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Business Recorder
5 days ago
- Business
- Business Recorder
Tax exemption misuse: Senate panel voices concern over abuse of IT sector
ISLAMABAD: The Senate Standing Committee on Finance, while voicing its reservations over the statistics of the IT export proceeds provided by the State Bank of Pakistan (SBP), expressed apprehensions that other export sectors were using it for tax evasion. In a meeting of the Senate Standing Committee on Finance held under the chairmanship of Senator Saleem Mandviwalla, the SBP official said that the total IT exports from Pakistan was $920 million. He said that this amount was compiled on the basis of data provided by the banks. Senator Anusha Rahman questioned the credibility of the data. She said that in this amount there is no bifurcation that how much amount comes through the software exports or services provided by freelancers. Rahman said because of the non-availability of authentic data of freelancers export proceeds, the government is finding it difficult to convince international payment platforms such as PayPal to start operations in Pakistan because they think that the consumer base for them is very small. Chairman Committee Saleem Mandviwala said that a lot of textile mills have opened software houses and they were remitting a portion of their export proceeds in guise of IT exports. Rahmansaid there is only one percent tax on non-registered freelancers and IT exporters and on registered freelancers the tax rate is mere 0.25percent, whereas, the tax rate on textile and other sectors is 30 percent. She said there is a strong possibility that the exporters from other sectors might be using IT platform for tax evasion. The SBP official said the banks were fully vigilant and responsible to find out that whether any exporter was misusing the IT platform for tax evasion. He said so far, the SBPhad not find out any such dubious activity. He assured the committee that from now onwards the SBP would bifurcate freelancers' exports data on its website. While discussing software exports over the last 15 years, the committee recommended the SBP to submit data with the clear categorisation of freelancers' share in software exports. The committee also recommended the non-inclusion of periodical and journal subscriptions in the IT services list. Furthermore, the committee was briefed on the AI-based customs system introduced within the Export Facilitation Scheme. Officials informed that the AI system has been introduced to upgrade the existing machine learning model in order to bring efficiency to Pakistan Customs. Senator Mandviwalla inquired about the FBR's plan to introduce AI in Pakistan Customs and its expected benefits for the business sector. The committee recommended a detailed briefing on the inclusion of AI in Pakistan Customs, following the models of developed nations, in the upcoming meeting. Copyright Business Recorder, 2025
Express Tribune
20-06-2025
- Business
- Express Tribune
Govt decides to abolish tax exemptions for SEZs, STZs
At high tax rates, profit margins for sellers decrease, leaving them with options to pass on the burden to consumers, compromise on the quality of products, evade taxes or find cheaper illicit goods. photo: file The Senate Standing Committee on Finance was informed on Thursday that the federal government has decided to abolish tax exemptions for Special Economic Zones (SEZs) and Special Technology Zones (STZs) in line with the IMF conditions. During a meeting chaired by Senator Saleem Mandviwalla on Thursday, Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial briefed the committee that under the IMF agreement, all tax exemptions must be phased out by 2035. He stated that going forward, no SEZ or STZ will receive any form of tax relief. "Our hands are tied," Langrial remarked, adding that tax concessions and reduced rates across various sectors are being withdrawn. The committee rejected budget proposals for the next fiscal year, including imposing a carbon levy of Rs2.50 per litre on petroleum products, removing the 10 per cent cap on the debt service surcharge for electricity consumers and introducing a levy on small vehicles. The senators termed these measures as burdensome for the public. Regarding autonomous public-sector entities, Senator Anusha Rahman raised concerns about institutions holding vast investments despite minimal staffing. She cited the example of the Evacuee Trust Property Board (ETPB), which she said is managed by only 12 people but has Rs13 billion invested. She questioned why such institutions are allowed to retain and invest their revenues and called for reforms or exemptions in the Public Finance Management Act (PFMA) if needed. The officials replied that bodies such as Nadra, CDA, and Karachi Port Trust are allowed to invest their funds and earn profits, and they pay taxes on these earnings. However, the committee chairman said none of these institutions had actually paid taxes recently. The officials briefed the committee that Nadra had paid a tax amounting to Rs8 billion during the last two years. The FBR chief proposed amendments to the PFMA, but the committee opposed them, insisting that revenue from all government-owned bodies must be deposited into the Federal Consolidated Fund. The Ministry of Finance stated that the proposed amendment would allow autonomous bodies to retain and spend their income independently, but Anusha Rahman strongly opposed it, demanding that such entities remain accountable to the national treasury and sought balance sheets of such institutions. The committee also reviewed proposed changes to property taxation. According to FBR officials, the withholding tax on property sales valued at Rs100 million has been increased from 8 per cent to 9.5 per cent, while properties worth less than Rs100 million will be taxed at 8.5 per cent. For properties valued below Rs50 million, the rate will be 7.5 per cent. Additionally, the Finance Bill 2025 includes stricter measures against non-filers. While the property purchase tax for non-filers has been reduced, the burden has shifted to sellers. The committee approved a proposal to impose a 5 per cent tax on foreign online platforms.
