On revenue: Services sector bashes 8% tax measure

Says culture of start-ups needs to be promoted.

LAHORE: The service businesses has termed the eight percent tax on revenue as a “draconian law” aimed at destroying the sector that contributes over 53% to gross domestic product (GDP).

“This tax on revenue has put the sustainability of the sector at stake at a time when the cost of doing business is already very high,” said the TUV AUSTRIA Bureau of Inspection and Certifications Limited Chief Executive Rashid Mehr, adding, that in contrast, all industries have been facilitated by giving reduction in corporate tax to 32%.

“The government has ignored the fact that by implementing such a law, it is discouraging new start-ups and future investments in the sector. It is a principle that new businesses are not taxed during their infancy all over the world,” he added.

He said all service sectors including information technology, certifications and inspections, public relations, advertising, marketing, event management, telecom and freight forwarding and clearing, facilitate economy at large will collapse in six to eight months.

“It is noteworthy that the banks, insurance and private transport companies have been exempted from this tax,” he remarked.

Mehr said the taxation rule of thumb says deductions are to be made on profits only. As per the previous practice, all payments received by any service provider were subject to deduction of five percent tax which was later increased to six percent and subsequently to a minimum eight percent on receipts of payment.

However, all service providers could adjust the withheld tax against their actual tax liability. It is shocking that the new amendment to the law requires all service providers to pay minimum eight percent tax on revenue, he maintained. Mehr said the service sector is already paying 32% corporate tax and was recently slapped 16% and 14% GST in Punjab and Sindh, respectively.

Mehr said the government has also ignored another very important aspect while levying this tax ie the difference between a company that has low profit margins with high revenue and a company with high profit margins and low revenue. This law fails to bring equality for different types and scales of businesses.

“The law would force people to rather put their money in banks and earn interest and give way to financial malpractice of undervaluing the revenue just to save something that belongs to the rightful hard working owners,” he added.

Published in The Express Tribune, July 28^th, 2015.

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