LETTER FROM AMIR ALAM KHAN & CO. CHARTERED ACCOUNTANTS, RAWALPINDI TO THE MEMBER POLICY

LETTER FROM AMIR ALAM KHAN & CO <!--[if gte mso 10]> LETTER FROM AMIR ALAM KHAN & CO. CHARTERED ACCOUNTANTS, RAWALPINDI TO THE MEMBER POLICY (DIRECT TAXES) FEDERAL BOARD OF REVENUE No.Misc/003 [4th August, 2009] (Re: Draft Income Tax Return Form for the Tax Year 2009 -- S.R.O. 697(I)/2009 dated July 25, 2009) The Member Policy (Direct Taxes) Federal Board of Revenue, FBR House, Constitution Avenue, Islamabad SUBJECT: DRAFT INCOME TAX RETURN FORM FOR THE TAX YEAR 2009 -- S.R.O. 697(I)/2009 DATED JULY 25, 2009 Dear Sir, Please refer to S.R.O. 697(I)/2009 dated July 25, 2009 whereby draft Income Tax Return Form for Individual and Association of Persons has been notified. We have gone through the said form/annexes and offer our following comments for your kind consideration: 1. Form - General: (a) Income Tax Return Form for a `Company' has not yet been notified. (b) The form under reference is only for return of total income as required under section 114(1) of the Income Tax Ordinance, 2001 for a complete year. Form for return of total income for an `Individual' or an `AOP' required to be furnished under section 114(6) [revised return of income], under section 117 [return where business has been discontinued] and under section 145 [return by persons about to leave Pakistan] has not been notified. (c) The form under reference is both for an `Individual' and an 'AOP', but no space has been provided to distinguish whether the return of total income has been furnished in the status of an `Individual' or an `AOP'. (d) No space has been provided in the form to' state the IDP Tax levied through Finance Act, 2009 retrospectively from the tax year 2009. (e) No space has been provided in the form to state the minimum tax on the member of a stock exchange and on sale/purchase of shares under Clauses (a), (b) and (c) of subsection (1) of section 233A read with subsection (2) of Section 233A. (f) No space has been provided to state the amount of Workers Welfare Fund due. (g) No space has been provided to state the amount of Workers Welfare Fund paid alongwith the return and the corresponding CPR No. 2. Form- Name: This is undefined as to what is to be stated, i.e., in case of an individual deriving income from business" - Taxpayer's Name or Business Name. 3. Form - Business Address: This is applicable where an individual derives income from business. A large number of taxpayers derive income from sources other than business and no space is provided for address to be stated by such taxpayers. 4. Form - Partners' Name: Three lines have been provided for this purpose. In case of an `AOP' with more than three members, it is not clear as to name of which three partners are to be stated over here. 5. Form - S. No. 1 - Net Sales: The explanatory note states `excluding Sales Tax/Federal Excise Duty/Commission/Brokerage'. As far as excluding Sales Tax and Federal Excise Duty is concerned the explanation is understandable, since these are charged in addition to the sale value. However, excluding Commission and Brokerage is confusing, since this is allowed as a deduction from the sale value. The explanatory note requires suitable correction to clearly mention whether the Net Sales td'be stated are before or after deduction allowed on account of Commission or Brokerage. 6. Form - S. No. 4 - Net Purchases: The explanatory note states `excluding Sales Tax/Federal Excise Duty/Commission/Brokerage'. As far as, excluding Sales Tax and Federal Excise Duty is concerned the explanation is understandable, since these are charged in addition to the purchase value. However, excluding Commission and Brokerage is confusing, since this is allowed as a deduction from the purchase value. The explanatory note requires suitable correction to clearly mention whether the Net Purchases to be stated are before or after deduction allowed on account of Commission or Brokerage. 7. Form - S. Nos. 26 to 30 -- Exempt Income/(Loss): No space is provided to state property income exempt under clauses 57(1), 58 and 59 of Part I of 2nd Schedule to the Income Tax Ordinance, 2001. 8. Form - S. Nos. 39 to 43 - Imports: Imports Subject to final taxation are at the rate of 2% -and 1% only. In the draft form the rate of 2% has been mentioned twice at S. No. 39 and 41. Further, at S. No. 42 rate of 0.50% has been mentioned which does not exist. In addition at S. No. 43 a row has been provided without any rate, which is also not required. 9. Form - S. No. 47 - Royalties/Fees (Non-resident): Only a single row with a fixed rate of 15% has been provided. In many cases reduced rate is applicable under the Avoidance of Double Tax Treaties, for which no space has been provided. 10. Form--S. Nos. 59 to 61 - Exports/related Commission/Services: Exports and related Commission/Services subject to final taxation are at the rate of 0.5% and 1% only. In the draft form at S. No. 60 rate of 0.75% has been mentioned which does not exist. 11. Form - S. No. 63 - Property Income subject to WHT:. Rate of tax mentioned as 5% is not correct. For the tax year 2009 property income subject to WHT is subject to tax at rates ranging from 0% to 10% (slab rates). 12. Form - S. No. 69 - Stock Exchange Commission: Commission income of the Members of the Stock Exchange with effect from tax year 2009 is outside the ambit of Final Taxation but in the draft form the same continues to exist which is not correct. 13. Form - Verification: Space for the 'name of the person verifying and giving the declaration has not been provided. 14. Annex- A - S. No. 2 - Machinery and plant (not otherwise specified): Applicable rate of initial allowance is 50% but in the form the same has been mentioned as 0%. 