ISLAMABAD: the Chamber of Commerce and Industry of Foreign Investors (OICCI) has proposed to the government to simplify the tax system for determining corporate tax by abolishing the alternative corporate tax (ACT), by reorganizing the Minimum Tax Regime (MTR), removing recurrent taxes. audit and simplification of tax and income declarations.
The OICCI, in its budget proposals for the financial year 2022-23, supported the reduction of the general rate of minimum tax under Article 113 of the ITO 2001 to 0.25% for companies operating in high-turnover, low-margin sectors (e.g. oil marketing/refineries/LNG terminal operators, large chemical companies, authorized dealers of local car manufacturers, distributors and traders, including large trading houses) – a rate which should be applied to gross profits rather than to turnover. The alternative corporate tax under Section 113C must be abolished in the presence of the minimum tax under Section 113.
In order to distinguish relief from multiple taxation from exemption from income tax, it is proposed to insert in Article 59B a new subsection as follows: “the distribution of dividends within companies eligible for group relief under this section shall not be considered a taxable event.” This is in line with the established global practice of shielding intercorporate dividends from multiple taxation.
OICCI members invest Rs 14.5 billion in CSR activities in 2020-21
The Chamber further argued that Section 21(q) introduced by the Finance Act 2020 should be omitted and to promote documentation and incentivize tax compliant sectors, Section 65A (omitted via the Finance Act 2017), which provided a 3% tax credit, where 90% of sales were made to sales tax registrants, should be reinstated. Data/information already submitted in the form of sales tax returns, withholding tax returns submitted by tax compliant sectors should be utilized for tax base broadening.
OICCI argues that the requirement to obtain exemption certificates for entities with exempt income will be removed. For example, pension funds, tax-exempt companies, etc. ., in respect of filers and compliant taxpayers for a 15-day limit for the automatic issuance of an exemption certificate as currently authorized in the case of section 153 of the order) should be extended to other sections.
The vehicle cost limit for the purpose of depreciation is to be increased from Rs 2.5 million to Rs 5 million under Section 22(13) (a) of the Income Tax Ordinance 2001 revenue.
The OICCI has proposed that the withholding tax (WHT) scheme be revamped and reduced from over twenty-six to five rates just for filers. This tax should be applicable only to inactive taxpayers. Alternatively, the 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 an indirect tax and increases the cost of doing business for service providers; therefore, the service tax should be made adjustable. The u/s 153 (1)(a) withholding tax which is currently considered a minimum tax for all suppliers (except manufacturers and listed companies) should be made adjustable at least for companies listed on the list of active taxpayers.
Through Finance Law 2021 u/s 165, the requirement to file a reconciliation between annual withholding statements and audited accounts is introduced. It has resulted in an additional compliance burden for active taxpayers and should be abolished. Companies appearing on the ATL and having obtained certificates of exemption by prior clearance of full-year tax liability should be exempted from the obligation to obtain certificates of exemption from withholding tax separate sources 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 30 day period under Section 152(5A) will be reduced to 15 days and in the absence of confirmation within 15 days, the claim will be deemed approved.
The following clarification to be inserted after clause 153(7)(iii), in order to ensure the tax neutrality of assets financed by Islamic banks of conventional banks vis-à-vis conventional banks: “for the avoidance 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 carrying out tax audits once every three years should be reinstated.
The time period for concluding the audit after submission of the information required by the taxpayer should be specifically provided for in section 177.
Subsections (1) (h) and (i) of Section 8 of the STA 1990 should be amended to allow adjustment of input sales tax on civil works, vehicles and other equipment and materials. The third conditional clause of Article 23(1) deleted by the supplementary finance law of 2022 must be reinstated. The inter-adjustment of income/sales tax refunds should be permitted within the law.
OICCI’s industry-specific budget recommendations are as follows: (i) Automotive – The FED levy on locally manufactured vehicles should be reduced by modifying serial numbers 55B and 55D in Table I of the First Schedule the Federal Excise Act, 2005 to restore revenue from motor vehicle sales while increasing government revenue; (ii) banking, leasing and insurance- (a) Corporate tax rates for the banking sector should be aligned with those for other sectors; and (b) the super tax relief, as granted to other industries, should also be granted to the banking sector; (iii) chemicals/pesticides/fertilisers/paints/cement – clause b of section 148(7) of the ITO 2001 as deleted by the Finance Act 2017 should be reworded, which reads as follows:” 148(7) b fertilizer by fertilizer manufacturer” to allow adjustment of the tax deducted at the importation stage for fertilizers imported by a fertilizer manufacturer so as not to make it a final tax; (iv) engineering/electrical – sales tax exemption on the supply of LED or SMD lamps and bulbs for energy conservation; (v) energy sector – the corporate tax rate for corporations E&P should be brought into line with the general corporate tax rate of 29%; (vi) imports of pharmaceutical and pharmaceutical APIs should also be ‘zero-rated’, to avoid the generation of huge sales tax refunds and adjustment of sales tax refund should also be allowed with respect to ort to income tax – section 10 read with rules 26 and 28. The submission of Schedule H as part of the sales tax return should be deleted as these details are redundant and are used 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) Telecommunications – The rate of withholding tax on subscribers should be completely removed as the majority of the subscriber base falls below the taxable limit or the reduction in withholding tax effected by the finance law 2021 must be restored, i.e. 8% from the 2023 financial year; and (viii) Tobacco-FED be increased to Rs 500/kg from Rs 10/kg on unmanufactured tobacco. For brand excise licenses, the STGO of July 1, 2021 will be applied in letter and spirit. Introduce a tax stamp identifier on cigarette packets. The penalty for selling below the MPL for cigarettes will be increased from Rs 20,000 to Rs 50,000.
Copyright Business Recorder, 2022