ISLAMABAD: The trust deficit between the government and service providing companies could not be bridged and that led to a gridlock in talks held on Wednesday to find a common ground after service providers flatly refused to accept 8% minimum turnover tax, which they termed discriminatory.
The service providers have formed a united front against the government that is already facing growing pressure from traders to withdraw 0.3% withholding tax on banking transactions.
No breakthrough could be achieved during the meeting of a five-member committee that the government had constituted to consider grievances of the services companies in relation to the minimum tax imposed through the Finance Act 2015. Special Assistant to Prime Minister on Revenues Haroon Akhtar Khan chaired the meeting.
Representatives of 10 associations of the service providers appeared before the committee.
When the service providers refused to pay the tax, the government suggested them to increase prices of their services to ease the impact of taxes, according to officials who attended the meeting.
“The (service) sector should be taxed under the regime applicable prior to June 30, 2015 and the tax deducted at source should be adjustable,” said a joint resolution signed by the 10 associations.
Before June 30, they were paying a 6% adjustable withholding tax. The government not only increased the tax but also declared it minimum liability. This highlights the distortion in the tax policy as only 1% minimum turnover tax is collected from the corporate sector.
Representatives of the Pakistan International Freight Forwarding Association, Pakistan Software Houses Association, All Pakistan Security Agencies Association, vehicle tracking, engineering sector, Pakistan Hotels Association, Air Cargo Association of Pakistan, Advertising Association of Pakistan, Courier Council and Human Resources associations signed the resolution.
Independent experts oppose the policy of taxing revenues instead of levying the tax on profits earned by companies and individuals.
The service providers claimed in the resolution that the 10 sectors were working on very thin margins and the 8% minimum tax would force them to pay from their capital, which would lead to closure of their business. The committee had offered the service providers that it may recommend lowering the withholding tax on those sectors that were working on small margins.
The committee had invited the associations to give presentations and justify the reduction in tax rate. However, they were not ready to accept the levy in its present form.
Most of them said they were operating only on 3% margins and paying 8% of revenues in taxes was like closing their business. However, the Federal Board of Revenue insists the profits of service providers were very high. Like in the case of traders, the government is suspicious that the service providers were keeping two separate books aimed at concealing their actual revenues.
According to committee members, only 60% of revenues of courier companies were subject to the 8% minimum tax.
Published in The Express Tribune, September 17th, 2015.
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