Express Tribune
19-02-2025
- Business
- Express Tribune
'Textile millers misdeclare exports'
Listen to article A treasury legislator, Senator Anusha Rahman, said on Wednesday that textile millers were mis-declaring their exports as information technology exports to avoid the recently levied 29% income tax, in an assertion that brings into question the claimed double-digit growth in IT exports. Senator Anusha Rahman's statement was based on the information provided by the information technology industry, and is also backed by the sudden mushroom growth in the registration of new information technology-related companies. There are reports that textile exporters are misusing the 0.25% reduced income tax rate facility for information technology and technology-based export incomes to avoid the 29% income tax, said Rahman, former Minister of State, during a meeting of the Senate Standing Committee on Finance. The committee meeting was chaired by PPP's Senator Saleem Mandviwalla. Textile and other goods exporters have started misusing the facility after the government imposed a 29% income tax on exporters in the last budget. However, information technology-related exported earnings still attract a 0.25% income tax, and there is a 1% income tax on the export of services. The Chairman of the Federal Board of Revenue, Rashid Langrial, who was also present at the meeting, did not rule out the possibility of misuse of the export facility. Langrial said that there was a possibility that exporters might be misusing this facility and assured the committee that he would probe the matter. During the first half of the current fiscal year, information technology industry exports surged 28%, reaching $1.9 billion. Many had suspected the increase in IT exports, particularly after the government introduced the firewall to slow internet speed. In November last year, Sajjad Mustafa Syed, Chairman of the Pakistan Software Houses Association (P@SHA) – the apex representative body of the Information Technology industry – had warned that the internet slowdown and blocking of virtual private network (VPN) services would certainly translate into an existential threat, as it would result in unrecoverable financial costs, service disruptions, and reputational losses in the export of IT and IT-enabled Services (ITeS). The chairman of the Securities and Exchange Commission of Pakistan (SECP) presented the details of new company incorporations in January to the standing committee. The details showed that, in January alone, 652 information technology and e-commerce-related new companies were registered, accounting for 20% of all new companies registered that month and the highest number of companies registered in any sector. The mushroom increase in IT company registrations also indicates misuse of the facility. Compared to the normal 29% income tax rate for exporters, IT exporters pay only 0.25% income tax. The IT industry has concerns that the mis-declaration of goods exports as IT exports may lead to an unrealistic increase in the size of the business, potentially resulting in the withdrawal of the special income tax facility. According to another indication of the misuse of the IT income tax facility, newly registered companies, which were incorporated after June of last year, are making more sales than companies that have been operating for decades, said industry insiders. Constitutional question The Senate Standing Committee on Finance also objected to the government's decision to introduce the Tax Laws Amendment Bill 2024 as a Money Bill, in which the Senate does not have voting rights. The standing committee had earlier approved the bill, which aims to introduce new restrictions on the purchase of property and cars by ineligible persons. Chairman of the Standing Committee Saleem Mandviwalla said that the committee had cleared the bill after the government claimed that Speaker of the National Assembly Sardar Ayaz Sadiq had declared the bill as a Money Bill. In the case of a Money Bill, the Senate's role is limited to making recommendations, and it does not have the power to vote it down. "When I spoke to Sardar Ayaz, he said that he did not declare any bill as a Money Bill, and it was the government that brought the Tax Laws Amendment Bill as a Money Bill," Mandviwalla said, narrating his conversation with the speaker of the National Assembly. "The Parliament should take decisions into its own hands, and legal matters should not be left to the government or bureaucracy," said Senator Shibli Faraz, the Leader of the Opposition in the Senate. In the case of a dispute, the final decision rests with the speaker. The standing committee decided to refer the matter to the speaker of the National Assembly, which has now resulted in another dispute. The National Assembly Standing Committee on Finance has already deferred the approval of Clause 114-C of the Tax Laws Amendment Bill until the new budget. This clause pertains to economic restrictions. The government is pushing hard to have the new bill passed by Parliament before the International Monetary Fund's (IMF) Review Mission arrives on March 3. However, real estate lobbyists and legislators believe the bill will stifle any remaining growth in the real estate sector and give undue power to tax officials.
