Government proposes sales tax on e-commerce

ISLAMABAD: The federal government has proposed to impose a sales tax on the sale of goods through an online marketplace.

According to the Finance Bill 2021-22 (FY22), the Federal Board of Revenue (FBR) has proposed that the person who operates an online marketplace be liable for sales tax whether or not they own it. .

An online marketplace includes an electronic interface such as a marketplace, e-commerce platform, portal or similar means that facilitate the sale of goods, including sale to third parties by controlling the terms. general sales; authorize a charge to customers with regard to payment for the supply, and the ordering or delivery of goods.

According to details, the RBF proposal includes new measures to make e-commerce marketplaces subject to VAT / GST on sales made by online merchants, data sharing and enhanced cooperation between tax authorities and online marketplaces.

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These new measures provide governments with the tools to ensure that online platforms play their role in collecting taxes. They will also level the playing field for those on main streets and malls, who have had to compete with online competitors with a tax advantage.

The importance of these measures was highlighted in a report by the Organization for Economic Co-operation and Development (OECD), which shows that two-thirds of all cross-border e-commerce sales are made through online marketplaces.

Monitoring these marketplaces online to ensure that VAT / GST is paid, by making them accountable and through data sharing, will allow tax authorities to focus their compliance efforts on the relatively small number of markets rather than on the millions of small traders operating through them.

Withholding tax

With regard to withholding tax, the federal government has proposed to abolish withholding tax on cash withdrawals and banking transactions.

Currently, a tax at the rate of 0.6 pc is deducted in the event of cash withdrawals exceeding Rs 50,000 per day by a non-active person.

Likewise, tax is deducted at the rate of 0.6 pc in the event of banking transactions for an amount greater than Rs 50,000 per day by a non-active person.

However, for vehicles, the bill proposes that each motor vehicle registration authority in the Excise and Taxes Department (E&T) be required to collect an advance tax when registering a new one. locally manufactured motor vehicle with respect to engine displacement, in addition to collecting advance tax from buyers who sell locally manufactured vehicles within 90 days of delivery.

The tax was introduced to discourage the culture of “for the money” in Pakistan, which has been a major factor in the rise in car prices in recent years.

Cost of the asset offered

According to the FY22 finance bill, when a fixed asset becomes the property of a person by virtue of a donation from a relative, the cost of the asset will be determined based on the fair market value of the asset. on the date of its transfer.

The bill proposes that if a capital asset acquired as a gift is disposed of within two years of its acquisition and the gift is part of a tax avoidance scheme, the cost of the asset in the hands of the beneficiary of the donation will equal the cost of the asset to the person who transferred it.

For example, a person bought shares in a limited liability company at a cost of 20 million rupees. Five years later, the fair market value of the shares has become Rs30 million. The person then gives these shares to their son. Currently, according to article 79 of the bill, the son will register these shares in his statement of assets at 30 million rupees. If the son sells these shares after six months for Rs32 million, his capital gain will be Rs2 million.

However, in accordance with the proposed amendment, since it has ceded shares within two years of receiving it, the government will have the power to treat the cost of the shares as Rs20 million instead of Rs30 million and may impose a tax. on capital gains of Rs12 million instead. of Rs2 million.

Hide income

The bill proposes to introduce the definition of “income concealment” through a newly proposed clause (13A) in section 2 of the ITO.

The term is defined as including the removal of any element of taxable receipt in whole or in part, or the non-disclosure of taxable income.

“If the person does not provide any explanation as to the nature and source of the amount credited or the investment, money, valuables or funds from which the expenditure was made, discontinue all production, sale , any taxable amount and any receipt subject to tax or the explanation offered by the person is not, in the opinion of the Commissioner, satisfactory.

The bill also proposes to insert an explanation in the definition and specifies that the simple refusal by the commissioner of any declared exempt income or any claimed expenditure will not be considered as a concealment of income, unless it is proved that the act of the taxpayer was deliberate. .

Corporate bank account

In addition, the bill proposes to introduce the definition of a business bank account as a bank account used by the taxpayer for business transactions.

The bank account must also be declared via the form under 181 on the IRIS portal of the RBF.

The bill also proposes the non-declaration of bank accounts of companies, in the form of registration or up-to-date registration or declaration of income or assets, in the list of offenses punishable by a fine or a imprisonment not exceeding one year, or both.

It is also possible that expense payments from any unreported business bank account will be refused by tax officials on the grounds that the payments were not made through a valid account.

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