Remove proposed minimum tax for listed companies


KARACHI: The Karachi Tax Bar Association (KTBA) has recommended the elimination of the minimum tax for listed companies and should be reduced in other cases.

The Tax Bar, in its proposals for the 2022/2023 budget, urged the Federal Board of Revenue (FBR) to streamline minimum tax rates in the upcoming budget.

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Currently the rate of minimum tax under section 113 of the Income Tax Order 2001 is 1.25% of turnover.

“This leads to an increase in the cost of doing business and regressive taxation. The rate assumes that there is a certain percentage of profits made by the business sector, which is not the case in all cases,” the tax bar said.

He proposed that the minimum tax on listed companies be abolished and that, in other cases, the minimum tax rate be gradually reduced by 0.2% per year, so that by the year tax year 2025, the rate is reduced to 0.5%.

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Revenue now subject to minimum tax [from Final Tax Regime (FTR)] should be exempt from minimum tax levy, he further proposed.

The tax bar said that removing the minimum tax would promote industrialization.

In another proposal, the tax bar urged the FBR to allow exemption from minimum tax to companies already exempt from income tax.

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The KTBA stated that the legislature has obviously granted tax exemption to various entities under Part I of the Second Schedule of the Income Tax Ordinance 2001. Such entities are however subject to the payment of a minimum tax, unless they are specifically exempt under Section 11A of Part IV of the 2nd Schedule.

If corporation tax is exempt, there is no need to also levy a minimum tax. Clause 11A should provide a general U/s exemption. 113 of the Ordinance for Exempt Entities under Part I, 2nd Schedule to the Ordinance. A negative list may be prescribed.

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“The harmonization of substantive and procedural requirements so that the Part I income exemption is effectively used by these exempt entities,” the tax bar said.

The KTBA urged the tax authorities to abolish the Alternative Corporate Tax (ACT) in the next budget.

Pursuant to Section 113C of the Income Tax Order 2001, the tax payable by the company is subject to tax under Section II, Part I of the 1st Schedule or l minimum tax or ACT, whichever is greater.

This increases the cost of doing business and leads to regressive taxation. “It is proposed that the ACT be abolished,” he said.

“There is already a minimum tax regime that imposes a U/s gross turnover tax. 113, along with the minimum tax regime for supplies, services, under various sections of the ordinance and therefore the ACT only increases the complexity of the calculations,” the KTBA added.


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