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E-commerce Business Registration and Taxation in Pakistan

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This presentation was made in the program on "E-Commerce Business Registration and Taxation" organized by Pakistan E-Commerce Consortium and TCS Octara on 13-June-2019 in Karachi, Pakistan.

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E-commerce Business Registration and Taxation in Pakistan

  1. 1. E-COMMERCE BUSINESS REGISTRATION AND TAXATION
  2. 2. Sayyid Mansoob Hasan • FCMA, ACIS, Accredited Mediator & Arbitrator, Certified Lead Assessor • Managing Partner MANSOOB & CO. Cost & Management Accountants Management Consultants Mediators & Arbitrators • PNC of Int’l Chambers of Commerce • Chairman Taxation Commission • Member Arbitration Commission – • Member Mediation Commission – ICC Pakistan • Chairman – Small Dispute Resolution Committee, Karachi (Sindh & Baluchistan) formed under Insurance Ordinance, 2000 • Member – Permanent Panel of Arbitrators Pakistan Stock Exchange • Chairman – Circle of Voice Dispute Resolution Center • Chairman Audit Committee – Pakistan Institute of Public Finance Accountants • Have over 27 years of professional experience Contact: mansoob@mncglobal.com Website: www.mncglobal.com Cell: 0333-3291290
  3. 3. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Talking points • Why register your e-commerce business? • Which form of registration is suitable for your business? • What are the implications of income tax and sales tax as per the form of registration? • What is the difference in taxation of e-commerce marketplace and e- commerce store? • What is the implication of taxation on direct exports and exports via off-shore company?
  4. 4. Why register your e-commerce business?
  5. 5. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Why are you in this business in the first place? • For fun • Boarding the band wagon • Just trying luck • Seriously focusing • Is there a business plan? • What is the scale you are looking at? Answer to these questions are vital to select the appropriate form of business registration.
  6. 6. Question: What is meant by “Going Concern”?
  7. 7. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION A going concern is an organization which continues to run regardless of the change in the ownership or management, subject to solvency.
  8. 8. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION • IBM since 1911 • Microsoft 1975 • Apple 1976 • Sony 1946 • Unilever 1929 • P&G 1837 • Nestle 1866 • Johnson & Johnson 1886 • Adamjee Group 1947 • Attock Cement 1922 • Atlas Group 1962 • CA Sports 1958 • Dawood Group 1948 • Gul Ahmed 1953 • Servis Shoes 1928 • Bata Pakistan 1942 (Swiss 1894) Standing of some enterprises on the left international on the right Pakistani
  9. 9. Which form of registration is suitable for your business?
  10. 10. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION For profit organizations • Sole proprietor – 1 person • Partnership(AOP) – 2 to 20 persons • Limited liability partnership (AOP) – 2 to 20 persons • Limited liability companies • Single member company – 1 person • Private limited company – 2 to 50 persons • Public unlisted company – 3 to n • Public listed company – 7 at the time of registration to n Not for profit organizations • Trusts • Voluntary social welfare organizations (NGOs) • Societies • Companies licensed u/s 42 of Companies Act, 2017 (Section 42 companies) Legal forms of businesses
  11. 11. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Suitable forms of business registration • Sole proprietorship • For beginners • For testing of the concept and platform • LLP for long term business operations until needed to be converted to a public company
  12. 12. What are the implications of income tax and sales tax as per the form of registration?
  13. 13. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Taxation on businesses • Income tax • General sales tax (for sale of goods) • Sales tax on services (for rendering services) • Excise duty (on manufacturing of certain products) • Customs duty/import duty
  14. 14. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Legal forms of businesses For profit organizations • Sole proprietor • Partnership(AOP) • Limited liability partnership (AOP) • Limited liability companies • Single member company • Private limited company • Public unlisted company • Public listed company
  15. 15. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Proprietorships • Income tax at rates for individuals • SRB tax if taxable services are rendered • GST if conditions for mandatory GST registration are met AOPs • Income tax at rates of AOPs • SRB tax if taxable services are rendered • GST if conditions for mandatory GST registration are met Implication of taxation
  16. 16. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Income Tax • Withholding income tax on salaries and other payments (filer, non- filer) • Income tax on total income • Small companies 25% • Other companies 29% • Income tax on dividend of companies 15% • Turnover tax/minimum tax/minimum corporate tax • Minimum tax (turnover tax) 1.25% • Minimum corporate tax 17% Sales Tax • Mandatory registration under SST Act, 2011 • GST if conditions for mandatory GST registration are met Implication of taxation for companies
  17. 17. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Withholding tax – sale of goods (threshold Rs. 75,000/-) By Filer Non-filer Company 4% 8% Individuals and AOP 4.5% 9% FMCG Company 2% 2% Individuals and AOP 2.5% 2.5%
