Tag: Federal Board of Revenue

  • Track and trace system failure threatens Pakistan’s tobacco industry

    Track and trace system failure threatens Pakistan’s tobacco industry

    Amid the increase in trade of non-duty-paid cigarettes, representatives from the Pakistan Tobacco Company (PTC) on Monday expressed profound apprehensions regarding the sustainability of their business.

    They attributed their concerns to ‘inappropriate’ policy measures.

    The recently released data from the Pakistan Bureau of Statistics (PBS) Large Scale Manufacturing (LSM) Index unveiled a significant and alarming trend within the legitimate tobacco sector.

    According to the report, the production of the legitimate tobacco sector experienced a forty-fold decline compared to the overall LSM output between July 2023 and November 2023.

    Interestingly, despite this decline, the consumption of cigarettes has remained stagnant.

    This troubling trend highlights the adverse impact of policy decisions that disproportionately affect the legitimate tobacco industry.

    The representatives emphasised the necessity for a comprehensive and balanced approach to ensure a level playing field for the sector, ultimately securing its long-term sustainability.

    Despite the implementation of a Track and Trace System (TTS), the representatives pointed out the rising incidence of fake stamps being affixed to counterfeit packs of leading cigarette brands.

    According to APP, Qasim Tariq, Senior Business Development Manager, revealed that approximately 850 million counterfeit cigarette sticks are currently being sold across Pakistan, resulting in a substantial loss of around Rs5.7 billion.

    This rise in counterfeiting raises serious questions about the efficacy of the much-lauded track and trace system, which is yet to be implemented across local cigarette manufacturers in Pakistan and Azad Jammu and Kashmir (AJK).

    The representatives urged law enforcement agencies (LEAs) to conduct extensive enforcement at the retail level to tackle this growing menace.

    Additionally, the representatives expressed concerns about a recent misleading report circulating in the media regarding missed revenue collection by the Federal Board of Revenue (FBR).

    They refuted the claims in the report, stating that they are not only false but also raise questions about the intentions behind publishing such information.

    The report suggested that the illicit sector is less than 10 per cent across Pakistan, contradicting the FBR’s claim of illicit trade being over 36.5 per cent for the period in question.

    Furthermore, the report alleged that government revenue declined due to fiscal changes in the excise structure but failed to present the complete picture.

    The representatives clarified that from 2012–16, the government switched to a 2-tier structure from a 3-tier structure, causing revenues to fall by more than 25 per cent.

    The subsequent increase in excise in 2015-16 led to illicit trade hovering close to 50 per cent of the market. To combat this, the government reintroduced a 3-tier system, increasing revenues by more than 40 per cent and discouraging the illicit cigarette trade.

    The representatives emphasised the need for an extensive government-led national anti-illicit trade strategy, effective fiscal measures, and strict enforcement against illicit trade across the value chain, with a key focus on the retail level.

  • FBR surpasses Rs1 trillion tax collection milestone in December

    FBR surpasses Rs1 trillion tax collection milestone in December

    In a historic achievement, the Federal Board of Revenue (FBR) announced the unprecedented collection of over Rs1 trillion in December, marking the first instance of such a milestone, as per a press release issued today.

    Furthermore, the FBR has set a new record by collecting Rs4.468 trillion in the initial six months of Fiscal Year 2024, indicating a notable increase of over Rs1 trillion when compared to the Rs3.43 trillion collected during the same period in FY23.

    Remarkably, the FBR has surpassed its targeted collection for the first half of FY24, which was initially set at Rs4.425 trillion. The government’s ambitious projection for the entire fiscal year stands at Rs9.415 trillion.

    Despite challenges such as the issuance of Rs230 billion in refunds, up from Rs177 billion in the corresponding period of the previous year, and sustained import compression, the FBR continues to face obstacles in revenue collection at the import stage.

    Traditionally, the revenue mix at the import stage and domestic taxes had a 50:50 ratio. However, this balance has shifted to 36:64, with the FBR mitigating the impact of import compression by generating more revenue domestically.

    The ratio of direct to indirect taxes has also experienced a shift, with the share of direct taxes increasing to 49 per cent in the first six months.

    Notably, in December alone, direct taxes accounted for 59 per cent, marking a 41 per cent increase in the first six months compared to the previous year.

    Within the category of direct taxes, the FBR has reduced the share of withholding taxes from 70 per cent to 55-58 per cent over the past two years. Remarkably, the share of withholding taxes reached as low as 40 per cent in December 2023.

    It’s worth noting that the FBR had achieved a Rs1 trillion annual collection back in 2007-08, a milestone that took 50 years to accomplish.