15. Annex- A S. No. 3 - .Computer hardware (including allied items): Applicable rate of depreciation is 30% but in the form the same has been mentioned as 15%. 16. Annex- A - S. No. 5 - Technical and professional books: Applicable rate of initial allowance is 50% but in the form the same has been mentioned as 0%. 17. Annex- A - S. No. 6 - Below ground installation of mineral oil concerns: Applicable rate of depreciation is 100% but in the form the same has been mentioned as 15%. 18. Annex- A - S. No. 7 - Off shore installation of mineral oil concerns: Applicable rate of depreciation is 20% but in the form the same has been mentioned as 15%. 19. Annex- A - S. No. 9 - Motor vehicles (not plying for hire): Motor vehicles (not plying for hire) do not qualify for initial allowance. Contrary to this in the form the same has been mentioned as 50%. Applicable rate of depreciation is 15% but in the form the same has been mentioned as 30%. 20. Annex- A - S. No. 10 - Motor vehicles (plying for hire): Applicable rate of depreciation is 15% but in the form the same has been mentioned as 30%. 21. Annex- A - S. No. 11 -'Ships: Ships qualify for' initial allowance at the rate of 50%. Contrary to this in the form the same has been mentioned as 0%. Applicable rate of depreciation is 15% but in the form the same has been mentioned as 100%. 22. Annex- A - S. No. 12 - Air crafts and aero engines: Applicable rate of depreciation is 30% but in the form the same has been mentioned as 20%. 23. Annex- A - S. Nos. 1 to 13:- Extent: The extent of business' use of a depreciable asset varies from case to case and it cannot be fixed. Contrary to this in the column of `Extent', 100% has been stated against S. Nos. 1 to 13, which is not correct. In fact, this should have been left blank. 24. Annex- A - S. Nos. 1 to 13 - WDV (CF): WDV (CF) is arrived at as under: WDV (BF); plus Additions; minus Deletions; minus; Initial allowance; minus Full amount of depreciation as if the depreciable asset is Used 100% for the purposes of business Where a depreciable asset is partly used for business purposes, in the absence of a column for full amount of depreciation, the WDV (CF) will be incorrectly calculated by the taxpayers. To avoid this and to guide taxpayers how to calculate initial allowance and depreciation it will be appropriate to: Add a column for full amount of depreciation; Number each column; and State the formula of calculation of initial allowance, depreciation and WDV (CF), with reference to column number. 25. Annex- A - Headings of Intangibles: The heading `Useful Years' is not correct and needs to be replaced with `Useful life (in years)'. 26. Annex- A - S. No. 14 - Intangibles: The amortization of `Intangibles' is calculated with reference to useful life in years and therefore the column of `Rate (%)' should state `Not applicable' or he column should be deleted. Also see our comments against S. Nos.15 and 16. 27. Annex- A - S. No. 15 - Pre-commencement expenditure: Pre-commencement expenditure does not fall under the `Intangibles'. Further, pre-commencement expenditure is allowed as a deduction over a period of five years on straight line basis and is not at par with amortization of intangibles. Accordingly, the inclusion of the pre-commencement expenditure in Annex-A is not correct. 28. Annex- A - S. No. 16 - Expenditure providing long term advantage/benefit: The amortization of `Expenditure providing long term advantage/benefit' is calculated with reference to useful life in years and therefore the column of `Rate (%)' should state `Not applicable' or the column should be deleted. Also see our comments against S. Nos. 14 and 15. 29. Annex- A - Headings of Brought Forward Adjustments: The heading `Adj. Tax Year' against 'Un-adjusted loss from business for previous years' is not correct and needs to be replaced with `Tax Year'. 30. Annex- A - Unabsorbed tax depreciation / initial allowance: Unabsorbed tax depreciation / initial allowance is a single line item without any breakup with reference to tax years. Accordingly, the provision of six lines for this purpose and the column `Adj. Tax year' is not understandable. 31. Annex- A -- Unabsorbed amortization of intangibles and expenditure providing long term advantage/benefit: No space has been provided for stating the amounts of unabsorbed amortization .of intangibles and expenditure providing long term advantage/benefit. 32. Annex- B - General: No row has been provided for stating the tax collected from the Members of Stock Exchange under section 233A(1)(a) and (c), which was earlier a final tax but effective tax year 2009 it is an adjustable tax subject to minimum tax. 33. Annex- B - S. No. 7 - On payments received by non-residents: Tax deducted at source under section 152 in certain cases is final tax. However, in the form the words `(other than tax deduction treated as final tax)' are missing. 34. Annex- B - S. No. 21 - Admitted Tax: Most probably this row is for the amount of tax due paid along with the return under section 137. The words used `Admitted 'Tax' are confusing and it will be appropriate to replace the same with words used over last many years i.e. `Tax paid along with the return under section 137'. 35. Annex- B - S. No. 23 CPR No.: CPR No. applies to all tax payments and in particular to `Advance Tax' and `Tax paid along with the return under section 137'. However, only a single row has been provided for CPR No., and that to without explanatory note as to CPR No. of which tax payment. We sincerely hope that our above comments will be taken into consideration before issuing the fir al S.R.O. of amendments in the Income Tax Rules, 2002.