Money bill: Tax concessions for services sector come under fire

Senate panel chairman says minimum tax is against the law

ISLAMABAD: Amid concerns over frequent use of presidential powers to change laws, a Senate panel on Monday deferred voting on a bill that the government tabled for giving permanent legal cover to a concessionary tax regime for the services sector that was announced through a presidential decree.

The Senate Standing Committee on Finance and Revenue expressed concern over the government’s policy of changing laws by promulgating ordinances.

Headed by Senator Saleem Mandviwalla of the PPP, the committee also found flaws in the tax regime that the government implemented in October through a presidential ordinance.

“The spirit of collective wisdom accorded in the constitution has been compromised due to frequent issuance of presidential ordinances,” said Senator Mohsin Aziz of the Pakistan Tehreek-e-Insaf. In the last two and a half years, the PML-N government has promulgated 25 ordinances.

However, the committee put its weight behind a loan write-off scheme for widows whose deceased husbands had obtained loans from the House Building Finance Company but could not pay off the debt.

Subject to approval of the finance ministry, the scheme will be offered in cases where the loan is not more than Rs1 million and the mortgaged property area does not exceed 250 square yards.

The committee recommended to the Ministry of Finance to provide Rs800 million for writing off loans of about 5,000 widows.

The government has placed the Income Tax (Second Amendment) Bill 2015 in parliament for giving a permanent legal cover to the new tax regime for the services sector.

In October, the government and representatives of 12 sub-sectors of the services sector reached a win-win agreement over the 8% minimum tax that had been imposed in July this year.

The minimum tax, charged on the revenue generated from services, is paid regardless of the overall profitability of an enterprise. The adjustable tax, similarly, requires the services sector to pay part of the revenue, but the payment may be deferred in unprofitable years.

Under the new agreement, two options were given to the 12 sub-sectors that approached the government.

Under the first option, a company would pay a minimum 2% tax and be subject to an audit. Under the second option, the company will pay 8% adjustable tax and will have the option to carry forward the loss and tax for a period of five years.

Mandviwalla said, “Restricting the benefits of the special arrangement to only 12 sub-sectors is discriminatory and the new regime should apply to the services sector as a whole.”

However, Federal Board of Revenue (FBR) Chairman Nisar Mohammad said only these sub-sectors agitated against the tax regime and no other sector had so far approached the FBR seeking relief.

The standing committee chairman also objected to the setting of the minimum tax rate at 2%, saying the standard rate for the industry dealing in goods was 1% and this should also apply to the services sector.

“The concept of minimum tax is against the spirit of the income tax law as someone will have to pay this tax even if he is running in losses,” said Mandviwalla.

Till June 30, the minimum tax rate was 1% for the services sector. The committee also objected to implementing the agreement from July this year despite the presidential ordinance being promulgated on October 30. The Ministry of Law and Justice also supported the committee’s views, saying the proposed law cannot be implemented from July this year.

The committee would further deliberate upon the language of the Bill before it exercises the vote.

The government has introduced the income tax second amendment bill as money bill. In case of money bill, the Senate’s recommendations are not binding on the National Assembly.

Published in The Express Tribune, December 22^nd, 2015.

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