ease of doing business...

EASE OF DOING BUSINESS REFORMS

DOING BUSINESS REFORMS 2020

PRESENTATION BY SABA IJAZSECRETARY (BDT-IT)

REFORMS UPDATES

CALENDAR YEAR 2018

MAJOR CHANGES TO TAX LAWS, REGULATIONS OR ADMINISTRATION

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• THE ELIGIBLE PERIOD FOR INVESTMENT IN PLANT &

MACHINERY FOR AVAILING TAX CREDITS UNDER SECTION

65B, 65D AND 65E EXTENDED TO JUNE 30, 2021

CHANGE IN TAX RATE

4

Taxes Change in Tax Rate

Corporate Income Tax Rate of income tax for company will

be reduced from 30% to 29%

Rate of income tax for small

company will be reduced from 25%

to 24%

Sales Tax (VAT) No

CHANGE IN METHOD OF FILING OR PAYING TAXES AFFECTING TIME

5

Taxes Changes in Method for Preparing, Filing or

Payment of Taxes affecting time

Corporate Income Tax • Preparation and filing of return for corporate income tax

already through electronic mode on Iris (FBR portal)

• Payment of taxes through ADC since March 2018

• Time significantly reduced

Sales Tax (VAT) • Preparation and filing of return for sales tax already

through electronic mode (e-FBR portal)

• Payment of taxes through ADC since March 2018

• Time significantly reduced

CHANGE IN METHOD OF FILING OR PAYING TAXES

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Taxes Changes in Method for Preparing, Filing or

Payment of Taxes

Corporate Income Tax • Preparation and filing of return for corporate income tax

already through electronic mode on Iris (FBR portal)

• Payment of taxes through ADC since March 2018

• Time significantly reduced

Sales Tax (VAT) • Preparation and filing of return for sales tax already

through electronic mode (e-FBR portal)

• Payment of taxes through ADC since March 2018

• Time significantly reduced

CHANGES IN AUDIT PROCEDURE/SECTIONS FOR DIRECT/INDIRECT TAXES

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• WITHDRAWAL OF SECTION 214D OF THE INCOME TAX ORDINANCE

2001 WHICH PERTAINED TO AUTOMATIC SELECTION OF CASES FOR

AUDIT WHERE RETURN FOR INCOME WAS NOT FILED WITHIN THE

DUE DATE

• CLOSURE OF AUDIT INITIATED UNDER SECTION 214D BY

INTRODUCTION OF SECTION 214E OF THE INCOME TAX

ORDINANCE 2001

CHANGES IN AUDIT PROCEDURE/SECTIONS FOR DIRECT/INDIRECT TAXES

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• THE PROVISIONS OF SECTION 177 (AUDIT BY

COMMISSIONER) AND 214C (AUDIT BY FBR) OF THE

INCOME TAX ORDINANCE, 2001 NOT TO BE APPLIED TO A

PERSON WHOSE INCOME TAX AFFAIRS HAVE BEEN AUDITED

IN ANY OF THE PRECEDING THREE TAX YEARS

LEGAL OR REGULATORY CHANGES AFFECTING PROCESS OF CLAIMING AND OBTAINING VAT REFUND

9

• VAT REFUNDS SPECIFIC TO SAMPLE COMPANY IS NOT

APPLICABLE TO PAKISTAN

CHANGES TO TAX RATES BETWEEN JANUARY 1, 2019 TO MAY 1, 2019

10

• RATE OF INCOME TAX FOR COMPANY REDUCED FROM

30% TO 29% FOR TAX YEAR 2019

• RATE OF INCOME TAX FOR SMALL COMPANY REDUCED

FROM 25% TO 24% FOR TAX YEAR 2019

CHANGE IN TAX RATE EXPECTED IN CALENDAR YEAR 2019

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Taxes Tax Rate

Corporate Income Tax Rate of income tax for company will be

reduced from 30% to 29%

Rate of income tax for small company will be

reduced from 25% to 24%

Sales Tax (VAT) No

DATA UPDATES

CALENDAR YEAR 2018

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DEDUCTIONS AND DEPRECIATIONS

