OVERSEAS INVESTORS CHAMBER OF COMMERCE AND INDUSTRY TAXATION PROPOSALS 2019 - 2020 PUNJAB PROVINCIAL TAXES AND LEVIES - OICCI

 
OICCI TAXATION PROPOSALS (2019-20) – PUNJAB PROVINCIAL LEVIES

               OVERSEAS INVESTORS
             CHAMBER OF COMMERCE
                    AND INDUSTRY

            TAXATION PROPOSALS
                2019 – 2020

    PUNJAB PROVINCIAL TAXES AND LEVIES

                       March, 2019

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OICCI TAXATION PROPOSALS (2019-20) – PUNJAB PROVINCIAL LEVIES

                                TABLE OF CONTENTS

                                                          Page Nos

INTRODUCTION                                                   03

INCREASED COST OF DOING BUSINESS                               04

     All Collections Under One Ministry/Body                  04

     Tax Broadening Measures                                  04

     Sales Tax on Services                                    06

     Procedural and Structural Proposals                      15

     Other Levies                                             15

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INTRODUCTION
The Overseas Investors Chamber of Commerce and Industry (OICCI), represents the largest bloc
of foreign investors in Pakistan. It is the largest Business Chamber in the country based on
contribution to the national and provincial exchequers, as well as to the GDP, as over one third of
the total revenue collections in the country by the Federal and Provincial revenue authorities,
come from OICCI members. OICCI members also have a large footprint on CSR activities as,
besides the monetary contributions, employees spend over 800,000 man hours in community
welfare work, which last year benefited over 40 million persons belonging to the
underprivileged communities across the country.
A few facts, which are part of the OICCI profile, are being mentioned below for an appropriate
appreciation of the role played by the Chamber in the country’s economy, including social
inclusion activities:
      Representing 190 Foreign Investors
      Shareholders from 35 countries / Representation in 14 business sectors
      56 listed on Karachi Stock Exchange / 50 associates of 2017 Global Fortune 500
       companies

      Major contributor to the Economy of Pakistan
      Approximately one-third of government taxes/levies collected from OICCI members
      OICCI members invested USD 2.2 billion, in new capital expenditure, in 2016.
      Members provide employment to around one million people
      CSR activities of members benefit over 40 million underprivileged sections of society.

      Tax Environment
      OICCI members are fully tax compliant and share the concerns of the government on the
       very low tax to GDP ratio, which is primarily due to the fact that a significant portion of
       the economy continues to remain outside the tax net.
      Members appreciate and support all initiatives of the government to document the
       economy, penalize non-filers with higher withholding tax rates, and harmonize the
       property valuation besides the actions taken recently for potential access to multiple
       sources of tax evaded assets held locally or overseas. However many more measures and
       strict enforcement measures need to be incorporated in the relevant laws to ensure a
       more compliant tax culture in Pakistan, where there are rewards for the compliant tax
       payer and enforceable penalties for tax evaders.

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INCREASED COST OF DOING BUSINESS
OICCI members continue to express concern that the cost of doing business in Punjab is higher
than Sindh, on account of the fact that the sales tax rate on services in Punjab @16% is 23%
higher than the 13% Tax in Sindh.
Taxes levied in Punjab are recommended to be harmonized with other provinces of the country,
to ensure that ensure level playing field for investors in Punjab.

ALL REVENUE COLLECTIONS UNDER ONE MINISTRY/BODY
1.    Integration of all Revenue Collections
      Currently revenue collections of the Province of Punjab fall under the following
      Ministries/Bodies;
         Punjab Revenue Authority (PRA)
         Excise & Taxation
         Board of Revenue (Punjab)
      OICCI strongly recommends that all revenue collections should be merged under one
      Ministry/Body. The provincial government can devise an in house mechanism to share the
      revenue of the above three bodies through intra-government fund transfer.
      This would add considerably to the ease of doing business (EODB), a matter which should
      be a priority for all policy makers in the country since Pakistan has fallen from 75 in 2010
      to 136 in 2019, in the World Bank – EODB survey.

