Syed Shabbar Zaidi & Co. has written a document as comments and observations to the Budget 2021-22 presented on 11th June 2021.
The company is headed by Pakistan’s 26th Chairman of the Federal Board of Revenue Mr. Shabbar Zaidi who was in office from May 2019 to April 2020. According to the website, Syed Muhammad Shabbar Zaidi is heading the A. F. Ferguson & Co., which is among the big 4 CA firms in Pakistan.
The first impression on the budget to the document was that the budget “is one of the best documents presented in almost three decades as far as corrective measures in the taxation system are concerned.”
The document praised various policies suggested by the government in the bill including the mechanism to curb smuggling, self-assessment scheme, and other major points.
Comments from Syed Shabbar Zaidi &Co on the Federal Budget 2021-2022https://t.co/rwjwB2eZAX
— SyedShabbarZaidi (@SShabbarZaidi) June 12, 2021
The first topic discussed was Tax collection, and the document concurs with many experts out there that the tax collection target of Rs5800 billion is higher, ‘by around Rs200 to 300 billion’.
The document also noted that the withholding taxes are applied to 75 heads. The suggestion was that “these heads have to be reduced to not more than 15 heads which actually contribute over 95% of taxes.” The document mentioned the new initiative to remove 12 such heads, but the suggestion is that 50 more such heads should be eliminated.
On the Current Account Balance, the document reiterated the impact of imports on taxes, as 45 percent of the tax collection is at the import stage. The document cautions the government to Avoid unnecessary imports and extended efforts for import substitution; Reduce heaving reliance on home remittances; and Diversification of exports and further concentration on intangible exports.
The self-assessment scheme
The document by Syed Shabbar Zaidi & Co. applauds the inclusion of ‘Retailing’ of the smuggled goods in the definition of smuggling. The document says if implemented in its true spirit, “it would mean that such retailers will be required to produce evidence to the effect that goods being sold at retail level have been legally imported” and would change the paradigm of the undocumented market in Pakistan.
On the self-assessment scheme, the government is to ensure that people are not harassed by tax officials. The document reads that since its inception, “Section 122(5A) was regularly, frequently and wrongly used to dilute the effective implementation of real self-assessment scheme as envisaged in Section 120 of the Income Tax Ordinance 2001.”
In practice, it was assumed that Section 122(5A) is applicable in all cases which in effect meant that the provisions of Section 62 of the repealed Ordinance were reinstated in every case and the concept of audit as envisaged was totally destroyed.
This led to harassment of people but no goals, ie taxation was not improved.
Through the amendment in Section 122(5A) by the Finance Act, 2021 the spirit of Section 122(5A) has been revived and under the amended position every return filed will be deemed to be assessed(by the filer) under Section 120 of the Income Tax Ordinance, 2001 and Section 122(5A) shall be applied only the cases where there is ‘valid’ reason for that amendment.
The document talks about ‘Mens Rea’ introduced in the filing of tax documents, meaning criminal intent in English refers to this scheme. This entails that “all inaccurate, underestimated or wrong or non-disclosure of income does not constitute concealment of income unless it is proved that such an act was undertaken deliberately with an intention to fraud.”
New policy for export taxation
The document appreciates the government’s attempt where through the Finance Act, 2021, “almost all kinds of export of services have been brought in line with export of goods.” Under the new policy, all services exports will be subject to tax which equal to 1 percent of proceeds.
The document suggested, “It is suggested tax should be on the amount of value of export and the same should not be related to proceeds realized.” The document mentions the removal of export of goods presumptive law, which required returns to be filed along with registrations, and the imputed tax concept has been removed.
Talking about the construction contracts, the document mentions that the time-bound scheme introduced in Finance Act 2020 to be extended for another year. The features of this regime include a Fixed tax regime; Immunity for the source of investment for the builder and developers; and Immunity for the source of investment for the first purchaser of such property.
The regime for SMEs
The document by Syed Shabbar Zaidi & Co. talked about a special regime for (Small and Medium-sized Enterprises) SMEs introduced in the recent budget where taxation for SMEs engaged in manufacturing and those have a turnover of less than Rs250 million per year.
According to the document, SMEs have been provided the option to pay tax on a net income or turnover basis.
The reduced rates are 1. If turnover does not exceed Rs 100 million 7.5 percent of net income; 2. If turnover exceeds Rs 100 but does not exceed 250 million 15 percent of net income. 3. In case if the SME opts for a turnover tax basis the tax rate shall be .25% or .5% of turnover for turnover up to Rs 100 and 250 million respectively.
The document said that the success would depend upon the success of the implementation of these policies.
There were other detailed comments on different taxes imposed on different types of businesses. For the cottage industry, the amount of aggregate sales to qualify for that purpose has been increased from Rs 3 million to Rs 10 million, meaning increased support opportunities for the industry of Pakistan.