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