TAX BROADENING MEASURES
2.    Agricultural Income Tax
      As per the statistics mentioned in the Government of Punjab “White Paper – Budget 2015-
      16” employment of 45% of the population of the province is dependent upon agriculture
      and the sector accounts for 21% of the overall national production. “However, the
      collection of agricultural income tax is estimated to be even less than 1% of total collection
      of Federal and Provincial taxes.”
      The above disparities in tax levies between different incomes segments need to be
      addressed. It is recommended that the Punjab government and revenue authorities take all
      possible measures to increase revenue collection from the agriculture sector.
      The original rationale of keeping agriculture out of tax net to facilitate small agriculturists
      is not applicable, due to non-implementation of land reforms, and the benefit of the tax
      exemption is being availed, as per common perception, by big landowners earning huge
      incomes. Furthermore, income and wealth is also transferred by unscrupulous elements to
      businesses fronting as agriculture sector.
      Some of the key issues related to agriculture income are identified as follows:

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      Principle of Non-Discrimination: In principle, income from all sources, including
       agriculture, if exceeding the minimum threshold, applicable for other sources of
       income, should be taxed without any discrimination.
      Determination Basis: A transparent, easily understandable and applicable manner of
       determining such income should be designed.
      Flexible Income Based System: At present, the Agricultural Income Tax has effectively
       become a land tax, based on land holding, that leads to the perception that there is no
       tax on agricultural activities.
      Identification and Linkage with National Tax Number: There is no identification of
       even the small number of agricultural income taxpayer as they are not on the national
       tax number (NTN) system
Recommendation
         In light of the above, following proposals are made:
         a) Income Based System: At present, the tax is payable on ‘land holding’ or ‘net
            income’ whichever is higher. However, the manner of determination of net
            income is complicated and, in almost 100% of the case, tax is received on
            land holding basis. This discourages the taxation on net income basis.
            Therefore, taxability of income on land holding should be abolished and
            taxes collected on ‘net income basis’.
         b) Adjustable withholding tax: Advance tax should be introduced on sale of
            agricultural produce such as sugar cane, wheat, cotton and others. There are
            only around 10 to 15 agencies and enterprises which acquire such crops.
            The advance tax should be adjustable against income tax payable on net
            income basis. Rates of withholding and the threshold for the same should be
            aligned with other products – for example any payment exceeding Rs 25,000
            should be subject to advance tax at the rate of 1 to 3 percent as the case may
            be. Federal taxation system may be used for such collection on behalf of the
            provincial government in the same manner as is being done in other cases
            by the provincial governments.
         c) Link and Interface with the National Tax Number: All persons holding land
            should be required to obtain a National Tax Number (NTN), like the one
            maintained by FBR, and may be modified by adding one or two digits so as to
            identify that source of income is agriculture. [PRAL facilities may be used for
            such purposes in coordination with NADRA].
         d) Definition of Agricultural Activity: Definition of agricultural income should
            be amended to include all agricultural activities like non-corporate dairy
            farming and poultry etc.
         e) Rent for the Use of Agricultural Land: Under the specific provision, the rent
            for use of agricultural land, which is general practice, especially for large
            landowners, is an agriculture income. There is effectively no mechanism to
            ensure completeness of recovery of taxes from such receipts. Such rent
            income should be subject to same rate of tax as is currently in vogue on
            property income under the FBR system.

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3.         Sales Tax on Machinery Rental under PRA
           Serial No. 50 of Schedule II to Punjab Sales Tax on Service Act, 2012
Recommendation
           Specific exclusion be given to rental of machinery for agricultural purposes in the above Schedule.
Rationale or Benefit
           Taxation on agricultural inputs, especially on machinery rental for usage, will increase the cost of
           ultimate output and adversely impact the efforts of increasing mechanization in this sector.

SALES TAX ON SERVICES
4.         Coordination Between Federal/Inter-Provincial Sales Tax Authorities
           All four Provinces and Federal Government have introduced distinct sales/service tax laws
           for their respective jurisdictions, with some of the clauses in clear conflict with each other
           resulting in foreign investors being pursued and harassed by the Federal and Provincial
           revenue collectors (FBR, PRA, SRB, KPRA and BRA) demanding tax on the same
           transactions creating undue hardship and double taxation claims for taxpayers. This
           situation is highly undesirable and creates complexities for investors.
           As an example, a service provider registered in Sindh providing taxable services to
           recipient in Punjab is liable to pay sales tax in Sindh whereas the withholding agent
           (recipient of service) is registered in Punjab and is liable to withhold sales tax and pay the
           same to Government of Punjab.
           Although, we have noted some improvements in the coordination between the revenue
           authorities, investors’ concerns continue, as the issue of levy of sales tax at 'origination'
           and 'termination' of service in both the provincial legislations on services has still not been
           resolved.
           Section 60A and 60B of the Income Tax Ordinance, 2001 has not been amended to allow
           contribution to Provinces in respect of WWF and WPPF.
Recommendation
In line with International and Regional practices a uniform service tax law may be drafted
and agreed upon by the tax authorities of the Provinces and Federal Government, for
implementation in their respective jurisdiction. Furthermore, a uniform tax return may
also be introduced for the taxpayers.

