Corporate taxpayers to adopt digital payment system from Nov 1

ISLAMABAD: The Federal Board of Revenue (FBR) is mulling over allowing corporate taxpayers a grace period of 40 days to switch over to the digital mode of payments with effect from November 1. 

According to details, FBR has introduced significant changes to the Income Tax Ordinance, 2001, with a view to documentation of the economy, capture 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. However, it is now mandatory for companies to make payments on expenditures exceeding Rs250, 000/- through digital mode only.

Expenditures on account of utility bills, freight charges, travel fair, and payment of taxes and fines, on the other hand, would continue to be admissible either paid in cash or traditional banking instruments.

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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. 

It is pertinent to mention that currently grey transactions, hiding and/or suppressing sales invoices and unreconciled payments through open and revolving cheque or cash, are highly prevalent in business value chains while 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 informal-investors to make direct payments to the principal supplier.

Likewise, cross cheques create financial inefficiency due to a clearing period of 1-3 days.

Similarly, cross cheques do not carry the purpose of 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.

However, owing to lack of digital readiness by some corporate taxpayers immediately, FBR is considering to allow the corporate taxpayers a grace period of 40 days to switch over to the digital mode of payments w.e.f. November 1, 2021.

In the meantime, FBR is also engaging SBP to issue necessary instructions to operationalise this provision of law and encourage the banking sector to facilitate corporate businesses to accomplish digitisation within the stipulated time frame.

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