According to the FBR's circular, the Board has explained taxpayers filing returns in Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (GB) to be treated as filers under the Income Tax Ordinance, 2001.
The Federal Board of Revenue has espoused the policy of increasing the cost of doing business for non-filers by prescribing higher rates of withholding tax for non-filers 15 vis-à-vis filers under various withholding tax provisions. Persons filing their Income Tax returns in Azad Jammu and Kashmir and Gilgit-Baltistan were being subjected to higher rates of withholding tax applicable to non-filers on various transactions such as cash withdrawal from banks, banking transactions, registration of motor vehicles, collection of motor vehicle tax, etc, in the territory of Pakistan because they did not fall within the ambit of definition of the term "filer" in terms of sub-section (23A) of section 2 of the Income Tax Ordinance, 2001 as their name(s) did not appear in the active taxpayers list issued by the Federal Board of Revenue periodically.
In order to facilitate persons filing their tax returns in AJ&K and Gilgit-Baltistan amendment in the definition of a "filer" under section 2(23A) of the Income Tax Ordinance, 2001 has been made through the Finance Act, 2018 whereby persons appearing on the Active Taxpayers List being maintained by Azad Jammu and Kashmir Council Board of Revenue and the Gilgit-Baltistan Council Board of Revenue, shall also be treated as filers under the Income Tax Ordinance,2001 therefore, such persons shall not be subjected to higher withholding taxes applicable to non-filers. However, it would be pertinent to mention that persons conducting business learning Pakistan-source income in the territory of Pakistan are obliged to file their income tax returns in Pakistan, the FBR added.
The FBR has also explained non-recognition of capital gains in the case of a gift to be restricted to relatives.
Prior to the Finance Act, 2018, as per clause (c) of sub-section (1) of section 79, no gain or loss was taken to arise on disposal by reason of gift of an asset. Further, as per clause (a) of sub-section (4A) of section 37, where the capital asset became a property of a person under a gift, the fair market value of the asset, on the date of its transfer or acquisition by the person was treated as the cost of the asset. Hence, capital gain on sale of asset could be avoided by using conduit of gift in otherwise market based sale or purchase transactions between unrelated parties. In order to plug this loophole having potential of being used as conduit of tax evasion, amendment has been made in clause (c) of sub-section (1) of section (79) as well as in clause (a) of sub- section (4A) of section 37 whereby non-recognition of capital gain is restricted to gain arising on disposal of an asset as a result of gift to a relative only as defined in sub- section (5) of section 85, which, in relation to an individual encompasses: (i) an ancestor, a descendent of any of the grandparents or an adopted child of such individual or his or her spouse; (ii) the spouse of the individual or the spouse of any person delineated in clause (i) above.
However, capital gain or loss shall be recognized and subsequently rise in case of disposal of an asset by way of gift to a person who is not a relative as defined in sub- section (5) of section 85 of the Ordinance, the FBR added.