The above points can be addressed by taking the following four steps which will lead to
effective management and expansion of the tax base:

     I.     A policy board comprising of the Chairmen of the Federal and Provincial revenue
            authorities (FBR, PRA, KPRA, BRA and SRB) should be formed to ensure
            synchronization of the policies, standard tax rates, basis of apportionment of
            revenues and removal of all anomalies/ conflicts between the laws of the different
            revenue boards (for example issues of jurisdiction, sales tax on toll manufacturing,
            clarity on jurisdiction and deductibility of WPPF/WWF expenses paid to the
            provinces).

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 II.     Revenue authorities should decide the basis of levy of indirect tax, which can be
         ORIGINATION or TERMINATION, to establish jurisdiction of taxation of services;

III.     To promote transparency and uniform interpretation, a ‘Standard schedule’ should
         be introduced covering all services along with standard Tariff Headings and
         Standard definitions. The standard schedule should be adopted by all provinces
         and Islamabad Capital Territory while levying sales tax on services in their
         respective jurisdictions

IV.      One return may be filed with identification of provincial head of account and direct
         deposit of share of tax of each province.

 V.      PRA should take up with FBR for appropriate amendment in IT Ordinance, 2001 to
         ensure that payments made to the provincial tax authorities on account of WWF
         and WPPF are allowed as tax deductible expense.
Rationale or Benefit
             Duplicate taxation is causing hardships to taxpayers and has given rise to unnecessary
             litigations and is one of the deterrents in attracting FDI in Pakistan.

5.      Reduction in Sales Tax Rate
        OICCI commends the PRA for a number of steps introduced over the last few of years to
        streamline the sales tax on services structure, which has given a positive message to
        investors based in Punjab. However the sales tax rate continues to be very high – even in
        comparison to the sales tax rate on services in the other provinces: lower by 3%, in the
        province of Sindh and by 1% in the provinces of KPRA and BRA.

                                    Regional Sales Tax Rates
                                                                                          16%
                                                                12%          13%
                                      10%          11%
             7%           7%

        Thailand    Singapore    Indonesia    Sri Lanka   Philippines    Sindh        Punjab
                                                                        Revenue      Revenue
                                                                         Board       Authority

Recommendation
            As a first step the PRA sales tax rates on services should be aligned with the
             Sindh sales tax rate on services which is 13% and gradually reduced to 10%
             over the next three years, whilst the current rate should be maintained for
             unregistered entities. This reduction in rate will encourage the registration of
             the unregistered taxpayers to avail the benefits of input adjustment and will
             enhance documentation.

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          Subsequently, a study of the rates in the regional countries, with comparable
           economic parameters should also be done and sales tax rates be made more
           competitive.
           (A similar recommendation has also been given in the OICCI Taxation Proposals
           2018-19, submitted to FBR in respective of Federal Sales Tax)

6.    Input sales tax be allowed to Registered Persons on services chargeable at reduced
      rate of tax
      The second schedule of Punjab Sales Tax on Services Act, 2012 prescribes the following
      services to be charged at reduced rate of tax and does not allow the recipient of such
      services to claim input tax.
      Service Description                                                 Applicable rate
      Inter-city transportation services                                       15%
      Franchise Services                                                       10%
      Construction Services                                                     5%
      Travel agents                                                             5%
      Tour operators                                                            5%
      Legal practitioners and consultants                                       5%
      Accountants and auditors                                                  5%
      Tax consultants                                                           5%
Recommendation
           The law should be amended to allow input sales tax as adjustment to the payer
           and the recipient of such services, as allowed under the Sindh Sales Tax. Similar
           examples can be found in Federal Sales Tax law where reduced rate is
           applicable but input tax claim is available
Rationale or Benefit
           The non-claimable input sales tax increases the cost of doing business for the
           recipient of such services. The same practice is valid in case of sales tax charged on
           the sale of goods which falls under the umbrella of SRO 1125 i.e. leather, carpet, and
           sports textile products and SRO (I)/2009 on local supplies of sugar. Further, this rule
           is against VAT mode of taxation.

