The presence of District Taxation Officers of the Federal Board of Revenue (FBR) at the level of districts will help in facilitation of taxpayers at their doorstep, ensure greater efficiency in collection/administration of federal taxes and broadening of the tax base. The FBR has explained the concept of District Taxation Officers through an income tax circular issued here on Wednesday.
Through the Finance Act, 2017 the scope of definition of Officer of Inland Revenue has been extended to include District Taxation Officer Inland Revenue and the creation of a new Inland Revenue Authority designated as District Taxation Officer has been envisaged. The main impetus behind creating the position of a District Taxation Officer is to expand the outreach of Inland Revenue Officers in smaller Districts where there are no Regional Tax Offices. The presence of District Taxation Officers at the level of districts will aid in facilitation of taxpayers at their doorstep, ensure greater efficiency in collection and administration of Federal taxes and fortify efforts for broadening of the tax base. In addition, "Assistant Director Audit" has also been made part of the definition of "Officer of Inland Revenue" and designated as an Income Tax Authority.
Insertion of Definition of Liaison Office [Section 2(30C)]: Prior to the Finance Act, 2017 the term "Liaison Office" was not defined in the Income Tax Ordinance, 2001. A liaison office is not included in the definition of "permanent establishment" as per section 2(41) of the Ordinance, except in circumstances where such office engages in the negotiation of contracts barring contracts of purchase.
The determination of whether or not a place of business or an entity constitutes a liaison office is therefore pivotal for establishing the existence of a permanent establishment in Pakistan of a non-resident person which, in turn, has far reaching consequences with regard to taxation. Through the Finance Act, 2017 the term "liaison office" has been explicitly defined in order to impart greater clarity and explicitly delineate the scope of a Liaison Office. Insertion of this definition will also assist in plugging revenue leakages from interpretational issues arising with respect to definition and scope of the term "liaison Office". An office or establishment which engages in the negotiations of contract (other than purchase contracts) or commercial or trading activities will not be treated as a "liaison office". However, activities only of an exploratory or preparatory nature to determine the possibilities of trading with or in Pakistan or the possibility of collaboration or promotion of products which are yet to be sold in Pakistan and where the liaison office or its associated establishments do not have an existing commercial business in Pakistan providing after sales services and marketing or promoting pharmaceutical products shall be treated as commercial activities and engaging in such activities will be beyond the scope of liaison office. It is also clarified that w.e.f. 1st July, 2017, an establishment treated as liaison office by any other department or organization shall not be treated as liaison office unless it is a liaison office as per the definition introduced through the Finance Act, 2017.
Expansion in scope of definition of NCCPL [Section 2(35AA)]: Prior to the Finance Act, 2017 the National Clearing Company of Pakistan Limited was defined as a company incorporated under the Companies Ordinance, 1984 and licensed as a "Clearing House" by the Securities and Exchange Commission of Pakistan. The scope of definition of National Clearing Company of Pakistan Limited has been enhanced through the Finance Act, 2017 by including within its ambit any subsidiary of NCCPL that has been notified by the Federal Board of Revenue.
Introducing concept of an "Online Marketplace" [Section 2(38B)]: The Finance Act, 2017 has introduced the concept of an online marketplace and the same has been defined as an information technology platform run by an e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and a seller. A person running an online marketplace shall be subject to reduced /concessionary rate of minimum tax under section 113 of the Ordinance @ 0.5% for the Tax Year 2018. Moreover, in terms of clause (28C) of Part II of the Second Schedule to the Ordinance inserted through the Finance Act, 2017 the rate of collection of advance tax on brokerage and commission for a person running an online marketplace shall be 5% which shall constitute final tax.
Introducing concept of start - ups. [Section 2(62A)]: In order to promote and encourage innovation and entrepreneurship in Pakistan, particularly in the field of Information Technology the concept of start-up has been introduced through the Finance Act, 2017. A start-up has been defined as a business set-up by a resident individual, AOP or a company having turnover upto Rs 1 00 Million in the last five tax years, registered and certified by the Pakistan Software Export Board (PSEB) as an information technology entity engaged in offering technology driven products or services to any sector of the economy.
For incentivizing start-ups, exemption has been accorded to profits earned by such entities in the tax year in which the entity is certified by Pakistan Software Export Board (PSEB) and the subsequent two tax years. Existing undertakings engaged in similar businesses incorporated or registered on or after July 1, 2012 are also entitled to this exemption subject to certification by Pakistan Software Export Board (PSEB). Furthermore, the Federal Government has also been empowered, through the Finance Act, 2017 to notify any business as a "startup" subject to specific conditions. Moreover, exemption has also been accorded to such "Start-ups" from levy of minimum tax under section 113lof the Ordinance in terms of sub-clause (xxix) of clause (11A) of Part IV of the Second Schedule inserted through the Finance Act, 2017 as well as deduction of withholding tax upon receipt of payments specified in section 153 of the Ordinance in terms of clause (43F) Part IV of the Second Schedule to the Ordinance inserted through the Finance Act, 2017.
Extension of Super Tax [Section 4B]: Super tax for rehabilitation of Temporary Displaced Persons was introduced @ 3% for every person (other than a banking company), having income of Rs 500 million and above and @ 4% for every banking company for the tax year 2015 and subsequently for the tax year 2016. It has now been extended for the tax year 2017.