ISLAMABAD: Overseas Investors Chamber of Commerce and Industry (OICCI) has proposed to the government to simplify the tax system of determining the corporate tax liability by abolishing Alternative Corporate Tax (ACT), revamping the Minimum Tax Regime (MTR), doing away with recurring audit and simplification of sales and income tax returns.
The OICCI, in its budget proposals for FY 2022-23, supported the reduction of the general rate of Minimum Tax under section 113 of ITO 2001 to 0.25% for businesses dealing in sectors with high turnover and low margins, (e.g., oil marketing/ refineries/ LNG terminal operators, large chemical companies, authorized dealers of local vehicle manufacturers, distributors, and traders, including large trading houses) – a rate that should be applicable on gross profits instead of turnover. Alternative Corporate Tax under section 113C to be abolished in the presence of Minimum Tax under section 113.
To distinguish relief from multiple taxation from income tax exemption it is proposed that a new subsection be inserted in section 59B as follows: “distribution of dividends within companies eligible for group relief under this section shall not be deemed a taxable event.” This is in line with the established global practice of protecting inter-corporate dividends from multiple taxes.
The Chamber further maintained that section 21(q) introduced by Finance Act 2020 should be omitted and to promote documentation and incentivize tax compliant sectors, section 65A (omitted via Finance Act 2017), which gave tax credit of 3%, where 90% of sales were to sales tax registered persons, should be restored. Already submitted data/ information in the form of Sales Tax returns, withholding statements submitted by tax-compliant sectors should be utilized for the widening of the tax base.
OICCI maintains that requirement to obtain exemption certificates for entities having exempt income shall be dispensed with. For example, retirement funds, companies in tax holidays, etc. Companies that have discharged their full-year tax liability in advance under section 148/ 153 shall also be issued exemption certificates under other provisions of Ordinance (for example Section 151, 233, etc., in respect of filer and compliant taxpayers for a 15-day limit for auto-issuance of exemption certificate as presently allowed in case of Section 153 of the Ordinance) should be extended to other sections.
The limit of the cost of the vehicle for the purpose of depreciation to be increased from 2.5 million to Rs.5 million under section 22(13) (a) of the Income Tax Ordinance, 2001.
OICCI has proposed that Withholding Tax (WHT) regime should be revamped and reduced from existing over twenty-six to five rates only for filers. This tax should be applicable on inactive taxpayers only. Alternatively, WHT rate applicable on services at the rate of 8% is a minimum tax regardless of the actual taxable income of the service provider. This tax effectively becomes indirect tax and increases the cost of doing business for service providers; hence, tax on services should be made adjustable. Withholding tax deduction u/s 153 (1)(a) which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list.
Through Finance Act 2021 u/s 165, the requirement of filing reconciliation between annual withholding statements and audited accounts is introduced. It has resulted in an additional compliance burden on active taxpayers and should be abolished. Companies appearing in ATL and having obtained exemption certificates by the discharge of full-year tax liability in advance should be dispensed with requirements to obtain separate withholding tax exemption certificates under 151, 234, 235, 236, 236G and 236H. Payments to non-residents cannot be processed without obtaining an exemption certificate from the Commissioner (within 30 days of request). To facilitate timely payment(s) the period of 30 days under 152(5A) shall be curtailed to 15 days and in the absence of any confirmation within 15 days request shall be deemed to be approved.
The following clarification to be inserted after clause 153(7) (iii), to provide tax neutrality for assets financed by Islamic banking of conventional vis-à-vis conventional banks: “for the removal of doubt, it is clarified that any goods delivered under an Islamic mode of financing by a bank or financial institution approved by the State Bank of Pakistan or the Securities Exchange Commission.”
The previous limitation of conducting tax audits once in every three years should be restored.
The timeline to conclude the audit after submission of requisite information by the taxpayer should be specifically provided in section 177.
Sub-section (1) (h) and (i) of section 8 of STA 1990 should be amended to allow for adjustment of input sales tax on civil work, vehicles and other equipment & material. The third proviso to section 23(1) removed through Finance Supplementary Act 2022 be restored. Inter-adjustment of Income/ Sales tax refunds should be allowed as part of the law.
OICCI’s industry-specific budget recommendations are as follows: (i) automobile- Levy of FED on locally manufactured vehicles be reduced by amending Serial No. 55B and 55D of Table I of First Schedule of the Federal Excise Act, 2005, to restore sales revenue of vehicles of auto sector while also increasing government revenue; (ii) banking, leasing and insurance- (a) Corporate tax rates for the banking sector should be aligned with other sectors; and (b) Super Tax relief, as granted to other industries, should be given to banking sector as well; (iii) chemical/ pesticides/ fertilizers/ paints/ cement- clause b of Section 148(7) of ITO 2001 as deleted by the Finance Act, 2017 should be restated, which reads as follows: “148(7) b fertilizer by manufacturer of fertilizer” to allow adjustment of tax deducted at import stage for fertilizer imported by a fertilizer manufacturer so as not to make it a Final Tax; (iv) engineering/ electrical- exemption from sales tax on the supply of LED or SMD lights and bulbs meant for conservation of energy;(v) energy sector- corporate tax rate for E&P Companies needs to be aligned with general corporate tax rate of 29%; (vi) pharmaceutical- pharma API imports should also be ‘zero rated’, to avoid generation of huge sales tax refunds and sales tax refund adjustment should also be allowed against Income Tax liability – Section 10 read with Rule 26 & 28. The submission of Annexure H as part of the Sales Tax Return should be discontinued since these details are redundant and are utilized as a tool to delay refund processing - Rule 28. Tax Authorities should simplify the documentation required for verification of Input Sales Tax payment by limiting it to Goods Declaration, Invoice and Bank Statement as adequate supports; (vii) Telecommunication- Rate of withholding tax on subscribers should be abolished completely as the majority of the subscriber’s base falls below the taxable limit or the withholding tax reduction made through Finance Act, 2021 be reinstated i.e. 8% effective Fiscal Year 2023; and (viii) Tobacco- FED be increased to Rs 500/kg from Rs 10/kg on un-manufactured tobacco. For brand excise licensing, STGO of July 1, 2021 be enforced in letter and spirit. Implement a tax stamp identifier on cigarette packets. Penalty for selling below MPL for cigarettes be enhanced from Rs 20,000 to Rs 50,000.
Copyright Business Recorder, 2022