Services industry: Committee formed to address complaints

Government has imposed 8% minimum tax on sector’s turnover

Shahbaz Rana September 03, 2015


Amid growing resentment against the imposition of 8% minimum tax on the ’s turnover, the government, on Thursday, constituted a committee to resolve the grievances of the stakeholders who have termed the levy a ‘draconian’ act.

Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan will head the five-member committee that will comprise Asim Zulfiqar and Ashfaq Ahmad Tola; chartered accountants, Naveed Andrabi; an advocate and a senior member from the Federal Board of Revenue (FBR).

Naveed Andrabi has already filed a petition in Lahore High Court (LHC) on behalf of the service providers against the 8% minimum tax.

“The inclusion of Asim Zulfiqar - a chartered accountant by profession - raises eyebrows, as he was among those behind the move to introduce changes in the minimum tax regime in June this year,” said sources in the FBR.

Finance Minister Ishaq Dar constituted the committee, which will finalise its recommendations for resolving the issues within two weeks, according to a handout issued by the Ministry of Finance. However, he did not take any action against those FBR officials who suggested legal changes in June to declare the 8% turnover tax as minimum liability of the service providers.

The changes were brought through the budget approved by the National Assembly two months ago. On June 5, the government had proposed an amendment into section 153 of the Income Tax Ordinance aimed at allowing the telecom companies to claim tax refunds from 2009.

According to the proposal, the FBR proposed allowing telecom companies to claim adjustments on 8% advance income tax. However, the Federal Tax Ombudsman thwarted this move and the FBR had no option but to withdraw the June 5 amendment.

In retaliation, the FBR made some other changes in section 153, which the National Assembly subsequently approved, forcing the service providers to pay 8% of their total revenues as minimum tax.

The 8% minimum tax has denied service providing companies the right of getting tax adjustment against their actual liabilities and now they are agitating against the levy.

They are demanding the 8% tax to be declared adjustable, which will allow them to claim refunds if their income is below the amount they paid as minimum tax.  However, for bringing any change in the existing regime, the government may have either to promulgate an ordinance or introduce a bill in the Parliament.

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.

The telecom companies always influenced the decision making of the FBR through their tax consultants.

FBR Chairman Tariq Bajwa informed the minister that the various services sectors had different financial profiles for arriving at their income, said the Ministry of Finance.

The service businesses have termed the 8% tax on revenue as a “draconian law” aimed at destroying the sector that contributes over 53% to total national output.

All service sectors including information technology, certifications and inspections, public relations, advertising, marketing, event management, telecom, freight forwarding and clearing among others are protesting against the levy.

They have complained that the government has ignored the difference between a company that has low profit margins with high revenue and a company with high profit margins and low revenue.

Published in The Express Tribune, September 4th,  2015.

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