Federal board of Revenue (FBR) is going to take measures to make taxation rules applicable on the linked franchises of foreign brands. News flowing out from the Federal board of Revenue suggest that government is working around modalities to amend taxation rules and certain regulations. The move is aimed to include the foreign brands into the tax loop, which are selling their products in the Pakistani market.
As a source at FBR confirmed while talking to media, there is a loophole in the prevailing tax system in Pakistan that FBR does not have any registration and sales records of local vendors in the markets. Usually, the foreign brands sell their products through the local vendors, which bypass the tax system of Pakistan. This has generated a situation in which a lot of local companies have been found working on the behalf of the leading brands, just like the offshore companies working in the tax relaxed countries.
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According to the present definition of permanent establishment in the Income Tax Ordinance, 2001, the linked franchises do not need to get registered with FBR.
As Pakistani industry is still in the growing phase, foreign brands have a strong presence in the local market. Due to this presence being led by local vendors, FBR is facing a huge loss in revenue which leads to the burden the common man with extra taxes in order to cover up the deficit.
After the amendments in Tax Ordinance, all the companies, including the linked franchises to the foreign companies, would have to register themselves with FBR. Moreover, they would have to submit their sales records in order to avoid the entire loop holes in the tax system.
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According to the official of FBR, the priority of the FBR is to amend the definition of permanent establishment, which will make things easy, related to tax collection.