Deadline for corporate sector to switch to digital payments extended again

ISLAMABAD: The Federal Board of Revenue (FBR) on Tuesday set a new deadline for the corporate sector to switch over to digital payments, extending the date to January 31.

In this regard, the tax department has issued a circular that states: “Taking cognizance of various representations filed by taxpayers, the FBR is pleased to extend the deadline for digital payments by the corporate sector stipulated under Section 21(1a) of the Ordinance up to January 31, 2022.” 

The last deadline to do so had expired on December 31, 2021.

It is pertinent to mention here that the tax department has extended the date twice before whereas in October, the sector had requested the government to give a one time extension of at least six months, stating that they are not ready for the new regime.

It is pertinent to mention here that the FBR has introduced significant changes to the Tax Laws (3rd Amendment) Ordinance, 2021, 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.

According to the tax department, grey transactions 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.

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 income tax is completely avoided.