FBR amends rules for ‘resident Pakistani’

Top tax authority issues ‘corrigendum to circular’ to avoid possible litigations

ISLAMABAD: The Federal Board of Revenue (FBR) on Friday decided to enforce a new taxation regime from this fiscal year for the Pakistanis who stay abroad for a certain period in a year, ending the possibility of litigation that could affect the revenue collection.

Rectifying its mistake in its previous circular it had issued on Tuesday, the FBR on Friday issued the “corrigendum to circular” to illustrate important legal changes that were introduced in the budget 2019-20.

The new definition of resident Pakistani would take effect from tax year 2020 – the fiscal year 2019-20 – according to the FBR’s new circular. Now a person will be treated as resident Pakistani and will be liable to pay income tax, if he stays in Pakistan for four months -- down from six months.

The earlier circular had said that the FBR gave effect to the change in the definition of resident individuals for tax purposes from previous the fiscal year that is 2018-19. The Express Tribune had pointed out this legal deficiency, which the FBR rectified on Friday.

Prior to the Finance Act, 2019, an individual was treated as a “resident individual” for a tax year if the person was present in Pakistan for a period of 183 days (over six months) or more in a tax year. Now, this period has been reduced to four months which means a person will have to stay abroad for eight months to claim tax-free status.

Instead of giving effect to this change from July 1, 2019 – the beginning of fiscal year 2019-20 – the FBR had made the change effective from tax year 2019, which was fiscal year 2018-19 that ended in June, showed the circular issued on Tuesday.

After the issuance of the circular, legal and tax experts had warned the authorities concerned that giving effect to the new regime for such Pakistanis from fiscal year 2018-19 would give rise to litigation, forcing the FBR to addressed the lacuna.

However, it did not change its position on the question of calculating aggregate 365 days stay abroad in four preceding years –another amendment brought in the definition of a resident Pakistani in the budget.

Its illustration showed that the aggregate stay period of 365 days for four years will take effect from tax year 2016. The legal experts argue that this change should too take effect from tax year 2024. But the FBR believes that it was not a substantive change, therefore, can be implemented from preceding years.

During the last four years, the Pakistan Muslim League-Nawaz (PML-N) and the current Pakistan Tehreek-e-Insaf (PTI) governments brought substantive changes in the Income Tax Ordinance 2001 aimed at improving tax recovery from abroad. But so far, these changes have not translated into revenues due to capacity and implementation issues.

The FBR is also in process of expanding the tax base by encouraging people to file their annual income tax returns. After numerous extensions, the last date for filing tax returns for tax year 2018 ended on Friday. The original date for filing the tax returns was September 2018 and it was for the first time in FBR’s history that the window remained opened for more than a year.

However, still the Commissioner Inland Revenue Service has the legal powers to give two-week extension to people, who want to file the returns for tax year 2018. Till last date, slightly over 2.2 million people filed their income tax returns, which were nearly 46% of the total persons who have national tax numbers and are registered with the FBR. There was an increase of over 500,000 or 29% in return filers during past 13 months.

The FBR is currently in process of finalising a new income tax return form for fiscal year 2019, which ended in June. The statutory date for filing the new return is again September 30 but extensions cannot be ruled out.