    In contrast, the FBR has achieved a comparable feat within a single month after 15 years, underscoring the relentless efforts, unwavering dedication, and hard work demonstrated by the field formations and top leadership of the FBR.

  • FBR restructuring: 145 offices set up to add 2 million new taxpayers

    FBR restructuring: 145 offices set up to add 2 million new taxpayers

    In a bid to streamline operations, the Federal Board of Revenue (FBR) has set up 145 district tax offices, aiming to bring in 1.5 to 2 million new taxpayers by June 2024. 

    Highlighting the significance of revenue and the need to increase the number of tax filers, the Prime Minister also stressed these goals in recent meetings.  

    The initiative is geared towards expanding the tax base, ultimately achieving the desired tax-to-GDP ratio. 

    Heading these offices are district tax officers responsible for compelling income tax returns from non-filers and preventing lapses from existing filers.  

    This marks a pivotal step in bridging the critical tax gap and incorporating all potential taxpayers into the system. 

    The newly established offices, led by dedicated Inland Revenue Officers in BS-17/18, will leverage third-party data obtained from various departments to track information on asset investments and significant expenditures by potential taxpayers.   

    This approach aims to curtail avenues for individuals evading taxation, particularly in terms of registration and filing returns. 

    The department will invoke the recently introduced Section 114B in the Income Tax Ordinance, 2001, to enforce compliance, enabling it to disconnect utility connections (such as electricity and gas) and block mobile SIMs if returns are not filed in response to issued notices. 

    A new documentation law is also in the works to mandate agencies and departments to provide data to the FBR through an automated common transmission system. 

    The Federal Board of Revenue has sought collaboration with the National Database and Registration Authority (NADRA), and the Chairman of NADRA is ensuring assistance for the expansion of the tax base through data integration. 

    This comprehensive initiative not only strengthens the FBR’s capacity to enforce tax laws but also facilitates taxpayers by establishing dedicated offices, ultimately fostering a more efficient and effective taxation system. 

  • FBR restructuring: Govt plans to separate Customs and revenue collection system

    FBR restructuring: Govt plans to separate Customs and revenue collection system

    Caretaker Finance Minister Dr Shamshad Akhtar has announced that the government is implementing significant restructuring measures within the Federal Board of Revenue (FBR) to eliminate apparent conflicts of interest in tax collection and enhance overall performance. 

    Speaking at the Future Summit organised by the Nutshell Group, she outlined the action plan for restructuring Pakistan’s tax administration, emphasising the crucial aspect of strengthening the internal governance of the FBR. 

    One notable decision involves separating customs from the revenue collection mechanism. Customs will focus on tracking smuggling and related activities, while revenue collection will remain the exclusive mandate of the FBR. 

    Akhtar noted that a formal notification for this change will be issued next week, with additional notifications expected for further FBR restructuring initiatives. 

    Discussing FBR reforms, Akhtar highlighted the adoption of innovative digital technologies to broaden the tax base, minimise the tax policy and compliance gap, and increase tax collection. 

    The government aims to reduce the share of the shadow economy by more effectively identifying non-filers and those under-reporting incomes or business activities. 

    Furthermore, Akhtar revealed plans to separate the tax policy and revenue division, making it an independent entity reporting directly to the Minister of Finance. 

    According to Brecorder, this move aims to eliminate perceived conflicts of interest in tax collection, emphasising the need for fair, equitable, and productive tax policy design. 

    Collaboration with the National Database and Registration Authority (NADRA) is also underway to upgrade data systems, with a technical committee chaired by NADRA and FBR chairpersons established for this purpose. 

    The overall objective is comprehensive tax administrative reforms and increased efficiency in revenue collection. 

  • World Bank reverses suggestion to tax Pakistanis earning below Rs50,000 

    World Bank reverses suggestion to tax Pakistanis earning below Rs50,000 

    The World Bank has retracted its previous recommendation to include individuals earning less than Rs50,000 in the tax system. This reversal comes as the Federal Board of Revenue (FBR) reports that the salaried class has outperformed exporters and the real estate sector in tax contributions over the last three months. 

    The World Bank clarified its stance, stating that it does not endorse reducing the existing nominal tax threshold. The initial suggestion may have been misleading, according to their spokesperson. The organisation now acknowledges that their recommendation was based on 2019 data and should be updated to account for the recent surge in inflation rates and changes in the labour market to safeguard the interests of low-income groups. 

    The World Bank’s previous analysis, which used 2019 data, indicated the potential for a lower tax exemption threshold for salaried individuals within a reformed income tax structure. However, this analysis needs to be revised to reflect current economic conditions. The goal is to ensure that low-income earners are not adversely affected. 

