Five key companies established in Special Economic Zone (EPZ), Bin Qasim Industrial Park (BQIP) have sought Finance Minister's help to resolve income tax related issues. These companies have sent a joint Save Our Soul (SOS) letter to Asad Umar, a copy of which is available with Business Recorder, saying that various types of taxes have been imposed on them which are contrary to the incentives available to industries established or being established in EPZ.
The companies, namely M/s Tecno Auto Glass Ltd, Ms/ Horizon Steel (Pvt) Ltd, M/s Kia Lucky Motors (Pak) Ltd, Ms/ Hitech Alloy Wheels Ltd and M/s Barkat Frisian who have established industrial plants in BQIP, Special Economic Zone, Karachi with a combined investment of Rs 35 billion are of the view that currently SEZ enterprises are being subject to various kinds of advance, withholding, minimum and other taxes that fall under the Income Tax Ordinance (ITO) from which SEZ enterprises are meant to be exempt under Section 37 of the SEZ Act 2012.
Exemption to Special Economic Zone Enterprises (SEZ) under Special Economic Zone Act, 2012 (SEZA) and Income Tax Ordinance, 2001 (ITO): Elaborating the background and provisions of the laws, as applicable, the SOS says that under section 37 of SEZ (Amendment) Act 2016, income of Zone Enterprises is exempt from tax for a period of 10 / 5 years. Relevant extract is reproduced below:
"37 Benefits for zone enterprises - All zone enterprises shall be entitled to the following benefits, namely: According to the SEZ law one-time exemption from custom-duties and taxes on import of plant and machinery into SEZ except items listed under Chapter 87 of the Pakistan Customs Tariff, for installation in that zone enterprise subject to verification by the BOI. Exemption is also granted from all taxes on income for enterprises commencing commercial production by the thirtieth June, 2020, in the SEZs for the next ten years; provided that exemption from all taxes on income for those zone enterprises or firms which commence commercial production after the aforesaid date shall be for the next five years."
Income tax law: The above exemption is also part of ITO vide clause 126E, Part I, 2nd Schedule which is as follows " (126E) Income derived by a zone enterprise as defined in the Special Economic Zones Act, 2012 (XX of 2012) for a period of ten years starting from the date the developer certifies that the zone enterprise has commenced commercial operation and for a period of ten years to a developer of zone starting from the date of signing of the development agreement in the special economic zone as announced by the Federal Government." As income of Zone Enterprise is exempt from income tax for a period of 10 / 5 years as explained above, there should not be any withholding of Income tax at source at any stage for Zone Enterprise and under any provisions of the ITO till such time exemption is available to the Zone Enterprise. Amendments need to be made in the ITO's relevant provisions to ease the difficulties being faced by Zone Enterprise which are highlighted as follows.
Withholding tax on import of raw material - By Default: Under section 148, advance income tax is collected on import of raw material by industrial undertakings.
Exemption: Clause 72B, Part IV, 2nd Schedule of ITO read with SRO 717(I)/2014 allows exemption from such tax collection subject to restriction on import quantity for a given year by placing cap of 125% of quantity imported and consumed in last year. The law also prohibits granting above exemption for first year of production.
The enterprises are of the view that since income of Zone enterprise is exempt from income tax under clause 126E, it is proposed that exemption be granted to Zone Enterprises, by default, under Section 148 from collection of advance income tax from Zone Enterprises on import of raw material without any limit / cap on quantity (including first year of production).
Withholding tax on immovable property - By Default: Advance income tax under section 236K and 236W is collected on purchase, transfer and registration of immovable property. Advance income tax under section 236K is adjustable whereas tax collected under section 236W is non-adjustable. The companies have sought exemption for to Zone enterprises, by default, from advance income tax collection under section 236K and 236W.
Withholding tax on supply of goods - By Default: Under section 153(1)(a), every prescribed person is required to deduct advance income tax at applicable rates while making payment for sale of goods, provision of services and execution of contract. Exemption: Section 153(4) & (5) of ITO allows exemption from deduction of income tax u/s 153 subject to certain conditions
The companies have proposed exemption to Zone Enterprises, by default, from advance income tax deduction under section 153 against sale proceeds. Quarterly advance tax u/s 147 - By Default: Under section 147, quarterly advance tax is required to be paid by all tax payers (with certain exceptions). It is calculated by multiplying last year's average tax rate by turnover of the current quarter, as reduced by advance taxes paid in the quarter. Advance tax paid u/s 147 is adjustable against annual income tax liability of the tax year.
The SOS says since income of Zone Enterprise is exempt from income tax under clause 126E, collection of quarterly advance tax from Zone Enterprises is proposed to be abolished. Minimum tax u/s 113 - By Default: Minimum tax under section 113 is applicable on income of certain persons. Clause 11A, Part IV, 2nd Schedule of ITO allows exemption from minimum tax to certain persons.
The five companies have proposed to grant exemption to Zone Enterprise, by default, from minimum tax collection by including it in list of entities covered under clause 11A, Part IV, 2nd Schedule.
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