Tax proposal: Service providers to pay 8% of revenue as minimum tax

NA to take up proposal today that will increase tax burden on telecom companies

ISLAMABAD:

In a move that may cause jitters for the telecom industry, the National Assembly may today (Tuesday) pass a tax proposal that will force all service providers to pay 8% of their revenues as minimum tax.

However, the positive aspect is that the country is saved from losses of billions of rupees on account of backdated refunds that the Federal Board of Revenue (FBR) could have given to some influential companies.

According to the revised Finance Bill 2015 that will be tabled in the National Assembly on Tuesday, the government has withdrawn an amendment to Section 153 of the Income Tax Ordinance of 2001, which had been proposed on June 5. The amendment was aimed at allowing telecom companies to claim tax refunds from 2009 – a move that is thwarted by the Federal Tax Ombudsman.

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The FTO wanted the FBR to treat the service providing companies on a par with individuals and the Association of Persons whose advance income tax is treated as minimum liability.

According to the June 5 budget proposal, the FBR had proposed that telecom companies should be allowed to claim adjustments on 8% advance income tax. The proposal was also aimed at giving backdated refunds to telecom companies from 2009.

Sources said the FTO agitated against the move, which was aimed at giving benefits of billions of rupees to the companies. After that, the government withdrew the amendments to clause 153 of the revised Finance Bill 2015.

If the National Assembly approves the revised proposal, the service providing companies will be forced to pay 8% of gross revenue in taxes. This is expected to increase their tax liabilities as earlier they were paying taxes on net profits, said officials in the FBR.

If approved, the FBR would charge 8% of revenues in taxes from July 1.

The proposal to charge 8% tax as minimum liability was not part of the Finance Bill 2015 that the finance minister tabled in the National Assembly on June 5.

The last-minute amendment will deny the service providing companies the right of getting 8% tax adjustment against their actual liabilities. Although the proposal will increase the tax burden of telecommunication companies, the FBR was simply following directives of the FTO, said the officials.

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The FTO had passed an order, asking the FBR to treat the tax withheld on payments received by a company as minimum tax.

At present, the FBR is treating the 10% advance income tax paid by the Association of Persons and individual tax as minimum tax.

The issue of treating advance income tax as minimum, final or adjustable tax for the service providers dates back to 2006 when tax authorities wanted to make the advance income tax final liability of the telecom companies.

Three years later, the FBR declared that the advance income tax will be the minimum tax for the service providing companies.

Again, in 2011, the FBR through a Statutory Regulatory Order (SRO) allowed the companies to claim adjustments against the advance income tax. Since then, the companies have been claiming adjustments, said the officials of the FBR.

Through SRO 1003 of September 2011, the government inserted Section 79 into Part III of the Second Schedule. It allowed the companies to claim adjustments.

Terming the adjustment mal-administration, the FTO has passed an order, asking the FBR to withdraw Section 79 from the Second Schedule and start collecting advance income tax from the telecom companies as minimum tax, said the officials.

Instead of agreeing to the FTO’s proposal, the FBR in the Finance Bill proposed an amendment in Section 153 of the Income Tax Ordinance 2001. Through the amendment, the FBR not only transported the 2011 amendment in the schedule into the 2001 Ordinance but also allowed adjustments from tax year 2009.

Published in The Express Tribune, June 23^rd, 2015.

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