06-08-2006, 02:07 AM
Budget proposals ICAP for abolishing scheme of whitening untaxed money
The Institute of Chartered Accountants of Pakistan (ICAP) has suggested the Central Board of Revenue (CBR) that scheme of whitening of untaxed money should be abolished.
ICAP President Shabbar Zaidi, while presenting ICAP's pre-budget proposals for 2006-07 during tax meeting, said the scheme of whitening of untaxed money under section 111-4 of the Income Tax Ordinance 2001 should be replaced with a well-defined and transparent scheme to eradicate money laundering, according to statement of ICAP on Saturday.
Shabbar said a plan be instituted to replace this whitening of untaxed money scheme, which must be ended on July 1, 2007.
Rules should be devised as to which remittance would be exempted from scrutiny subject to evidence, he said and added if the system was continued, then as a transitional measure, say for five years, exemption needed to be limited to funds invested in plant and machinery and productive business assets.
The meeting presented the following suggestions
To provide incentives to listed companies, concession in corporate tax rate should be provided to distinguish them from unlisted companies. Tax rate for listed companies should be reduced from 35 percent to 30 percent.
Holding company should be given exemption from double taxation because there is no such tax in any other county.
On inter-corporate dividend, instead of charging final tax, there should be withholding tax adjustable against final liability. Tax credit on dividend distribution by listed companies, on specified scale basis be introduced as this may help in improving savings and investments.
For example, a listed company distributing dividend of not less than 30 percent should get a tax credit of 5 percent.
For the promotion of amalgamation of companies, like India and other countries, it should not be considered a disposal of asset and a specific provision to this effect is required under our tax laws to avoid ambiguity.
A section be provided that all transactions being Islamic mode of financing to be taxed and treated by considering the substance of transaction irrespective of the form.
To promote and encourage export of services, it is suggested that services rendered by resident person to a foreign company located outside Pakistan should also be given concession in the form of exemption in tax.
TAX ON CAPITAL GAINS The Institute has presented special section on capital, which are as followed
In principle there should not be any exemption of capital gains.
Separate slab tax rate card be introduced for capital gains taxation based on the period of holding and nature of capital asset.
Capital gains on capital asset, held as long-term investment, may be provided exemption say over 5-years.
A principle of indexation of cost be provided with reference to cost of share. This concept should be introduced for all capital gains. However, there is an imperative need for foreign shareholders.
Expenses incurred through cash payments be discouraged. CBR Circular in this regard be withdrawn. Income tax laws should be brought in line with section 73 of the sales tax act 1990.
ICAP has suggested that provincial capital gains tax on the sale of immovable properties with the federal government to act as withholding tax agent be reintroduced with following parameters
Provincial capital gain tax with a low rate be introduced. This should include the sale of plots/ houses. This process could apply in the same manner as provincial sales tax on services. Corporate sector may be allowed credit for such taxes paid.
To treat gains as business income number of transactions by a person in a specified period be specified.
As a matter of recognition of tax payment CBR should introduce a valued customer's card, associating certain privileges, to all persons who have paid taxes above a certain limit.
As a policy by way of specific section in the law CBR should have powers to substitute the import price for the levy of withholding at import stage irrespective of custom valuation.
There must be separate schedule in income tax ordinance for enterprises in the financial sector.
For example at present there is no specific detailed mechanism for the determination of bad debts in the case of a bank. Lack of this mechanism effects both sides.
FOR PRESENT DOUBLE TAXATION OF EXCESS PERQUISITES ICAP HAS SUGGESTED THAT
Section 21-K should be made applicable where perquisites and allowances are exempted in the hands of employees and not in the case of all employees.
Appropriate amendments be made in section 21-K to render only such expenditure inadmissible in the hands of employers, which have been claimed as deduction, rather treating notional or other amounts which are taxable in the hands of employees but not claimed as deduction by the employers.
TAXATION OF NON-RESIDENT CONTRACTORS Sub-section 1 and 3 of section 153 of income tax ordinance have overlapped situation in the case of execution of a contract by non-resident person, which creates ambiguities.
In order to remove anomaly, it is suggested that sub-section 1 should be made applicable on payments to resident person, whereas sub section 3 be modified and made applicable to non-resident persons only.
The definition of permanent establishment provided in section 2-41 of income tax ordinance should be brought in line with international taxation laws, especially OECD Model treaty by providing time limitations in open-end situations like buildings sites, presence of employees.
Clause 99 of income tax ordinance provides exemption to mutual funds on distribution of 90 percent profit for the year, excluding capital gains, realised or unrealised. Exclusion of capital gains has resulted in low distribution of profits by the mutual funds. It is, therefore, suggested to exclude only unrealised gains from the profits.
There must be distinction between services rendered and execution of contract and rules be prescribed for determining the nature of a composite contract.
Government contractors be taxed on normal basis and specific rules be prescribed for determining net income from such contracts. This would also encourage small companies.
