Changes made to minimum tax regime through Finance Act 2021

Changes made to minimum tax regime through Finance Act 2021

ISLAMABAD: The Federal Board of Revenue (FBR) has issued explanation to changes made through Finance Bill, 2021 in Income Tax Ordinance, 2001 related to minimum tax regime.

The FBR said that previously, minimum tax on turnover at the rate of 1.5 per cent of turnover was payable by all companies and individuals/ Association of Persons (AOPs) having turnover exceeding Rs. 10 million. This is an alternative tax. It is payable when the normal tax liability in cases of exemption, loss, tax credits or for any other reason, is less than tax payable on turnover basis.

It can be carried forward for adjustment against next year’s tax liability however it cannot be carried forward if person has sustained loss for a year. 4 different types of changes have been made in this regime which are summarized below:

— Generalized reduction in minimum turnover tax paid from 1.5 per cent to 1.25 per cent

— Enhanced threshold for individuals and AOPs from Rs10 million to Rs100 million to pay minimum tax

— Allowing carrying forward of minimum tax for adjustment against normal tax liability even in cases of loss to provide relief to businesses sustaining loss and to maximize equity

Division IX of Part I of First schedule has been substituted as below:

1. 0.75 per cent minimum tax to be applicable on:

(a) Oil marketing companies, Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited (for the cases where annual turnover exceeds rupees one billion.)

(b) Pakistan International Airlines Corporation; and

(c) poultry industry including poultry breeding, broiler production, egg production and poultry feed production

2. 0.5 per cent to be applicable as minimum tax on:

(a) oil refineries

(b) motorcycle dealers registered under the Sales Tax Act, 1990

3. 0.25 per cent to be applicable as minimum tax on:

(a) Distributors of pharmaceutical products, fast moving consumer goods and cigarettes;

(b) petroleum agents and distributors who are registered under the Sales Tax Act, 1990;

(c) rice mills and dealers

(d) Tier-1 retailers of fast moving consumer goods who are integrated with board or its computerized system for real time reporting of sales and receipts;

(e) Person’s turnover from supplies through e-commerce including from running on online marketplace as defined in clause (38B) of Section 2.

(f) Persons engaged in the sale of purchase of used vehicles

(g) flour mills

4. in all other cases the minimum tax rates shall be 1.25 per cent