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Corporate sector requests deadline extension for switching to digital payments

Corporate sector requests deadline extension for switching to digital payments

ISLAMABAD: As the grace period for switching over to digital payments under the amended tax laws is going to expire by November 1, 2021, the corporate sector has requested the government to extend the time of conversion to at least six months as they are not ready for the new regime.

According to a letter sent to the Ministry of Finance, the steel industry has requested an increase in the grace period of 40 days to six months for making the switch.

According to the industry, the grace period is too short and the minimum compliance time should be extended to six months, without any further extension in time.

“We believe that the current digital infrastructure available in Pakistan in terms of hardware and software need more time, better and efficient resources like upgraded technology, human resource, and adaptability from the transactional originators as well as a user-friendly environment regime at both ends in order to translate the fruit of digital economies for all stakeholders, the letter said.

“At the moment all companies, as defined under Section 80(2)(b) of the Ordinance, are liable to use digital mode for payment to their vendors from business bank accounts on transactions exceeding Rs250,000 failing which non-digital transactions will not be entertained as valid expenses. In this respect, a grace period of 40 days has been allowed by FBR for switching to digital mode of payment up to October 31, 2021. However, the grace period is too short and the minimum compliance time should be extended to 6 months, without any further extension in time,” the letter added.

According to the industry, Pakistan’s economy and local industry are facing a severe economic crisis both nationally and on the international front. The government is taking appropriate measures to stabilise the economic conditions, and is developing basic infrastructure on digital mode, but the timeline is not feasible to roll out a new payment model.

“We recommend that keeping in view of future challenges and technological advancements where world economies are moving crypto currencies and cytological models in block chain technology, we need to create mass awareness campaigns, create enabling environments, level playing field across the board and then set time lines for these digital change management measures in line with digital economies,” it added.

It may be mentioned here that in September, FBR had announced to allow corporate taxpayers a grace period of 40 days to switch over to the digital mode of payments w.e.f. November 1, 2021, under the Tax Laws (3rd Amendment) Ordinance, 2021.

FBR had introduced significant changes to the Ordinance, with a view to document the economy, capture the supply chains, and broaden the tax base.

The new ordinance has restricted the scope of payments via traditional banking channels on account of expenditures exceeding Rs250,000 to taxpayers other than companies. Consequently, a new clause now makes it mandatory for companies to make digital payments on expenditures exceeding Rs250,000. However, expenditures on account of utility bills, freight charges, travel fare, and payment of taxes and fines would continue to be admissible either paid in cash or traditional banking instruments.

The purpose behind this legislative enactment is to encourage digital payments and discourage traditional mode of transactions by the corporate sector in the first phase.

According to the board, grey transactions (hiding/suppressing sales invoices and un-reconciled payments through open/revolving cheque or cash) are highly prevalent in business value chains as almost 99 per cent of all business transactions are on cash.

Moreover, third party payments are highly prevalent in the organised and informal sector whereby businesses do not use their own bank accounts when making payment for supplies and tell their customers and transaction based informal-investors to make direct payments to the principal supplier.

This is highly prevalent in supply chains and has become an accepted norm. Likewise, cross cheques create financial inefficiency due to a clearing period of 1-3 days. Similarly, cross cheques or open cheques do not carry the purpose of the payment or its relationship with the invoice.

Despite many attempts to increase documentation of supply chains such as WHT and further tax, the number of unregistered distributors and retailers remains high whereby sales are suppressed and due income tax is completely avoided.