KARACHI: Pakistan Business Council (PBC) has identified anomalies in minimum tax rates and demanded the levy should be abolished.
In its budget proposals for 2021/2022 submitted to the Federal Board of Revenue (FBR) the council said that the rate of minimum tax of 1.5 percent is extremely high and unrealistic.
It identified that as per the judgment of the Sindh High Court in case of Kassim Textile, carry forward and adjustment of Minimum turnover tax is not allowed in cases where the taxpayer reports loss. On the other hand, Lahore High Court, in case reported as 2019 PTD 1994, minimum tax, even in case of loss year, is allowed to be carried forward for adjustment.
Income Tax Law prescribes that ‘income’ of the Zone Enterprise (located in Notified SEZ) is exempt from tax for 10 years. However, no explicit exemption is provided from Minimum Tax (payable under section 113 of the Income Tax Ordinance, 2001) to Zone Enterprises. SEZ Act, 2012 is a special law governing SEZs and Zone Enterprises granting exemption from all income taxes (which include Minimum Tax also), however, due to ambiguity, tax department does not allow exemption from minimum tax to entities operating in SEZ.
Section 65D/65E of the Income Tax Ordinance, 2001 provides exemption for 5 years from all income taxes [including minimum tax and final tax] to company formed for operating a new industrial undertaking. On the other hand, no such benefit has been provided to an existing company investing for Expansion or extension to achieve benefits of large-scale manufacturing
Therefore, the PBC proposed that in order to promote industrialization, Minimum tax should be abolished for all listed companies as these companies are subject to stringent regulations and audit. For other companies, rate of minimum tax be reduced gradually by 0.2% on an annual basis so that by Tax Year 2025 the rate is 0.5%.
Moreover, in order to streamline the mechanism of carry forward and adjustment of Minimum tax, minimum tax should also be allowed to be carried forward for adjustment in subsequent years even in case of losses.
Exemption from minimum tax to all companies operating in SEZ In line with the tax credits under sections 65D/65E, in order to achieve economies of scale to compete with international suppliers, allow exemption for 5 years from all income taxes [including minimum tax and final tax] on income generated from expansion / extension / BMR projects by an existing industrial undertaking subject to the condition that the minimum investment in such extension / expansion project should not be less than $15 million