CALENDAR YEAR 2018

DEDUCTION OF TAXES

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DEDUCTIBLE EXPENSES

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Nature of Expense Deductible in 2018 % Deductible

Start-up Expenses No

Advertising Expenses Yes 100%

Leasing Expenses Yes 100%

Medical Insurance Premium for

Employees

Yes 100%

Building Insurance Premium Yes 100%

Business Travel Expenses Yes 100%

Accountancy Fees Yes 100%

Legal Fees Yes 100%

Machinery Repair Expenses Yes 100%

Patent Royalties Yes 100%

Owner’s Expenses Yes 80%

Loss Carry Forward Yes 100%

DEDUCTIBLITY OF GENERAL PROVISIONS

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Nature of Provision Deductible in

2018

% Deductible

Bad Debts No Not Applicable

Provision for pension

contributions

No Not Applicable

Provision for future

machinery repairs

No Not Applicable

ANNUAL DEPRECIATION OF FIXED ASSETS

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Assets Tax

Depreciatio

n Rate

Land (not acquired in this calendar year) No

Building (for production and storage) 10%

Building Expansion 10%

Machinery 15%

Vehicle for Product Transportation 15%

Computers 30%

Office Equipment 30%

Business Development Expenses e.g. research and development

expenses (different from startup expenses)

20%

LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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COMPLIANCE TIME

CALENDAR YEAR 2018

COMPLIANCE TIME

PROFIT TAXES (SAME AS CORPORATE INCOME TAX)

PREPARATION – PROFIT TAXES

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Time (Hours per Year)

Data gathering from internal sources

Additional analysis of accounting information to highlight

tax-sensitive items

Actual calculation of tax liability

Time spent maintaining/updating accounting systems for

changes in tax rates and rules

Preparation and maintenance of mandatory tax records

Other activities undertaken for preparation of corporate

income tax

Total preparation time

FILING – PROFIT TAXES

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Time (Hours per Year)

Completion of tax return forms

Time spent submitting forms to tax

authority

Other activities undertaken for filing of

corporate income tax

Total filing time

PAYMENT- PROFIT TAXES

30

Time (Hours per Year)

Calculations of tax payments

Analysis of forecast data and associated

calculations if advance payments are required

Time to make necessary tax payments

Other activities undertaken for payment of

corporate income tax

Total payment time

TOTAL COMPLIANCE TIME (PREPARATION, FILING

AND PAYMENT)

COMPLIANCE TIMELABOUR TAXES AND MANDATORY

CONTRIBUTIONS

PREPARATION – LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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Time (Hours per Year)

Data gathering from internal sources

Additional analysis of accounting information to highlight

tax-sensitive items

Actual calculation of tax liability

Time spent maintaining/updating accounting systems for

changes in tax rates and rules

Preparation and maintenance of mandatory tax records

Other activities undertaken for preparation of corporate

income tax

Total preparation time

FILING – LABOUR TAXES AND MANDATORY CONTRIBUTIONS

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Time (Hours per Year)

Completion of tax return forms

Time spent submitting forms to tax

authority

Other activities undertaken for filing of

corporate income tax

Total filing time

PAYMENT- LABOUR TAXES AND MANDATORY CONTRIBUTIONS

34

Time (Hours per Year)

Calculations of tax payments

Analysis of forecast data and associated

calculations if advance payments are required

Time to make necessary tax payments

Other activities undertaken for payment of

corporate income tax

Total payment time

TOTAL COMPLIANCE TIME (PREPARATION, FILING

AND PAYMENT)

COMPLIANCE TIMECONSUMPTION TAXES

VAT/SALES TAX/GST

PREPARATION – VAT, SALES TAX OR GST

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Time (Hours per Year)

Data gathering from internal sources

Additional analysis of accounting information to highlight

tax-sensitive items

Actual calculation of tax liability

Time spent maintaining/updating accounting systems for

changes in tax rates and rules

Preparation and maintenance of mandatory tax records

Other activities undertaken for preparation of corporate

income tax

Total preparation time

FILING - VAT, SALES TAX OR GST

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Time (Hours per Year)