    The World Bank also noted that their recommendation in the Pakistan Development Update (PDU) should have been more explicit about the necessity for new analysis using up-to-date data to inform tax reform decisions. 

    In addition to these points, the Washington-based lender reiterated its suggestion for comprehensive tax reforms aimed at creating a more progressive tax system and placing a greater tax burden on higher-income individuals.

    According to The News, these reforms would involve reducing subsidies, eliminating regressive tax exemptions, and increasing taxation for individuals with higher incomes. The World Bank also recommended improvements in the taxation of agriculture, property, and retail sectors. 

    The statement from the World Bank emphasised that any adjustments to tax thresholds should be based on recent survey data and designed to protect the income levels of those with lower earnings. 

    The initial World Bank suggestion had raised concerns among individuals earning Rs50,000 or less, who are currently exempt from direct taxes. These concerns were driven by the backdrop of soaring inflation and an increased cost of living that has placed significant strain on this income group. 

  • Largest money laundering scandal: FBR exposes Rs47 billion trade-based fraud 

    Largest money laundering scandal: FBR exposes Rs47 billion trade-based fraud 

    The Federal Board of Revenue (FBR) in Pakistan has uncovered a massive case of money laundering and under-invoicing in the trade industry, making it one of the country’s biggest financial scandals. 

    Following a thorough investigation by auditors, the FBR took legal action against two companies based in Peshawar. They found that these companies were involved in a staggering money laundering operation worth Rs47 billion, which they officially termed ‘trade-based money laundering.’ 

    According to the FBR’s report, these companies allegedly caused a massive financial loss of Rs25 billion to the national exchequer by under-invoicing transactions, all under the guise of dealing with solar panels. 

    In the FIR, the owners of these companies, Moon Light Traders and Bright Star, were named as suspects. The report revealed that Bright Star had been involved in under-invoicing since 2013, while auditors scrutinised records of 705 Goods Declarations (GDs) related to Moon Light Traders. 

    Furthermore, it was discovered that these companies continued their money laundering activities from 2017 to 2022. According to ARY News, the FBR promptly shared its report on trade-based money laundering and under-invoicing with the Caretaker Prime Minister, Anwaarul Haq Kakar. 

    In a separate incident in September, the FBR exposed a massive tax fraud worth Rs314 billion perpetrated by a fictitious company called K H & Sons. This fraud was uncovered by the Director-General of Internal Audit at Inland Revenue’s team. 

    Interestingly, K H & Sons was a paper company registered under the name of a Benami individual, Muhammad Kashif. Their fabricated documents falsely claimed to be in the iron and steel business, using addresses of legitimate markets like Liaquat Market, Agri Market, and M.A. Jinnah Market. 

    Sources also revealed that this bogus company was used for various illegal activities. What’s surprising is that despite the large-scale tax fraud, the FBR had not taken legal action against the culprits, leading to concerns that they might flee the country if a First Information Report (FIR) was not filed promptly. 

  • Banks will now pay 10% super tax if their earnings exceed Rs30 crore

    Banks will now pay 10% super tax if their earnings exceed Rs30 crore

    The Federal Board of Revenue (FBR) has announced important amendments to the Income Tax Ordinance, 2001 through Finance Act 2023, bringing significant changes to the Super Tax structure. According to the latest income tax circular (2 of 2023), banks will now be required to pay a 10 per cent Super Tax if their income exceeds Rs300 million.

    The Super Tax was initially introduced through the Finance Act of 2022, imposing graduated tax rates ranging from 1 per cent to 4 per cent on income slabs starting from Rs150 million to Rs300 million and above. Certain specified business sectors were subject to a higher Super Tax rate of 10 per cent if their income surpassed Rs300 million.

    New Super Tax slabs

    To enhance the scope of the Super Tax and ensure progressivity and uniformity in the tax rate structure, the Finance Act 2023 has introduced additional income slabs. These new slabs are as follows: Rs350 million to Rs400 million, Rs400 million to Rs500 million, and Rs500 million and above, with corresponding Super Tax rates of 6 per cent, 8 per cent, and 10 per cent, respectively. These new Super Tax rates will apply to all taxpayers across the board for the Tax Year 2023 and beyond.

    Addressing a significant concern, the Finance Act 2023 has also clarified the payment procedure for the Super Tax. The ambiguity surrounding whether the Super Tax under section 4C of the Ordinance should be paid as a lump sum at the time of filing income tax returns or in monthly/quarterly installments of advance tax under section 147 of the Ordinance has been resolved.

