Author: Hamza Shahnawaz

KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested the authorities to revamp withholding tax regime in order to facilitate compliant taxpayers.

The OICCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) recommended revamping of withholding tax regime, which is one of the key irritants for compliant taxpayers.

READ MORE: FBR proposed to reduce minimum tax rate to 0.25%

In line with the recommendations, the withholding tax regime has been subject to changes, the rationalization of withholding tax on imports and discriminating withholding tax on the basis of status of the payee is a good step towards rationalization of regime. However, there is still large room for improvement. The impact of the withholding tax regime on “Ease of Doing Business” for the large taxpayers is still very significant.

READ MORE: Foreign investors seek reduction in corporate tax rate

WHT regime should be revamped and reduced from existing over twenty-six to five rates only for filers.

Withholding tax should be applicable on inactive taxpayers only, or alternatively:

a) Withholding tax rates applicable on services is 8 per cent minimum tax regardless of the actual taxable income of the service provider. The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.

READ MORE: Tax rates key element to attract foreign direct investment

b) Withholding tax deduction under section 153 (1)(a) of Income Tax Ordinance, 2001 which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list.

Through Finance Act 2021 under section 165 of Income Tax Ordinance, 2001, requirement of filing reconciliation between annual withholding statement and audited accounts is introduced. It has resulted in additional compliance burden on active taxpayers and should be abolished.

Companies appearing in Active Taxpayers List (ATL) and obtained exemption certificate by discharge of full year tax liability in advance should be dispensed with requirements to obtain separate withholding tax exemption certificates under sections 151, 234, 235, 236, 236G and 236H.

READ MORE: KTBA recommends separate tax fraud proceedings

Payments to non-residents cannot be processed without obtaining exemption certificate from Commissioner (within 30 days of request). To facilitate timely payments the period of 30 days under 152(5A) shall be curtailed to 15 days and in the absence of any confirmation within 15 days request shall be deemed to approved.

The following clarification to be inserted after clause 153(7)(iii), to provide tax neutrality for assets financed by Islamic banking of conventional vis- a vis conventional banks.

READ MORE: FBR urged to remove irritants in sales tax refund

“For the removal of doubt, it is clarified that any goods delivered under an Islamic mode of financing by a bank or financial institution approved by the State Bank of Pakistan or the Securities Exchange Commission of Pakistan, shall not be considered as sale of goods for the purpose of this section.”

KARACHI: Federal Board of Revenue (FBR) has been proposed to reduce the general rate of minimum tax to 0.25 per cent.

The Overseas Investor Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 advised the FBR to review minimum tax regime (MTR) / abolish alternative corporate tax (ACT) under Section 113 and 113C of Income Tax Ordinance, 2001.

READ MORE: Foreign investors seek reduction in corporate tax rate

The OICCI recommended that the general rate of Minimum Tax under section 113 of ITO 2001 should be reduced to 0.25 per cent.

For businesses dealing in sectors with high turnover and low margins, (eg. Oil Marketing/ Refineries/ LNG Terminal Operators, large chemical companies, authorized dealers of local vehicle manufacturers, distributors, and traders, including large trading houses), this rate should be applicable on gross profits instead of turnover.

READ MORE: Tax rates key element to attract foreign direct investment

All streams of income including income of commercial importers should be taxed under the normal tax regime. Special tax regimes should only be restricted to non-corporate or in-active taxpayers.

Alternative Corporate Tax under section 113C should be abolished in presence of Minimum Tax under section 113.

READ MORE: KTBA recommends separate tax fraud proceedings

The OICCI earlier proposed that the FBR should continue the previously announced policy to annually reduce the tax rate from 29 per cent to eventually to rate of 25 per cent, including banking companies.

The corporate tax rate in Pakistan, at 29 per cent is higher than most of the regional countries, as can be noted from the table here.

Companies are required to pay various taxes in addition of income tax i.e., WWF (2 per cent), WPPF (5 per cent), Stamp Duty, Infra structure Cess (1.2 per cent) etc. which ultimately result in effective tax rate of around 35 per cent to 45 per cent which is far greater than effective tax rates of other countries in the region.

READ MORE: FBR urged to remove irritants in sales tax refund