There is a strong possibility that the Federal Board of Revenue (FBR) may restrict the scope of the blanket exemption granted under SRO.333 (I)/2011 to check the amount credited to the books of accounts of sellers, suppliers or service providers of five zero-rated sectors registered before June 30, 2011.
It is learnt here on Wednesday that the FBR is likely to amend the amnesty scheme announced under SRO.333 (I)/2011 and income tax circular 6 of 2011 (clarification of SRO.333) to check the blanket exemption available under the SRO.333 (I)/2011. In this regard, the FBR is examining the SRO.333 for possible amendment, if necessary.
In case any amendment is made in the notification, there would be some mechanism to control misuse of the amnesty scheme, which ended on June 30, 2011.
The SRO.333 (I)/2011 was issued to encourage sales tax registration of the sellers, suppliers or service providers of five zero-rated sectors, who have been registered before June 30, 2011.
Tax experts said that the FBR is not legally empowered to check the amount credited to books of accounts of sellers, suppliers or service providers of five zero-rated sectors registered before June 30, 2011 under the exemption/immunity from the provisions of clause (a) of sub-section (1) of section 111 of Income Tax Ordinance, 2001 under SRO.333 (I)/2011.
Tax experts have asked the FBR to clarify certain issues pertaining to SRO.333 (I)/2011. Certain controversial issues were announced vide S.R.O 333(1)/2011 dated May 2, 2011, wherein Clause 45A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001 has been substituted.
The crux of these decisions revealed that the rate of deduction of withholding income tax under clauses (a) and (b) of sub-section (1) of Section 153 of the Income Tax Ordinance, 2001 shall be one percent on local sales, supplies and services provided or rendered to the categories of sales tax zero-rated taxpayers.
Second, the exemption/immunity from the provisions of clause (a) of sub-section (1) of section 111 of Income Tax Ordinance, 2001. Third, exemption from Section 111(1) (a) shall be available to all persons already registered or got themselves' registered till June 30, 2011.
Tax expert said that at present the normal rate of tax deduction on supply and services is 3.5 percent and 6 percent respectively, while under the SRO 333 rate of tax deduction has been reduced to 1 percent for certain categories of taxpayers. Apparently there is no rationale to provide blanket exemption to certain categories of taxpayers from the provisions of Section 111(1)(a) of the Income Tax Ordinance.
They said that a cursory look at the text of the SRO reveals that amount credited by sellers, suppliers and service providers mentioned in the SRO in the books of accounts up to June 30, 2011 shall be exempt meaning thereby under sub-clause (b) of newly inserted clause 45A, a blanket exemption from the provision of Section 111(1) (a) has been allowed. Neither any condition nor any limit has been prescribed under the SRO. The issue needs complete elaboration to avoid unnecessary litigation.
Tax expert said that it appears that any person falling under the said categories can claim any amount exempt from income tax if he maintained books of account and shows any credit entries therein. At the face of it, the said clause is quite vague therefore needs more clarify to avoid futile litigation.
The said SRO needs further elaboration at the FBR end to avoid unnecessary legal battle for which mail was earlier forwarded to the Member Inland Revenue on May 10, 2011. In response thereof, FBR issued another Circular on 18/06/2011, but some questions remained unanswered and Circular No 06/2011 is silent on certain issues. The matter is quite sensitive in nature and may create unnecessary litigation on the issue of claiming exemption from the provision of section 111(1) (a), therefore, it is requested to clarify the propositions before June 30, 2011, experts opined.