KARACHI: Tax practitioners have recommended to abolish alternative corporate tax (ACT) in the budget 2021/2022 as the levy is increasing cost of doing business.

The tax bar in its proposals for the upcoming budget 2021/2022 recommended to abolish the ACT.

As per section 113C of the Income Tax Ordinance, 2001, tax payable by company subject to tax under Division-II Part-I of 1st Schedule or minimum tax shall be higher of corporate tax or ACT.

The tax bar said that it was increasing cost of doing business and regressive taxation.

Therefore, the KTBA proposed that ACT Should be abolished.

There is already a minimum tax regime which imposes tax on the gross turnover U/s. 113, alongside minimum tax regime for supplies, services, under various section of the Ordinance and hence ACT is only increasing  the complexity of the computations.

Besides, the KTBA has also recommended to reduce the minimum tax rate.

Currently rate of minimum tax is 1.5% of the turnover. The threshold for turnover in case of individuals and AOPs was decrease from Rs50 million to Rs10 million by the Finance Act, 2016.

It resulted in increased cost of doing business and regressive taxation.

The KTBA proposed that minimum tax on listed companies should be abolished and in case of other cases the rate of minimum tax should be gradually reduced by 0.2 percent annually so that by tax year 2025 the rate shall be reduced up to 0.5 percent. The threshold of turnover should be increase to Rs50 million.

Moreover, minimum tax should also be allowed to be carried forward for adjustment in subsequent year even in case of losses.

The receipts now brought under Minimum Tax (from Final Tax Regime) should be exempted from this minimum tax.

Removal of minimum tax will promote industrialization. Decrease in turnover threshold will result the true declaration of turnover and created hardship for taxpayers, the tax bar added.

KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday presented proposals for budget 2021/2022 to the Federal Board of Revenue (FBR).

In its proposals the KTBA said that the tax-to-GDP ratio was a soaring issue for country’s economic managers. “On the other hand, tax measures undertaken in Pakistan have traditionally created higher taxation on formal economy and under taxation on information economy,” it added.

Primarily, it is because of over dependence over withholding tax regime as well as due to higher tax expenditure and concessions/exemptions.

In addition to above many studies have concluded that there are gap in agriculture and property income in Pakistan which otherwise are under-taxed hence misused.

“Besides, there are distortions in collection of General Sales Tax on goods and services and full tax collection on this core is yet to be exploited,” it added.

In addition to above, a host of tax exemption/concessions have already been withdrawn by way of Tax Laws (Second) Amendment Ordinance, 2021 which was believe will become part of budget proposals.

It is however the country needs a lot more drastic measures to bring its tax to GDP ratio at desired level.

The KTBA suggested that federal and provincial governments should harmonize their differences in order to remove the gaps and distortions and to improve tax collection from agricultural, property and GST.

The tax bar said that the proposals were completed keeping in view following features and categories:

— Salvaging the manufacturing sector

— Proposal for salvaging the corporate sector

— Taxation and withholding tax regime under Section 148 and 153 of Income Tax Ordinance, 2001.

— Proposals regarding taxation of property income

— Capital gains taxation on securities

— Proposal for changes in taxation of salary income

— Proposal for changes in taxation of non-residents

— Proposal for change in Non-Profit Organizations

— Withholding tax provisions

— Proposal for Appellate proceeding

— Proposal for departmental proceeding

— Proposal for simplifying filing and other periodic compliance

— Broadening the scope and equitable of the law.

KARACHI: Karachi Tax Bar Association (KTBA) on Tuesday suggested reduction of corporate tax rate to 25 percent from existing 29 percent in order to promote documentation of economy and discouraging tax evasion.

The KTBA in its recommendations for the budget 2021/2022, stated that currently corporate rate of tax in Pakistan is 29 percent which due to Workers Welfare Fund (WWF) and Worker Welfare Participation Fund (WWPF) goes up to 36 percent which is higher than the average tax rate in Asia i.e. 21.32 percent.

The higher corporate rate is increasing cost of doing business and regionally uncompetitive position.

The KTBA proposed that the corporate rate of tax should be decrease up to 25 percent by gradually decreasing 1 percent every year.

The rate of tax on small companies should also gradually be reduced to 15 percent.

Income of WPPF should be exempted from tax. The excess of WPPF as deposited in WWF fund should be also as a credit against WWF levy.

The KTBA said that the high rate of tax is encouraging tax evasion and discouraging documentation of economy and corporatization.

It is also disincentive for foreign and local investment, it added.