Senate panel opposes exempting parties from income tax

Committee also snubs proposal to put additional burden of Rs10b on salaried class

Shahbaz Rana June 19, 2021
The government has imposed new taxes on almost every important consumable and daily use item, including sugar . STOCK IMAGE


Senate panel on Friday rejected a proposal to exempt political parties from filing returns and paying income tax.

The Senate Standing Committee on Finance directed the authorities to submit the details of 14 other entities, which had also been exempted from the purview of the tax law.

It also opposed the government’s budget proposal to put an additional burden of Rs10 billion on the salaried class by withdrawing tax exemptions on their allowances.

Headed by Senator Talha Mehmood of the JUI-F, the committee continued discussions on the Finance Bill 2021.

“Giving political parties exemption [from filing returns] is damaging for their standing in the eyes of the people,” said MQM-P’s Senator Faisal Subzwari.

At one stage, the standing committee had quietly endorsed the exemption and moved to the next clause but changed its decision only after Senator Subzwari highlighted the issue.

The part one of the second schedule exempts incomes of entities and individuals from tax.

Political parties have been included in table one of the clause 66, which lists the entities exempted them from the requirement of filing annual income tax returns and wealth statements.

Senator Saleem Mandviwalla of the PPP contended that under the Constitution, political parties were exempted from filing income tax returns.

Tariq Chaudhry, Federal Board of Revenue (FBR) Inland Revenue Policy member, maintained that a political party was an entity taxable under the Income Tax Ordinance.

“In India, political parties are exempted from paying taxes but they are not exempted from filing annual returns,” he added.

There are 127 political parties registered with the Election Commission of Pakistan (ECP) include the PTI, PML-N, PPP, MQM and JUI-F.

Dr Ikram Ul Haq, a leading tax expert while speaking on Express News show, The Review, said only two of them had filed their income tax returns with the FBR.

Read Political parties exempted from filing income tax returns, paying taxes

He added that the heads of these political parties should have been served notices for their failure to file returns.

The standing committee chairman directed the FBR to submit the details of 14 other departments and organisations that had also been exempted from paying income tax. The matter will be taken up again on Monday.

These entities include Islamic Naya Pakistan Certificate Company, Abdul Sattar Edhi Foundation, Indus Hospital, Privatisation Commission of Pakistan, Fauji Foundation, Securities and Exchange Commission of Pakistan, Sundus Foundation, Ali Zaib Foundation, Audit Oversight Board, Make a Wish Foundation and the Citizens Foundation.

“Fauji Foundation is not a charitable organisation and its income should not be exempted from tax,” said Senator Mohsin Aziz of the PTI.

The sources said that there was also pressure on the FBR to exempt the Space and Upper Atmosphere Research Commission (SUPARCO) from income tax.

They added that SUPARCO, through Pak-Set, was providing satellite services to various companies and earning profits that the FBR wanted to tax.

The committee also asked the FBR to present the court order in next meeting on the basis of which it had exempted donations to the PM’s Dam Fund from income tax.

The Senate panel rejected the proposal to slap an additional taxes of Rs10 billion on the salaried class by withdrawing their exemptions on medical treatment, various allowances and their savings in provident and pension funds.

Dr Najeeb Ullah Malik, the FBR Inland Revenue Policy chief, said according to the budget, duty performance allowance was proposed to be taxed.

PPP’s Senator Farooq Naek argued that it was unfair to tax the allowance of the salaried class, particularly at a time when they were exposed to inflationary pressures.

The Pakistan Business Council has demanded that the government should withdraw the proposal to tax medial expenditures.

The FBR has estimated Rs1.8 billion in revenue by imposing tax on medical reimbursements.

It is almost equal to Rs2 billion revenue loss that the government would sustain due to the proposed reduction in the capital gains tax (CGT) on the trade of securities at the stock market.

The government has reduced the CGT rate from 15% to 12.5%.

The standing committee opposed imposing tax on seafarers, working on Pakistani flag vessels for 183 days or more during a tax year.

It also rejected the proposal to impose 10% tax on income of over Rs500,000 from provident fund contributions.

The profit on debt exceeding Rs500,000 shall be chargeable to tax at the rate of 10% as a separate block of income.

The government has also proposed that the profit on debt (from pension funds) shall be chargeable to tax at the rate of 10% as a separate block of income, which the standing committee rejected.

The committee put off its decision on the government’s proposal to impose 17% tax on the sales of LED bulb and energy savers.

The budget proposal is against the government’s three-year-old policy that sought the promotion of LED energy equipment.