The federal tax collection regime under Integrated Risk Information System (IRIS) is not fully compatible with that of the provinces, foreign investors have told Federal Board of Revenue (FBR). Consequently, for last five months, since June, many of the Overseas Investors Chamber of Commerce and Industry (OICCI) members, who are also subject to provincial sales tax (ST), have not been able to claim valid admissible input ST adjustment on FBR's web-portal.
The portal, offshore investors claim, does not allow companies to enter own generated sales tax invoices and, therefore, the provincial sales tax paid on these invoices is not being allowed for adjustment. Moreover, the OICCI members, who annually invest about $1.4 billion in Pakistan and contribute one-third of the country's total tax related revenues, have not been able to submit their withholding tax (WHT) reports through IRIS module since September.
This was because of such technical issues that OICCI on September 28 wrote a letter to FBR seeking one-month extension in the filing date for WHTs and solve the members' e-filing related issues. The federal tax collector responded positively to the extension call.
The OICCI representatives in a recent meeting are said to have informed the FBR management about a number of issues the foreign investors are facing after the country's revenue collection system was automated. "Our members are unable to secure input sales tax adjustment on the FBR web-portal of the amount they have deposited with the provincial revenue authorities in respect of franchise services," says OICCI CE/Secretary General M Abdul Aleem in a letter.
In another communication, dating November 24, he directly addressed Ahmad Nawaz, acting CEO of FBR's Pakistan Revenue Automation Limited (PRAL), and requested to direct the concerned persons to allow the adjustment of input ST in their own name with regard to franchise services, the taxpayers have legitimately paid. The provincial laws on sales tax require the recipient of franchise services, which include royalty, technical fee etc, to pay sales tax on such services after generating the sales tax invoice under their name and National Tax Number (NTN).
The recipient would then have to deposit the applicable ST to the concerned provincial tax collectors against those own-generated ST invoices. Due to delays in adjustments and processing of refund claims the foreign investors are concerned to see their tax refunds piling up. This, Aleem said, was adversely impacting the cash flow and profitability of offshore investors.
Under the new changes, the taxpayers are required to report their WHT statements through IRIS module which doesn't recognise majority of NTN/CNIC of the taxpayers, especially in case of business individuals, CNIC validation of salaried persons or AoPs, according to the letter. Consequently the IRIS system was neither validating nor calculating the taxes "appropriately". The new portal was not allowing majority of the exemptions from WHT.
Previously, payments on petroleum products, insurance premium, TPC vendor, imported goods, legal expenses and court fees and payment to government institutions like army, cantonment board and municipal authorities were exempted under income tax laws but these have not been catered for in the IRIS system.
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