Completion of tax return forms

Time spent submitting forms to tax

authority

Other activities undertaken for filing of

corporate income tax

Total filing time

PAYMENT- VAT, SALES TAX OR GST

38

Time (Hours per Year)

Calculations of tax payments

Analysis of forecast data and associated

calculations if advance payments are required

Time to make necessary tax payments

Other activities undertaken for payment of

corporate income tax

Total payment time

TOTAL COMPLIANCE TIME (PREPARATION, FILING

AND PAYMENT)

POST-FILING PROCEDURES

CALENDAR YEAR 2018

VAT CASH REFUND

CALENDAR YEAR 2018

ASSUMPTIONS FOR VAT REFUND

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• A SMALL COMPANY MAKES A LARGE CAPITAL MACHINERY

PURCHASE FOR MANUFACTURING PURPOSES

• THE VALUE OF MACHINE IS RS. 7.8 MILLION

• THE MACHINE IS MANUFACTURED DOMESTICALLY

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TIME TO COMPLY WITH A VAT REFUND

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How to request a VAT refund Registered person can claim carry forward, not VAT

Time on gathering VAT information from internal sources None as not applicable

Time on preparing VAT refund claim None as not applicable

List of documents to be submitted for a VAT refund claim None as not applicable

Time spent on preparing all additional documents None as not applicable

VAT return and claim for the VAT refund submitted at the same time

or separately

None as not applicable

Submission of all documents None as not applicable

Time to submit VAT refunds and all additional documents None as not applicable

Requirement of taxpayer to make representation to tax office

after claim

None as not applicable

Any other mandatory activity/task associated with VAT refund None as not applicable

Time spent on obtaining internal or external advice None as not applicable

TIME TO OBTAIN A VAT REFUND

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Percentage of companies selected for audit

in case of claiming VAT refund resulting

from large capital purchase

Not Applicable

Common type of audit triggered on the above

mentioned scenario

Not Applicable

Time between the date the claim for a VAT

refund is submitted and the date the VAT

refund is received

Not Applicable

Mode of VAT refunds received Not Applicable

TIME TO COMPLY WITH A CORPORATE INCOME TAX CORRECTION

46

Option for the taxpayer to notify tax officer

voluntarily of an unintentional CIT error

Yes

Mode of notifying error Electronically

List of documents to provide to tax authority to

make correction in income tax return

Reason for revision of return duly

signed by taxpayer, copies of revised

audited accounts and revised tax

return

Time taken by taxpayer to gather information and

prepare documents to notify tax officer

Mode of submission of documents Electronically

Time taken by taxpayer to submit documents No time as it is done electronically

Payment of additional CIT liability and submission

of amended return separately or at the same time

At the same time

TIME TO COMPLY WITH A CORPORATE INCOME TAX CORRECTION

47

Mode of processing tax payments Electronically

Taxpayer allowed to make additional payments Yes

Is this tax notice/reassessment dependent on an

audit taking place

Not necessarily

Percentage of cases selected for audit in case of

self-reporting a CIT error and underpayment of

CIT liability

Not Applicable

Common type of audit triggered on the above

mentioned scenario

Not Applicable

TIME TO COMPLETE A CORPORATE INCOME TAX CORRECTION

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Will a company like the one given in

questionnaire be selected for a tax audit?

Not necessarily

Percentage of cases selected for audit in case of

self-reporting a CIT error and underpayment of

CIT liability

Not Applicable

Would the correction to the CIT return increase the

likelihood of a tax audit taking place?

Not Applicable

Most common type of audit in case of correction to

the CIT return

Not Applicable

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• PRIVATE COMPANIES IN PAKISTAN HAVE TO CALCULATE THEIR OWN CORPORATE INCOME TAX

BILLS AND FILE RETURNS APPROPRIATELY (SELF-ASSESSMENT)

• MAJORITY OF COMPANIES SIMILAR TO QUESTIONNAIRE COMPANY USE COMPUTER

SOFTWARE TO PREPARE AND MAINTAIN THEIR FINANCIAL ACCOUNTS

• THEY USE SPREADSHEETS

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THANK YOU

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