7.    Sales tax on reduced rates not allowed to be claimed
      Currently, there is restriction on claiming of sales tax on those services which have reduced
      rates under “Punjab Sales Tax on Services Act, 2012”. Furthermore, PRA has also increased
      number of services on which reduced sales tax rate is applicable, increasing the number
      and amount of sales tax which is not claimable.
Recommendation
      Amendments to be made in provincial laws to allow claim of input sales tax,
      regardless of the fact that the rate specified is full rate or reduced rate, as claiming
      input sales tax is basic feature of VAT mode of taxation.

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Rationale or Benefit
      This is in contradiction of VAT principles on the basis of which Sales tax laws were
      introduced in Pakistan.
      Due to increase in list of services of reduced rates, cost of doing business has increased
      significantly as these payments, against nearly 25 services, are not claimable.

8.    “Reverse charge mechanism” and subsequent recovery by the taxpayer.
      [Section 4 of PSTSA]: The Provincial Statue provides that service provided by non-resident
      service provider is liable to tax under reverse charge mechanism i.e. in the hand of service
      recipient. A non-resident has been defined to mean a person who is not registered with the
      relevant provincial statute.
      Such a tax framework tantamount to double taxation, in case where service provider is
      located in other province of Pakistan as the service provider becomes liable to tax in his
      respective Province; while the recipient of service becomes liable to tax in the Province of
      his residence.
      Moreover, Provincial Statues do not allow registered services recipient to claim sales tax
      paid on reverse charge as input tax against their own name.
Recommendation
       Reverse charge should be restricted to such cases where service provider is located
       outside Pakistan. Further, tax paid under reverse charge mechanism should be
       allowed as input tax and for claiming input tax the requirement of tax invoice
       should be done away and input tax should be allowed on the basis of
       agreement/payment proof as well.
Rationale or Benefit
       To avoid double taxation, allow input tax and reduce cost of doing business.

9.    Exemption of Withholding Agents from deducting Sales Tax from payments to
      Registered persons and Reduction of rate for unregistered persons
      Withholding of sales tax from registered sales tax persons with PRA, does not provide any
      benefit and only creates hardships for genuine taxpayers of reconciliations and delay in
      adjustments. Similar to Federal Sales Tax law, exemption be given if payment being made
      to sales tax registered person against withholding sales tax.
      Withholding tax rules are applicable on active taxpayers also.
Recommendation
           The rate of withholding sales tax against the invoices of unregistered persons
           should be reduced to 1% in line with the FBR’s Withholding Sales Tax regime as
           applicable under SRO.660 (I)/2007.
           Withholding tax rules should not be applicable on active taxpayers.
Rationale or Benefit
           The withholding agents are unnecessarily burdened with deduction of sales tax which
           is not claimable as input tax and resulting in increasing their cost of doing business.

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               The purpose of withholding tax deduction is to ensure that non-active & non-
               registered taxpayers can be detected. Compliance burden of businesses can be
               reduced by exemption of deduction at source for active taxpayers. PRA allows similar
               provision [Rule 3 of Punjab Sales Tax on Services (Withholding) Rules, 2015].

10. Withholding Tax
        Under the Punjab Sales Tax Rules, all payments made for services received from unregistered
        persons, the service receiving company attracts withholding tax @ 16%. Under the current
        economic scenario, where the cost of doing business is very high, such requirement is draining
        out liquidity of businesses.
Recommendation
        The requirement for withholding sales tax on services provided by unregistered persons should
        be removed or brought in line with the provisions of Sales Tax Act 1990 whereby only 1% tax
        needs be withheld on purchases from unregistered person.

11. Elimination of PST withholding for all registered persons
      As per rule 5 of the Punjab Sales Tax on Services (Withholding) Rules, 2015, withholding
      agent is required to withhold the whole amount of sales tax shown in the tax invoice issued
      by a registered person as service provider.
Recommendation
               It is suggested that withholding of sales tax on purchases from registered
               persons should be abolished after successful implementation of STRIVe.
Rationale or Benefit
               The real-time verification system introduced by PRA already covers risk of revenue
               leakages by non-compliant tax payers.

