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ISLAMABAD: The Federal Board of Revenue (FBR) has deferred implementation of the digital mode of payment by the corporate sector till the effective date is notified by the Board under the Finance (Supplementary) Bill, 2021.

The Finance (Supplementary) Bill, 2021 has further defined that digital means electronic or digital payments as defined by the State Bank of Pakistan (SBP).

According to the tax experts, technically speaking, the deadline for the corporate sector for switching over to the digital mode of payments expired on December 31, 2021, and it is now applicable from January 1, 2022.

Corporate sector: FBR extends deadline for digital mode of payments to Dec 31

Both the proposed provisions of the Finance (Supplementary) Bill, 2021, ie, the implementation date of the digital mode of payment and definition of the digital means as defined by the SBP are interlinked.

The proposed, Finance (Supplementary) Bill, 2021 is not law till passed by the Parliament and assent given by the president. Technically, the digital mode of payment for the corporate sector becomes applicable from January 1, 2022. If the FBR issues Income Tax Circular for further extension, it would not be applicable in January 2022, tax experts added.

The notes of clauses of the Finance (Supplementary) Bill, 2021 revealed that clause 5(1) seeks to define digital means of payment as per the SBP, and clause 5(2) seeks to empower the board to determine the implementation date of digital means of payment in case of companies.

According to the Finance (Supplementary) Bill, 2021, amendments have been proposed to the Income Tax Ordinance, 2001.

Digital payments: FBR urged to allow condition in concert with other modes

In the Income Tax Ordinance, 2001 (XLIX of 2001), the following further amendments shall be made, namely:– (1) in section 2, after clause (17A), the following new clause shall be inserted, namely:- “(17B) “digital means” mean electronic or digital payments as defined by the State Bank of Pakistan;”; (2) in section 21, in clause (la), in the provision, for the semicolon at the end, a colon shall be substituted and thereafter the following new proviso shall be added, namely:— “Provided further that this clause shall be effective from such date as the Board may notify.”Ashfaq Tola, a leading tax expert explained the proposed definition of “digital means”. The Bill has proposed to add a new definition of “digital means” through inserting Section 2(17B) in the Income Tax Ordinance 2001.

Proposed definition: “digital means” mean electronic or digital payments as defined by the State Bank of Pakistan (“SBP”). The SBP has, through its Circular PSP&OD Circular Letter No 05 of 2021, dated 15th October 2021, defined digital payments as including the following:

a) Online portals/platforms for digital payments/receipts; b) Online Interbank Fund Transfer Services; c) Online bill/invoice payment presentment and payment services; d) Over the Counter digital payments and facilities; e) Card payments using Point of sale terminals, QR Codes, mobile devices, ATMs, Kiosk and/or any other digital payments enabled services; f) Any other digital/online payment modes.

The said amendment is a corresponding amendment to Section 21(la)1of the ITO, which disallows any expense for a transaction, whether paid or payable under a single account head, that exceeds an aggregate of Rs250,000, made through means other than digital means from the notified business account of the taxpayer.

The said section also has a carve-out for certain expenses. However, this proposed amendment should have been made in a way which brings clarity to the taxpayer. As of now, the proposed amendment does not mention which specific legislation, circular and/or notification of the SBP must be relied upon. It would have been better if the proposed amendment contained an inclusive definition which would have made compliance more efficient by making the definition more certain, tax experts said.

“We believe that the proposed amendment will become more effective if it is redrafted and contains an inclusive definition of digital means,” he said.

He also explained section 21(Ia) – Payment through digital means and its effective date of operation.

The said section has recently introduced a requirement to adopt digital means of payment in the situation stated therein. Moreover, the compliance date of this Section was also extended to December 31, 2021, through circular no 10 of 2021-22.

After the introduction of this section, there was uncertainty as to how it would be implemented.

A reason for this uncertainty might be that the compliance of the Section was required to be immediate initially. We believe a gradual and inclusive approach should be taken to include the taxpayers in this digital payment mechanism over time. Now, there has been an amendment proposed, whereby the effective date of Section 21(Ia) shall be notified by the Board.

This may indicate that the government may consult the stakeholders and devise an action plan to include the taxpayers in this digital payment mechanism in a phased manner, Tola added.

Copyright Business Recorder, 2022


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