The Institute of Chartered Accountants of Pakistan (ICAP) has suggested the Central Board of Revenue (CBR) that scheme of whitening of untaxed money should be abolished.
ICAP President Shabbar Zaidi, while presenting ICAP's pre-budget proposals for 2006-07 during tax meeting, said the scheme of whitening of untaxed money under section 111-4 of the Income Tax Ordinance 2001 should be replaced with a well-defined and transparent scheme to eradicate money laundering, according to statement of ICAP on Saturday.
Shabbar said a plan be instituted to replace this whitening of untaxed money scheme, which must be ended on July 1, 2007.
Rules should be devised as to which remittance would be exempted from scrutiny subject to evidence, he said and added if the system was continued, then as a transitional measure, say for five years, exemption needed to be limited to funds invested in plant and machinery and productive business assets.
The meeting presented the following suggestions
To provide incentives to listed companies, concession in corporate tax rate should be provided to distinguish them from unlisted companies. Tax rate for listed companies should be reduced from 35 percent to 30 percent.
Holding company should be given exemption from double taxation because there is no such tax in any other county.
On inter-corporate dividend, instead of charging final tax, there should be withholding tax adjustable against final liability. Tax credit on dividend distribution by listed companies, on specified scale basis be introduced as this may help in improving savings and investments.
For example, a listed company distributing dividend of not less than 30 percent should get a tax credit of 5 percent.
For the promotion of amalgamation of companies, like India and other countries, it should not be considered a disposal of asset and a specific provision to this effect is required under our tax laws to avoid ambiguity.
A section be provided that all transactions being Islamic mode of financing to be taxed and treated by considering the substance of transaction irrespective of the form.
To promote and encourage export of services, it is suggested that services rendered by resident person to a foreign company located outside Pakistan should also be given concession in the form of exemption in tax.
TAX ON CAPITAL GAINS The Institute has presented special section on capital, which are as followed
In principle there should not be any exemption of capital gains.
Separate slab tax rate card be introduced for capital gains taxation based on the period of holding and nature of capital asset.
Capital gains on capital asset, held as long-term investment, may be provided exemption say over 5-years.
A principle of indexation of cost be provided with reference to cost of share. This concept should be introduced for all capital gains. However, there is an imperative need for foreign shareholders.
Expenses incurred through cash payments be discouraged. CBR Circular in this regard be withdrawn. Income tax laws should be brought in line with section 73 of the sales tax act 1990.
ICAP has suggested that provincial capital gains tax on the sale of immovable properties with the federal government to act as withholding tax agent be reintroduced with following parameters
Provincial capital gain tax with a low rate be introduced. This should include the sale of plots/ houses. This process could apply in the same manner as provincial sales tax on services. Corporate sector may be allowed credit for such taxes paid.
To treat gains as business income number of transactions by a person in a specified period be specified.
As a matter of recognition of tax payment CBR should introduce a valued customer's card, associating certain privileges, to all persons who have paid taxes above a certain limit.
As a policy by way of specific section in the law CBR should have powers to substitute the import price for the levy of withholding at import stage irrespective of custom valuation.
There must be separate schedule in income tax ordinance for enterprises in the financial sector.
For example at present there is no specific detailed mechanism for the determination of bad debts in the case of a bank. Lack of this mechanism effects both sides.
FOR PRESENT DOUBLE TAXATION OF EXCESS PERQUISITES ICAP HAS SUGGESTED THAT
Section 21-K should be made applicable where perquisites and allowances are exempted in the hands of employees and not in the case of all employees.
Appropriate amendments be made in section 21-K to render only such expenditure inadmissible in the hands of employers, which have been claimed as deduction, rather treating notional or other amounts which are taxable in the hands of employees but not claimed as deduction by the employers.
TAXATION OF NON-RESIDENT CONTRACTORS Sub-section 1 and 3 of section 153 of income tax ordinance have overlapped situation in the case of execution of a contract by non-resident person, which creates ambiguities.
In order to remove anomaly, it is suggested that sub-section 1 should be made applicable on payments to resident person, whereas sub section 3 be modified and made applicable to non-resident persons only.
The definition of permanent establishment provided in section 2-41 of income tax ordinance should be brought in line with international taxation laws, especially OECD Model treaty by providing time limitations in open-end situations like buildings sites, presence of employees.
Clause 99 of income tax ordinance provides exemption to mutual funds on distribution of 90 percent profit for the year, excluding capital gains, realised or unrealised. Exclusion of capital gains has resulted in low distribution of profits by the mutual funds. It is, therefore, suggested to exclude only unrealised gains from the profits.
There must be distinction between services rendered and execution of contract and rules be prescribed for determining the nature of a composite contract.
Government contractors be taxed on normal basis and specific rules be prescribed for determining net income from such contracts. This would also encourage small companies.
