FBR urged to withdraw controversial clarification

RECORDER REPORT

ISLAMABAD: Tax experts have requested the Federal Board of Revenue (FBR) to withdraw a controversial clarification, which has created an anomaly on the issue of Minimum Taxation under 153(1)(b) of the Income Tax Ordinance, 2001.

Experts told Business Recorder here on Sunday that the clarification letter C.No.1(10)WHT/2006-Pt.III dated November 01, 2010 issued by the Secretary (Withholding Tax) FBR is not only contrary to the law but also against the verdicts of Federal Tax Ombudsman in C.No.719/LHR/IT(594)/1258/2010 and C.No.627/LHR/IT (483)/1310/2011. The said clarification of 2010 was related to the non-corporate taxpayers only.

Details of the issue revealed that under the Finance Act 2009, an amendment was made in Section 153 of the Income Tax Ordinance, 2001 rendering all service sector taxpayers subject to minimum withholding tax @ 6 percent of gross receipts. It meant that neither a refund could be allowed nor it is adjustable against any other source of income and it would be treated as minimum tax if their assessed income tax was less than the amount withheld @ 6 percent of gross receipts. After the amendment, the FBR issued letter C.No.1(6)WHT/2009 dated July 4, 2009 advising the Directors General, LTUs/RTOs, that the tax deducted under Section 153(1)(b) of the Ordinance would be the “Minimum Tax”. The FBR also issued a Circular No.3 of 2009 dated 17th July, 2009, advising the field formations that tax deducted under Section 153(1)(b) would be considered “minimum tax” and all taxpayers falling in the ambit of this provision of law shall file returns under the normal tax regime instead of statement under final tax regime.

Secretary (Withholding Tax), FBR, through letter C.No.1(10) WHT/2006-Part-III dated 1st November, 2010 clarified that the  law did not allow to club income on account of services rendered by professionals – on which minimum tax @ 6 percent had already been deducted – with other sources of income for further taxation under the normal tax regime. The Income Tax Ordinance 2001 has not given legal backing to this clarification issued by Secretary WHT. Even the Forum of the Federal Tax Ombudsman has also disregarded this controversial clarification, they added.

In this regard, a tax lawyer Waheed Shahzad Butt of Tax Resolution Services Company has written a letter to the FBR, requesting the tax department to withdraw the clarification abinitio.

According to the tax expert, till date a most controversial clarification issued by worthy Secretary (WHT-FBR) is still in the field. Paragraphs 1 and 2 of the said clarification letter are totally in contradiction with the provision of the Income Tax Ordinance, 2001 as applicable for the Tax Year 2010 onward. The cumulative reading of Section 2(64), Section 2(69), Section 4(4), Section 9, Section 10, Section 153(1), Section 153(6) and Section 169 of the Income Tax Ordinance, 2001 proves the fact that the stance of Secretary (WHT-FBR) is not in accordance with the provisions of the Income Tax Ordinance, 2001. The tax deducted at source @ 6 percent is not the maximum tax liability of a taxpayer, it may be taxed at higher bracket on net income basis but cannot be less than 6 percent of the Receipts already subjected to tax deduction u/s 153(1)(b) of the Income Tax Ordinance, 2001. The view point has also been confirmed by the Federal Tax Ombudsman in Complaint No 719/LHR/IT(594)/1258/2010 reported as 104 TAX 1 = 2011 PTD 1672 and Complaint No. 627/LHR/IT(483)/1310/2011, letter maintained.

In the light of legal position, it is requested to kindly issue instructions to the concerned quarters to withdraw the controversial clarification abinitio: letter added.