    The introduction of a new sub-section (5A) in section 4C now requires Super Tax liability to be paid in conjunction with monthly/quarterly advance tax installments, depending on the taxpayer’s circumstances. Corresponding amendments have been made in section 147 of the Ordinance to facilitate this process.

    This move is aimed at broadening the scope of the Super Tax and making it a more progressive and comprehensive tax measure. The FBR expects these changes to contribute significantly to the country’s revenue collection efforts while ensuring a fair and equitable tax system for all taxpayers.

  • FBR misses July 2023 revenue target by Rs2 billion, collecting Rs532 billion in taxes

    FBR misses July 2023 revenue target by Rs2 billion, collecting Rs532 billion in taxes

    The Federal Board of Revenue (FBR) has announced that the tax revenues collected for the month of July 2023 amounted to Rs532 billion, slightly falling short by Rs2 billion of the target set for this period.

    This figure reflects a noteworthy increase of 15 per cent year-on-year, compared to the Rs462 billion collected in July 2022.

    However, when examining the data on a monthly basis, there was a significant decline of 43.52 per cent as the tax revenue for July 2023 dropped compared to the Rs942 billion collected in the previous month.

    Looking ahead, the government has set a revenue collection target of Rs9.415 trillion for the fiscal year 2023-2024.

     It is worth recalling that in the previous fiscal year 2022-2023, the FBR failed to meet its annual budgetary collection target by approximately Rs522 billion, as it collected Rs7.118 trillion by June 27, 2023, in contrast to the projected amount of Rs7.64 trillion for the entire fiscal year.

  • We’re not shocked: Salaried class pays 200% more tax than exporters, retailers

    We’re not shocked: Salaried class pays 200% more tax than exporters, retailers

    In the fiscal year 2022-23, Pakistan’s salaried class emerged as the leading contributor to the nation’s income tax, making a substantial contribution of Rs264.3 billion. Astonishingly, this amount was nearly 200 per cent higher than the combined income tax paid by the country’s exporters and largely undertaxed retailers.

    Data collected and released by the Federal Board of Revenue (FBR) unveiled that salaried individuals paid a total of Rs264.3 billion in taxes during the fiscal year, marking an impressive increase of over Rs75 billion or 40 per cent compared to the previous year. This rise was attributed to the imposition of up to a 35 per cent tax rate on their earnings.

    Ranked as the fourth-largest contributor to withholding taxes, following contractors, bank depositors, and importers, the salaried class has faced increased taxation in the latest budget. Despite grappling with this added burden alongside historically high inflation rates, the government once again raised taxes on salaried individuals earning more than Rs200,000 per month in the recent budget. In a surprising move, around 5,000 retailers were relieved from stricter registration conditions.

    It is noteworthy that during the preceding fiscal year, the FBR managed to collect over Rs2 trillion through withholding taxes, accounting for 61 per cent of the total income tax generated in the same period. However, concerns were raised over the ease of collecting withholding taxes, especially from non-filers at double rates, which has become a reliable revenue source for the FBR.

    The Salaried Class Alliance expressed apprehension over the prioritisation of additional taxation on existing taxpayers while allowing the informal sector to thrive. The highest income tax collections came from contractors, savings account holders, importers, salaried individuals, non-filers’ electricity bills, telephone & mobile phone users, and dividend income. According to Express Tribune, other significant contributors included taxes on property transactions, exports, foreign income fees, brokerage commissions, and car registrations.

    Comparatively, provisional figures revealed that exporters and retailers combined paid Rs175 billion less in taxes compared to the salaried class. Despite earning $27.7 billion during the last fiscal year, exporters contributed only Rs74 billion in taxes. Although their tax contribution increased by 17.4 per cent from the previous year, it did not match the rise in their income in rupee terms. Retailers, subject to a 0.5 per cent advance tax on sales, contributed a mere Rs15.6 billion, reflecting the lowest contribution among income groups. Surprisingly, despite accounting for approximately 19 per cent of the economy, retailers and wholesalers only contributed 0.4 per cent to the total income tax collection.

    The approach of the International Monetary Fund (IMF) came under criticism for disproportionately burdening the salaried class, which lacks representation in the corridors of power, unlike exporters and retailers.

    Lastly, tax collection from contractors and service providers reached an impressive Rs391 billion in the last fiscal year, marking the largest single-income tax collection head over which the FBR has no control. Additionally, profits on debt witnessed a remarkable 106 per cent increase, amounting to Rs320 billion, reflecting higher interest rates and increased savings. Importers also contributed significantly, paying Rs290 billion in income tax on various types of imports, ranking as the third-largest contributor to withholding taxes.