Tax laws meant for foreign ships applied to Pak vessels!

RECORDER REPORT

ISLAMABAD: Karachi-based tax authorities of the Federal Board of Revenue are wrongly applying provisions of Income Tax Ordinance 2001, meant for foreign shipping lines on the Pakistani ships and vessels owned by Pakistan National Shipping Corporation (PNSC).

Sources told Business Recorder on Friday that requirement of submitting Port Clearance Certificates (PCCs) is applicable to the non-resident companies and foreign shipping lines under the income tax laws. However, Karachi-based tax officials are demanding such certificates from the local ships and vessels owned by the PNSC under the Income Tax Ordinance 2001. Even the PNSC is fulfilling these requirements of the Income Tax Ordinance 2001 applicable to non-resident companies. Thus, the laws meant for foreign ships and vessels were applied to the Pakistani ships. The requirement to produce port clearance certificate on sailing of owned vessels is only applicable to the foreign ships as per provisions of the Income Tax Ordinance 2001. However, the tax department is applying the same laws on the ships owned by the PNSC.

The issue has been highlighted by the Ministry of Port and Shipping with legal references of the tax laws. The Ministry of Port and Shipping has informed the FBR that Karachi-based tax officials are seeking Port Clearance Certificates from Pakistani ships and vessels owned by Pakistan National Shipping Corporation. According to the Ministry of Port and Shipping, for sailing of PNSC owned vessels from theKarachiPort, the Customs department requires Port Clearance Certificate. This PCC is issued by the Income Tax Authorities and is normally valid for a period of six months. An application under section 143 of the Income Tax Ordinance 2001 is normally made to the Tax Department. For the ease of reference the relevant portion of the section 143 of the Income Tax Ordinance 2001 says:

143. Non-resident ship owner or charterer (1) Before the departure of a ship owned or chartered by a non-resident person from any port inPakistan, the master of the ship shall furnish to the Commissioner a return showing the gross amount specified in

sub-section (1) of section 7 in respect of the ship.

7. Tax on shipping and air transport income of a non-resident person:

(1)   Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division V of Part I of the First Schedule, on every non-resident person carrying on the business of operating ships or aircraft as the owner or the charterer thereof in respect of, it added.

On perusal of the above, mentioned section it may be clearly seen that, these are related to non-resident ship owner only, whereas the vessels owned by the subsidiaries of Pakistan National Shipping Corporation are resident Companies and registered inPakistan, Ministry of Port and Shipping said.

The Ministry of Port and Shipping further pointed out that despite this anomaly i.e. non-applicability of section 143PakistanNational Shipping Corporation, on behalf of its subsidiaries had been applying and income tax authorities had been issuing the PCCs. Before the expiry of the last PCC onJune 30, 2011a request was made to the tax department for issuance of PCC for the next six months, expired onDecember 31, 2011. However; this time Income Tax Authorities withheld Port Clearance Certificate and requested for payment of advance tax for next two quarters due in September 2011 and December 2011 stating that tax department would issue certificate for the vessels upon receipt of the payment.

Meanwhile, following is the copy of Deputy Commissioner Inland Revenue (DCIR), Regional Tax Office (RTO) letter to the Pakistan National Shipping Corporation on the issuance of port clearance certificate, contents of which are self-explanatory: Pakistan National Shipping Corporation has filed details in connection with request for issuance of Port Clearance Certificate, for the following vessels for the period from July 1, 2011 to December 31, 2011. Names of the taxpayer and name of vessels included Chitral Shipping (Pvt) Ltd, M.V Chitral (name of vessel); Hyderabad Shipping (Pvt) Ltd, M.V. Hyderabad; Islamabad Shipping (Pvt) Ltd, M.V. Islamabad; Kaghan Shipping (Pvt) Ltd, NIT. Kaghan; Malakand Shipping (Pvt) Ltd,  M.V. Malakand; Multan Shipping (Pvt) Ltd, M.V. Multan; Sargodha Shipping (Pvt) Ltd, M.V. Sargodha; Sibbi Shipping(Pvt) Ltd M.T. Sibbi; Lahore Shipping (Pvt) Ltd, M.T. Lahore; Karachi Shipping (Pvt) Ltd, M.T. Karachi; Quetta Shipping (Pvt) Ltd, M.T. Quetta (name of vessel).

In this regard, Deputy Commissioner Inland Revenue (DCIR), Regional Tax Office (RTO) has requested the Pakistan National Shipping Corporation to pay expected tax payable as per provisions of clause 21 of Part-II of the Second Schedule of the Income Tax Ordinance, 2001 with reference to the above mentioned vessels for the period from July 1, 2011 to December 31, 2011, in advance and furnish the copy of the paid challans for further necessary action, letter of the DCIR RTO Karachi added.