Service providers Imposition of 8 percent minimum tax rejected

Associations from service sector have rejected the imposition of 8 per cent minimum tax on service providers. According to details, representatives of Pakistan International Freight Forwarders Association-PIFFA, Air Cargo Agents Association of Pakistan-ACAAP, Fleet Operators Association of Pakistan, All Pakistan Customs Bonded Carriers Association, All Pakistan Customs Clearing Agents Association and others joined hands against the excessive increase in minimum tax on service providers. For the purpose, the meeting was convened at a local hotel here.
Representatives of different associations said that tax deducted at source from the service recipients in unjustified and counterproductive. The rate of 8 per cent of minimum tax is based on the premise that profits before tax of service providers are 25 per cent of turnover (8 per cent/32 per cent).
However, the service providers are operating at a very low net margin ranging between 3-4 per cent of turnover. Minimum tax at the rate of 8 per cent of turnover on corporate filers in services sector will tantamount to tax at the rate of 200 per cent of the profits before tax.
Such tax is excessive and unfair as absorption of tax in excess of profits can never be a justified levy especially when other than services sectors, are being tax at rate of 32 per cent. For loss making companies or companies earning lower margins, tax would be required to be paid from capital reserves and/or injection of fresh capital from shareholders. This would serious impact on the cash flows and viability of the services sector providing employment opportunities to public and contributing positively to national exchequer. The high levy of 8% minimum tax on corporate filers in services sector would lead to provide disincentive to further investments but instead would force businesses to close down.
It was unanimously agreed by all the service providers to join hands together to avert this unjustified levy of minimum tax on the service providers. Tax Committee has also been constituted during meeting to take up the matter at federal level.