KARACHI: The Federal Board of Revenue (FBR) is considering withdrawing exemptions and concessions from loss reporting by individual or corporate taxpayers in the upcoming budget, sources said on Monday.
The rationalization of the RBF sources of concessions and exemptions granted under the minimum tax regime is under discussion for inclusion in the final recommendation for the 2021/22 budget.
The minimum tax is a tool for collecting tax in another way. The minimum tax was levied under Article 113 and Article 113C of the Income Tax Ordinance 2001. Article 113 of the Ordinance is applicable to a resident company, at the permanent establishment of a non-resident company, to a natural person with a turnover of ten million rupees or above and an association of persons with a turnover of Rs10 million or more.
The minimum tax on these persons with a specific turnover is applicable in the event of a declaration of loss for a year or loss compensated for a previous year.
Likewise, under Article 113C, an alternative corporate tax rate is applicable to companies whose annual profit is lower than the tax rate specified under the law.
The sources said the total tax collection in the two sections is Rs 90 billion. However, an amount of Rs25 billion has been granted each year as an exemption and concessions.
They stated that the concessions were granted under clauses 24C and 24D of Part II of the Second Schedule of the Income Tax Ordinance, 2001.
The minimum tax rate is applicable to many sectors of the economy where the profit margin is very low. But many legal persons take advantage of this by declaring lower profits or losses to benefit from the reduced tax rate.
According to tax experts, the RBF should review all sectors of the economy and withdraw the exemption and concessions on a case-by-case basis.
They said there were sectors where the profit margin was only 0.5% but they were forced to pay more taxes than the profit margin.
The Chamber of Commerce and Industry of Foreign Investors (OICCI) has stated that the general minimum tax rate under Article 113 of the Income Tax Ordinance 2001 should be only 0.5%.
“The general rate should be further reduced to 0.2% for companies operating in sectors with high turnover and low margins,” OICCI said in the budget proposals.
The OICCI has stated that the alternative corporate tax under Section 113C of the Income Tax Ordinance 2001 should be abolished. “To promote investment in the special economic zone, the minimum tax regime should not be applicable to companies operating in these zones. “