  18. 18. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Withholding tax – rendering of services (threshold Rs. 30,000/-) By Filer Non-filer Company 4% 8% Individuals and AOP 4.5% 9%
  19. 19. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Withholding tax By Filer Non-filer Transport services (Proposed 4% and 8%) 2% 2%
  20. 20. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Sindh Revenue Board • Applicability of services tax • Registration • General rate of SST is 13%
  21. 21. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION SST return – monthly • Sales tax payments by 15th of every month • Sales tax return filing by 18th of every month
  22. 22. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION GST registration – when mandatory (not related to form of registration) • All importers • All wholesalers (including dealers) and distributors • Manufacturers not falling in cottage industry. {Cottage industry means a manufacturer whose annual turnover from taxable supplies made in any tax period during the last twelve months ending any tax period does not exceed [ten] million rupees or whose annual utility (electricity, gas and telephone) bills during the last twelve months ending any tax period do not exceed [eight] hundred thousand rupees;} • Retailers (Tier-1 retailers means: • A retailer operating as a unit of a national or international chain of stores; • A retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks; • A retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds Rupees six hundred thousand; and • A wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers;) • A person required under any Provincial or Federal Law to be registered for purpose of any duty or tax collected or paid as if it were a levy of sales tax, e.g. service providers like hotels, clubs, caterers, customs agents, ship chandlers, stevedores, courier services etc. • Persons making zero-rated supplies, including commercial exporter who intends to obtain sales tax refund against his zero rated supplies. • A person who is required to be registered by virtue of aforesaid criteria, but still avoids registration, can be compulsorily registered by the department, after proper enquiry, under sub- rule 1 of Rule 6 of Sales Tax Rules, 2006.
  23. 23. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION GST return – monthly • Filing of Annexure C by 10th of every month • Sales tax payments by 15th of every month • Sales tax return filing by 18th of every month
  24. 24. What is the difference in taxation of e-commerce marketplace and e-commerce store?
  25. 25. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION E-commerce Store TRADING E-commerce Marketplace SERVICE Principal distinction
  26. 26. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION E-commerce marketplace • Section 2 Definitions of Income Tax Ordinance 2001 • (38B) “online marketplace” means an information technology platform run by e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and a seller;
  27. 27. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Minimum tax on e-commerce marketplace • Division X – Minimum Tax u/s 113 • 1 (e) person running an online marketplace as defined in clause (38B) of section 2.] 0.5% of Turnover
  28. 28. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Turnover (under ITO) • (4) “turnover” means,- • (a) the 6[gross sales or] gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable; • (b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable; • (c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and • (d) the company’s share of the amounts stated above of any association of persons of which the company is a member.]
  29. 29. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Withholding tax on services of marketplace = 5% • Second Schedule, Part II, Reduction in Tax Rates • [(28C)The rates of tax as specified in Division II of Part-IV of the First Schedule shall be five percent in the case of a person running online marketplace as defined in clause (38B) of section 2.] • First Schedule, Part IV, Division II, Brokerage and Commission
  30. 30. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Taxation of e-commerce store • The same as any other proprietorship, AOP or company
  31. 31. What is the implication of taxation on direct exports and exports via off-shore company?
  32. 32. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Exports Pakistan USA Pakistan USA UAE Direct Exports Indirect Exports
  33. 33. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Tax on exports • 154. Exports. — (1) Every authorised dealer in foreign exchange shall, at the time of realisation of foreign exchange proceeds on account of the export of goods by an exporter, deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule. = 1% of the proceeds.
  34. 34. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Exports Pakistan USA Pakistan USA UAE Direct Exports Indirect Exports
  35. 35. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Pakistan • Tax on exports 1% • Tax on total income as per form of business • Tax on dividend • GST refunds Off Shore Organization • Tax on exports • Corporate tax • Tax on dividend • VAT/VAT refunds Taxation on indirect exports
  36. 36. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Product pricing should be done carefully to incorporate the costs and taxes of off-shore organization.
  37. 37. SAYYID MANSOOB HASAN MANSOOB & CO.E-COMMERCCE REGISTRATION AND TAXATION Contact for more information MANSOOB & CO Email: info@mncglobal.com Phone: + 92 21 35881453

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