CGT exempted on resale of PMRC bonds

The Federal Board of Revenue (FBR) has granted exemption to capital gains tax on the resale of Pakistan Mortgage Refinance Company Limited (PMRC) bonds by the investors. Finance Bill 2018 revealed that the PMRC is a key initiative of the State Bank of Pakistan and has been established for promoting affordable housing finance for the middle and low income groups.
It aims at expansion of the primary residential mortgage market by issuing bonds and sukuks to raise funds. In order to encourage this initiative aimed towards provision of affordable housing finance for middle and low income groups the income of Pakistan Mortgage Refinance Company is being exempted under clause (66) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001.
Exemption has also been accorded to income and gains derived by investors from PMRC bonds issued to refinance the residential mortgage market. Exemption has also been accorded to capital gains tax on the resale of PMRC bonds by the investors to encourage its marketing/increase its attractiveness.
Presently unabsorbed depreciation losses can be carried forward indefinitely until they are completely absorbed /adjusted against business income. This tax regime leads to payment of less or nil tax liability for many years.
The set off of brought forward depreciation losses have now been limited to the extent of fifty per cent of the business income for a Tax Year except in instances where the taxable income is upto Rs. 10 million. Hence taxpayers will still be entitled to carry forward unabsorbed depreciation losses indefinitely, however, such carry forward will be staggered over a greater number of years.
Finance Bill 2018 further revealed that at present the tax collected under section 148 of the Income Tax Ordinance, 2001 from commercial importers at the import stage is final tax, therefore, commercial importers are not required to file their return of income and compute their taxable income.
This leads to under-invoicing, domestic transfer pricing and evasion of tax. Tax collected from commercial importers at the import stage shall now constitute minimum tax instead of final tax, therefore, commercial importers shall be required to file their returns of income depicting their taxable income(s). This measure is also a step towards gradual phasing out of the final tax regime.
Tax deducted on payments to resident persons for rendering or providing of services under section 153(1)(b) of the Ordinance constitutes minimum tax whereas tax deducted on similar payments being made to permanent establishments of non-resident persons does not constitute minimum tax.
This treatment is prejudicial to resident persons as they are at a comparative disadvantage viz-a-viz non-residents having permanent establishments in Pakistan. In order to provide a level playing field, the tax deductible on services rendered /provided by permanent establishments of non-resident persons shall
also be treated as minimum tax.
Prior to the promulgation of the Income Tax (Amendment) Ordinance, 2008 a person was not required to explain the nature as well as the source of any amount of foreign exchange which is remitted from outside Pakistan through normal banking channels and subsequently encashed into Pakistani Rupees by any scheduled bank .In order to discourage whitening of untaxed money and legitimizing tax evaded incomes through this conduit, amendment has been made in section 111(4) of the Ordinance whereby persons would be required to explain the source of investment if the amount of foreign remittances in a year exceeds Rs.10 million.
A new section 116A has been inserted whereby it has been made mandatory for resident individuals to furnish a foreign income and assets statement alongwith return of income if such individual earns foreign income equivalent to or exceeding USD 10,000/- or is the owner of foreign assets having a value equivalent to or exceeding USD 100,000-. The foreign income and assets statement shall contain particulars/details regarding total foreign assets and liabilities (as on the last day of the Tax Year) as well as details of foreign assets transferred to another person during the tax year and consideration received in
lieu of such transfer. Complete particulars of foreign income earned and the expenditures incurred for earning such income shall also be furnished through this statement, FBR added.