12. Reduction In Sales Tax On Telecom Services
      The high growth rates of cellular Industry in Pakistan have slowed down due to various
      reasons, including high taxation. Pakistan cellular industry is one of the highest taxed in the
      region. This has resulted in the relative decline in growth with consequential decrease in
      revenue.
      Currently over 70 million Pakistanis have access to transformative technologies, including
      mobile broadband. This increase in access is bringing wide-ranging benefits to the
      Pakistani economy and society which is boosting productivity and is supporting increased
      economic growth. However around 100M Pakistanis do not have access to mobile services,
      particularly in rural areas, resulting in Pakistan remaining below global and regional
      averages, in terms of subscriber penetration.
Recommendation
               The current sales tax rate on telecommunication services of 19.5% should be
               brought at par with the general sales tax rate on all other services in order to
               harmonize all sales tax on all services.

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Rationale or Benefit
               This will not only harmonize the tax rates and may also increase the tax collections by
               helping telecom operators tap lower income population of Pakistan.

13. Zero Rating for Pharmaceutical Inputs
      All pharmaceutical products are exempt from Sales Tax. Consequently any sales tax paid by
      pharmaceutical industry on goods or services purchased, can neither be passed on to the
      consumer nor can be claimed as input, and has to be absorbed by the manufacturers in
      their costs. It is resulting in increasing the cost of doing business, amidst already spiraling
      inflation, and frozen prices of finished products.
      This is also against the philosophy of sales tax which is supposed to be borne by the
      consumer.
Recommendation
               Services received by pharmaceutical industry should be zero rated.
Rationale or Benefit
               Since pharmaceuticals prices are controlled, sales tax paid on inputs can neither be
               added to the selling price nor separately charged.

14. Provincial Sales Tax on ‘toll manufacturing’
      Punjab and Sindh provincial governments are treating toll manufacturing activity as a
      ‘service’ and PRA has levied sales tax at the rate of 16 percent effective July 1, 2013.
      Notwithstanding the fact that toll manufacturing is not a ‘service’ and therefore outside the
      constitutional scope of Provinces to charge PST, such a levy has directly increased cost of
      doing business, especially for pharmaceuticals which are exempt from Federal Sales Tax. It
      may be noted that toll manufacturing activity, since inception of sales tax regime, has
      always been treated as ‘a manufacturing activity’. Since pharmaceutical and some other
      supplies are exempt from sales tax under the FST Act, no Federal Sales Tax was leviable
      under the FST Act. The position is further aggravated owing to the fact that prices of
      pharmaceutical products are regulated by Drug Regulatory Authority of Pakistan; therefore
      effect of such levy has to be borne by pharmaceutical company itself.
Recommendation
               “Toll manufacturing” should be deleted from the list of services, as taxable
               under the Federal Sales tax and will avoid double taxation.
Rationale or Benefit
               It will bring practice in line with the norm besides reducing cost of doing business.

15. Labour and Manpower Service
      “Labor and Manpower Services' have become an essential need of modern business. This
      business is operated with very low margins. Generally, service charge is based on
      percentage of salary / wage reimbursement of per hour of labour. These services are
      taxable at the rate of 16% in Punjab and 13% in Sindh.

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      Under the Punjab sales tax law, these services are chargeable to tax at the rate of 16% and
      taxable value is not allowed to exclude reimbursement of salary/ wage component. As a
      result, a very high cost is to be borne by the recipient. Salary/ Wage being a reimbursement
      cost is also taxed which is against the spirit of the law.
Recommendation
               It is suggested to amend the Punjab sales tax law in order to cater the aforesaid
               situation. Special procedure should be introduced for chargeability of sales tax
               on the services of 'labour and manpower'. These services are highly essential
               for conducting business and very strong support for enhancing employment
               opportunity in the province. Reimbursement is not revenue for service
               provider in any manner.

16. Joint and several liability of registered persons where tax is unpaid:
    [Section 19 of PSTSA]: The Provincial Statutes stipulate that where a registered person,
    receiving a taxable service from another registered person, is in the knowledge of or has
    reasonable grounds to suspect that some or all of the tax payable in respect of that taxable
    service or any previous or subsequent taxable service provided would go unpaid, such
    person as well as the person providing the taxable service shall be jointly and severally liable
    for payment of such unpaid amount of tax.
Recommendation
               The provision should be aligned with Section 8A of STA. Accordingly, the burden
               to prove that the service provider and service recipient acted in connivance,
               should rests upon the tax authorities.
Rationale or Benefit
               To bring harmony among federal and provincial sales tax laws.

