PHOTO: FILE
Though good for revenue generation, the move carries adverse implications for the businesses, particularly for the manufacturing sector. It would also have implications for the Pakistan Stock Exchange (PSX) as it would directly hit earnings of listed companies.
The change - first amendment
According to the Finance Bill 2016, in Section 4B, the government has proposed two amendments. Through the first amendment, it has proposed extending the super tax by another year, ie fiscal year 2016-17, although all the big businesses and multinational companies are opposing the levy.
In the last budget, the government had imposed 4% special one-time levy on profits of banks and 3% on all other companies and individuals earning Rs500 million or more annually. It claimed that the tax had been introduced for just one year to meet security needs of the TDPs.
JUI-F Senator Talha Mahmood on Friday questioned the government’s credibility as Finance Minister Ishaq Dar had promised the tax would be levied only for a year.
“The extension of super tax was punitive for large taxpayers. The social service has been made a burden on them,” he said while speaking at a meeting of the Senate Standing Committee on Finance.
He also said the FBR had indirectly increased the corporate tax rate to more than 35%, in addition to adverse implications of disallowing businesses losses and depreciation. Mahmood proposed the super tax should be made progressive but he could not muster support of his fellow senators.
For the new fiscal year 2016-17, the government has allocated Rs100 billion in the name of TDPs, however, Rs45 billion of it would go to the military to meet operational expenses.
Second amendment
Through the second amendment in the same Section 4B, it has been proposed that after the word income, occurring for the first time, the expression “other than depreciation losses and business losses” will be inserted.
The National Assembly will vote this week to make the Finance Bill a law.
By proposing this clause, the government has disallowed adjusting business losses and cost of depreciation of plants and machinery against the company’s current year’s income.
“This is a discriminatory treatment being meted out to the big businesses,” remarked a legal and tax expert. “The government should have disallowed the adjustments of business losses and depreciation only to the extent of past year.”
Big industrial units like textile and fertiliser plants claim hundreds of millions of rupees in depreciation each year, which the government would now treat as their income.
Legal experts, terming this move unjust, said the better approach should have been to add a new section, which would clearly explain that ‘an income would mean income without prior year business losses and depreciation.’
This change in definition would generate an extra Rs10 billion, increasing the total super tax collection to roughly Rs35 billion, said sources involved in the budget-making exercise.
“Credit against business losses and depreciation is not someone’s inherent right,” said FBR spokesman Dr Mohammad Iqbal.
He said such facility had been given under the law, which the government wanted to withdraw for the current year as well. “The tax law is always discriminatory.”
Iqbal did not give a precise figure but said the withdrawal of the lawful facility of adjusting business losses and depreciation for the current year would definitely increase the government’s revenue.
Published in The Express Tribune, June 14th, 2016.
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