Exemption/reduced rate certificates: FBR enforces new online system for RPs, PEs

ISLAMABAD: The Federal Board of Revenue (FBR) from October 1, 2020 has enforced a new online system of issuance of exemption/reduced rate certificates to the resident persons (RPs) and permanent establishments (PEs) of the non-residents. The FBR has issued an income tax circular 5 of 2020, Saturday. According to the FBR, the Income Tax Ordinance, 2001, commands every resident person and the PE of a non-resident person to withhold tax at the applicable rate, and deposit the same into the exchequer.

Every resident person and the PE of the non-resident person is required to furnish to the Commissioner a notice in writing, if such person intend to make the payment to the non-resident person without deduction of tax.

Similarly, every recipient/payee being a non-resident person or PE of a non-resident applies for issuance of exemption or lower rate certificate.

The FBR stated that presently, the person (resident person and PE of a non-resident person) intending to make payment to the non-resident recipient and the person receiving payment (non-resident person and PE of a non-resident person), files a notice/application to the Commissioner divulging therein, most of the times sketchy, half-baked, and incomplete information.

There is credible evidence to suggest that the current system of filing of notice/application and consequential issuance of exemption/reduced rate certificates, regularly results in significant revenue hemorrhage in a variety of ways and due to multiple reasons.

This way the exemption/reduced rate certificates issued (since neither ever contested nor audited), are never put to an independent scrutiny, which factor stonewalls the entire transaction - whether right or wrong - for all times to come, which scenario, on the one hand, militates against the State interest, and, on the other, fails us on our commitments made to Pakistan partners of Avoidance of Double Taxation Agreements (ADTAs) under which we are obliged to share with them all critical information regarding all incomes that get registered in Pakistan, but not taxed for any reasons or taxed at a reduced rate.

In this regard, SRO 923(I)2020 dated 29.09.2020 has already been issued.

In order to arrest the situation, a new online system of issuance of exemption/reduced rate certificates subject to the fulfillment of requirements/conditions of the relevant substantive provisions of the Ordinance and SRO No 923(1)12020 has been conceived, developed and is being rolled out.

Copyright Business Recorder, 2020