17. Certificate By The Auditors
      [Section 31(5) of PSSTA]: The registered service providers, whose accounts are subject to
      audit under the Companies Ordinance 1984, are required to submit a copy of the annual
      audited accounts along with a certificate by the auditors certifying the payment of the tax
      due and any deficiency in the tax paid by the registered person.
Recommendation
               The condition for provision of certificate by the statutory auditors should be
               done away with. Instead, special audits may be conducted by the revenue
               authorities through special auditors, wherever desired, under the existing
               provisions of provincial sales tax laws.
Rationale or Benefit
               With the current scope of statutory audit, the auditor cannot certify the payment of
               the sales tax due and any deficiency in the tax paid by the registered person.

18. Tax Exemptions For Social Cause
      Under STA, sales tax exemption is available on certain goods / areas which directly concern
      the common man or which are basic commodities and service for every livelihood.
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      Accordingly, agricultural produce, medicines and medical equipment, food, machinery
      supplied to certain social organization, goods supplied to hospitals run by the Federal or
      Provincial Governments, etc. are exempt from sales tax.
Recommendation
               In line with Federal Government’s policy to exempt social areas from Federal
               sales tax, the chamber recommends that services provided in / to such sectors
               should also be exempted.
Rationale or Benefit
         To remove inequality in provincial sales tax laws.

19. Admissibility of Input Sales Tax on Advertisement
      As per Rule 13(2) of Punjab Sales tax on services (withholding) Rules, no adjustment or
      credit shall be admissible to the persons registered under the Act in case the tax is
      deducted or withheld and paid in respect of advertisement services”.
Recommendation
               Rule 13(2) should be abolished from the withholding Rules by giving the legal
               right to claim of input tax to service provider in respect of advertisement
               services.
Rationale or Benefit
               This is a legal right of the tax payer to claim input tax paid on providing taxable
               services. Moreover, the bar imposed through Rule 13(2) looks more like an anomaly
               as no such bar is imposed in the PST Act or The Punjab Sales Tax on Services
               (Adjustment of Tax) Rules 2012 and primarily it is against the VAT mode of taxation.

20. Exemption of Capital Value Tax for Islamic Banking Institutions
      The Federal [Provincial]* Government may, by notification in the official Gazette, exempt
      any person or class of persons or assets or class of assets from the Capital Value Tax. [Sub-
      section (10) of section 7 (10)]
      * After Eighteenth Constitutional Amendment, CVT has become provincial subject
      (reference is made to Circular No. 3 of 2012 issued under Finance Act, 2012).
Recommendation
               Under sub-section (10) of section 7 of the Finance Act, 1989, the Provincial
               Government may issue a suitable notification to be published in official gazette.
               “The sale or purchase of immovable property by the banks or financial
               institutions under any Islamic mode of financing approved by the State Bank of
               Pakistan or the Securities and Exchange Commission of Pakistan shall be
               exempt from the levy of Capital Value Tax.”
Rationale or Benefit
               The registration of sale of property is subject to stamp duties, registration fees, capital
               value tax and town taxes which approximately comes to 6% of the sale value, which
               has a significant impact on cost of doing business.

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21. Valuation of Franchise Services on Beverage Companies
      [Rules 57(2) of the Punjab Sales Tax on Services (Specific Provisions) Rules, 2012]
Recommendation
          This provision should be deleted “Where franchiser is a foreign or local beverage
          company and there is no proper or formal agreement between franchiser or
          franchisee, the assessable value for the purpose of levy of the tax shall be payable
          on the value of concentrate or syrup or similar input material supplied by the
          franchiser to the franchisee.”
Rationale or Benefit
               The value of concentrate (which is a good) cannot possibly be taken to be the whole
               value of services. It is not only double taxation but unconstitutional that a good be
               taxed twice.
22. Input of sales tax against capital goods should be allowed in respective month
    instead of 12 equal monthly installments.
      As per Section 16C of the Punjab Sales Tax on Services Act, 2012, the claim of input tax
      against acquisition of capital goods, machinery and fixed assets classified under Section XVI
      Chapter 84 and 85 of the First Schedule to the Customs Act, 1969 is adjustable against
      output tax in 12 equal monthly installments.
Recommendation
               Input tax claim should be allowed in the respective month instead of 12 equal
               monthly installments.
Rationale or Benefit
               It will reduce the disputes which may arise due to deferment of input tax since it is
               not possible for taxpayers to keep the track of deferment. Furthermore, the benefit of
               this change for PRA is temporary as the whole amount will be claimed by taxpayer
               ultimately.

