It was also advocated that there should not be multiple audits of a taxpayer and there was no need to conduct audit under Section 25, if a detailed investigation of a registered person had already been conducted.
It suggested that commercial connections of gas and electricity provided to non-filers should be cut off.
Published in The Express Tribune, May 5th, 2019.
The Institute of Chartered Accountants of Pakistan (ICAP) has proposed that the government should document agriculture income and impose 30% digital income tax on tech giants which are making profits in Pakistan, but are not paying taxes.
ICAP President Jafar Husain and ICAP Committee on Fiscal Laws Chairman Ashfaq Yousuf Tola presented the budget proposals for tax year 2019-20 at a press conference.
“There is a serious need for imposing taxes on agriculture income in a more transparent and documented manner,” said Tola. He added that retailers and the agriculture sector, which contributes nearly 40% to the national output, paid only Rs8 billion in taxes in the last fiscal year.
Taxes on agricultural income may remain with the provinces but under the constitution, there was no bar on the federal government in documenting the agricultural income, he pointed out.
Agricultural assets and income earned from them should be identified as those could be used for under-reporting and mis-declaration, he added. ICAP suggested that digital tax could initially be introduced at a rate of 30% on the advertisement income of non-resident companies having no establishments in Pakistan.
“These companies are not adequately taxed as they are not established within the country,” said Tola. “This will also encourage local software service providers to get registered and earn from local ICAP for documenting farm income, imposing digital taxadvertisements.”
The ICAP also advocated the introduction of environmental taxes.
It proposed that higher taxes should be levied on non-renewable and polluting inputs and outputs such as coal, automobile, chlorine, phosphate detergents, chemical pesticides, chemical fertilisers, lead acid batteries, plastics, etc.
As an incentive, the organisations taking measures to preserve the environment may be termed eligible for tax credit.
ICAP said final taxation should be based on income parity. All presumptive and fixed tax schemes should be abolished and all such sectors should be brought under the uniform tax regime to promote the culture of income-based taxation.
For the rationalisation and simplification of taxes, only one type of tax regime should be applicable between the Alternative Corporate Tax and Minimum Tax.
ICAP recommended simplifying the tax regime for the NGOs as certain requirements were creating direct hurdles in the way of welfare activities involving capital expenditure to be incurred over a period exceeding one year.
It said alternatively, the limit of spending in a year on charitable and welfare activities from receipts during that year, currently set at minimum 75%, could be analysed over at least three years to account for expenditures which were inevitably spread over a period exceeding one year.
Tola highlighted that Pakistan’s tax-to-GDP ratio was the main impediment in the way of economic development, which compelled governments to take short-term tax measures. “At present, there is overdependence on indirect taxes,” he pointed out. “There is a dire need for administrative reforms and formulating long-term strategic policies.”
He was of the view that ICAP proposals for the 2019-20 budget were focused on ease of doing business, tax reforms, harmonisation of tax laws and broadening of tax base.
Key recommendations
The ICAP proposed that the income tax and sales tax regime should be separated for small and medium enterprises (SMEs) and retailers. It also proposed that the SMEs should be excluded from the list of withholding tax agents.
Owing to a large size of the informal economy, the ICAP recommended the government to reduce the condition of 90% of supplies to the registered persons to 75%.
In order to promote industrialisation in the country, it was suggested that exemption from tax collection on the import of plant and machinery and spare parts by a newly established manufacturing company or for expansion by the existing company be allowed for at least five years.
ICAP proposed that for the larger benefit of investors and taxpayers, the powers of tax officers should be restricted to specific parties and transactions already identified by the tax authorities for investigation, instead of allowing a mere fishing enquiry.
ICMAP, ICAP, ACCA certificates now equal to MCom
It recommended that rates of withholding tax for non-residents having no permanent establishments in Pakistan should be reduced and they should not be required to file income tax returns.
The separate withholding tax rates for the non-filers, prescribed for non-residents having no permanent establishments, should be omitted. In order to reduce the sales tax refund backlog, ICAP urged the Federal Board of Revenue to allow adjustment in the sales tax refund with income tax liability. It was also advocated that there should not be multiple audits of a taxpayer and there was no need to conduct audit under Section 25, if a detailed investigation of a registered person had already been conducted.
It suggested that commercial connections of gas and electricity provided to non-filers should be cut off.
Published in The Express Tribune, May 5th, 2019.