ISLAMABAD: The ghee and cooking oil sector has received tax benefit from July 1, 2020 through Finance Act, 2020, which is expected to reduce prices of this essential food commodity by Rs3 per kg for the benefit of end consumers.
Tax experts told Business Recorder that prior to Finance Act, 2020 there was a special regime of income tax for ghee industry which mostly relies on imported raw material. On the import of raw material advance income tax at the rate of 5.5 percent was collected by the customs authorities and as per section 148(8) of the Income Tax Ordinance 2001 this advance income tax was a minimum tax on income derived from the sale of ghee & cooking oil manufactured from imported raw material. Similarly, on local purchase of raw material by the ghee industry income tax was to be paid at the rate of two percent of the value of the purchase and as per section 148A this was treated as final tax liability on income derived from the sale of ghee & cooking oil attributable to local purchases of raw material.
Through Finance Act, 2020 both these provisions have been deleted and henceforth advance income tax on import of raw material of ghee industry would be collected at the rate of two percent and this would be adjustable towards corporate income tax under the First Schedule or Minimum Tax under section 113 at the rate of 1.5 percent of turnover, whichever is higher.
Since the amended law would be applicable to imports made on or after 1st July 2020, therefore, the price reduction could be expected in the coming days.
Commenting on the relief measure announced in budget (2020-21), Atif Ikram Sh, Chairman Pakistan Vanaspati Manufacturers Association (PVMA) stated that ghee/cooking oil sector was agitating for the last many years for rationalization of extremely high income tax rate which is too charged in 'Minimum Mode' of taxation regime. It is a wise budgetary measure providing relief to both the industrial undertakings and end consumers, he added.
When contacted for comments, Shahid Jami, Tax Lawyer appreciated the changes in the law through which the character of taxation on the ghee industry has been brought back to direct tax and the benefit has been envisaged for the end consumer. He observed that the ghee sector was earlier treated by governments like the petroleum sector fetching huge revenue on an essential consumption of every household.
He observed that the rates of both these minimum tax under section 148(8) and final tax under section 148A were quite high as evident from an example that in case of an industrial undertaking the taxable income was Rs 710 million whereas the sum total of minimum tax under section 148(8) on import of raw material and final tax under section 148A on local purchases of raw materials amounted to Rs 575 million which is 80 percent of the taxable income as against the corporate tax rate of 29 percent. With this higher incidence of minimum and final tax the income tax had assumed the character of indirect tax instead of a direct tax on corporate income.
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