23. Exemption be restored from PST on life and health insurance
      Life insurance / health policy is not a service, rather it is an underwriter’s promise to pay
      to the policy holder in the future, a specified sum of money, either on occurrence of an
      identified event or on maturity of the policy. The exemption earlier allowed was withdrawn
      w.e.f. November 1, 2018.
Recommendation
               It is recommended that both, life insurance and health insurance, which do not
               fall within the scope of definition of service, should be permanently included in
               the list of exempt of exempted services.

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PROCEDURAL AND STRUCTURAL PROPOSALS

24. Active Taxpayer List (ATL) be Provided In Excel
      Under the income tax regime, the FBR provides list of ATL in excel form. This provides ease
      to the WHT agent to verify the status of tax payer. Such documents also became a
      reference/ supporting documents in case any dispute arises with the FBR / suppliers on
      the status of the tax payer.
Rationale or Benefit
               Currently no such facility is available for PST registered person which should be
               provided on PRA portal.

OTHER LEVIES

25. Exemption to Banking Companies on transactions under Islamic mode of financing
      [Section 9A of the Stamp Act 1899]: Power of Provincial Government to exempt certain
      instruments– The Provincial Government may by [notification in] the official Gazette,
      generally exempt from payment of the whole or any part of the duties on any instrument
      executed by or in favor of a banking company in the normal course of its banking business.
      Explanation– For the purpose of this Section, “Banking Company” shall have the same
      meaning as in the Banking Tribunals Ordinance, 1984
      [Sub-section 2 of section 14 of Stamp Act 1899]: (2) ‘Instrument’ includes every document
      by which any right or liability is, or purports to be, created, transferred, limited, extended,
      extinguished or recorded.
      New legislation to be drafted in the light of below comments:
      “The registration of sale or purchase of immovable property by banks or financial institutions
      under any Islamic mode of financing arrangement approved by State Bank of Pakistan or
      Securities and Exchange Commission of Pakistan shall be exempt from the levy of registration
      fee, stamp duty, district, municipal or town taxes or any other related taxes.”
      Explanation: In case of sale or purchase of immovable properties by banks or financial
      institutions for the purpose of extending finance under Islamic modes to their clients, the
      registration fee, stamp duties, district, municipal or town taxes, etc. shall be levied once and
      not twice. Whereas in case of sale and lease back contracts, no stamp duty etc. shall be
      levied both at the time of purchase of immovable property by the bank or Special Purpose
      Vehicle created for the purpose and sale back at maturity of the financing contract.
      Special Purpose Vehicle means a Special Purpose Vehicle as defined in the Asset Backed
      Securitization Rules, 1999.
      Exemption of duties under Stamp Act 1899
      In order to ensure tax neutrality for Islamic Banking Institutions as well as fulfilling the
      registration requirements with regard to sale/purchase of immovable property under the
      Registration Act, 1908, the provincial governments may be requested to exempt the
      registration of sale/purchase of immovable properties for the purpose of extending

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OICCI TAXATION PROPOSALS (2019-20) – PUNJAB PROVINCIAL LEVIES

      financing facilities under Islamic modes of financing by IBIs. Section 9A of Stamp Act 1899
      empowers the provincial governments to do the needful, as proposed.
Recommendation
               We strongly believe that such exemptions should also be provided on Islamic
               financing transaction involving transfer of immovable property in Pakistan so
               that it may act as the necessary stimuli for facilitation of Islamic banking in the
               country and the Islamic financial institutions can have a level playing field.
               Accordingly, provincial government is requested to issue the proposed
               SRO/notification in the official gazettes.
Rational or Benefit
               In order to facilitate Islamic financing transaction involving transfer of immovable
               property, developed countries such as Malaysia and United Kingdom have specifically
               allowed exemption to Islamic financing transaction from such levies. Whereas, in
               Pakistan the sale/purchase of immovable property by IBIs is subject to stamp duties,
               registration fees, capital value tax and town taxes which approximately come to 6% of
               the sale value. These taxes consequently render transactions involving transfer of
               immovable properties for Islamic financing purposes unviable. This issue was even
               faced in issuing GOP Sukuks.

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